A Stronger BNT = A Major Component Towards Repairing Bancor

Yes I do understand that the vortex does target these users, and in my opinion, I am suggesting that these specific users are more than likely long term bancor users who more than likely do not have the intentions of selling their bnt in the short term.

It is good that the vortex is able to buy vBNT for a cheaper price and lock away BNT in the future from being sold, but I cannot help but think that long term this is good, but in the short term while we are in the situation we are, this is not helpful.
If the price of vBNT has not been going up against BNT with all the vortex purchases during the past few months, then why not, for a trial period, simply burn the BNT directly instead and remove BNT from the free floating supply ( since the vBNT lps are already locked in with IL and probably wont unstake anyways )

if the price of BNT increases due to the vortex purchases, and the gap increases between vbnt - bnt, then sure, lets go back to burning bnt, and when this happens, burning vBNT will give an even greater return

but for the time being, raising the price of BNT should be the main priority, not removing the future supply of BNT.

furthermore after long thought, regarding fee generation schemes

I will never approve of my funds being put to use via various fee generation methods unless it is from native network staking. Use of users funds being put to use in other defi platforms etc to generate yield is far too risky and should never be implemented.

rather, focusing on raising the price of BNT via new mechanics , vortex burning bnt directly , and perhaps if the brains here can solve the unsolvable and create a way for the protocol to MEV its own users and profit from them instead of an outsider, then great do so. I do not believe the team here is capable of creating this. So in the short term, we need to place a greater emphasis on the BNT token itself first and foremost before getting side tracked with everything else being proposed. A mass creation of BNT and a mass selling of BNT got us into this mess, and a strong BNT revival can get us out of this mess.

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Another thing to consider, the AMMs of old do not offer what the AMMs of today do. Fee generation schemes will not make bancor more attractive than the new AMMs being built which offer bridge solutions like stargate, or privacy like aztec or other revolutionary tech that will draw the attention of crypto users.

Strengthen BNT by implementing new features for the token, which will increase demand for the token, which will bring in new users and lps, which will increase trading volume and TVL which will eventually lead to repairing the deficit.

and after these steps are done, rather than wasting time on fee generation schemes for the platform to generate revenue, which literally NO ONE will care about because it does not benefit the user in any way shape or form, then perhaps the contributors and dao can focus on other, more up to date ideas that can improve bancor.

If bancor continues to simply do the same thing, and allow users to trade from x tkn to xtkn and have bnt being used in the middle to faciliate the trades… then… yawn… boring… next… is what the next wave of defi users will think

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OK, a few random thoughts around BNT and how I see it interacting with the market / DeFi community.

By collecting a % of trading fees, Bancor has a good income stream. One that benefits from market volatility and is not reliant on BNT holders activities.

Increased BNT price (vs $ / ETH / DeFi) is good as it reduces the IL in the Omipool, and the higher TLV should generate more $ fees.

Burning tokens is not considered favourably by many crypto thought leader / CT etc (See MakerDAO). However, a constant buying pressure is good, and we have one from fees (even if it is largely obscured).

Burning vBNT may be the most cost effective method of locking BNT into the protocol and so the best long term economic hit for the protocol.

However, very few people understand how the vortex works. So when we say x,000 vBNT burnt, it means nothing to them.

Parking BNT in a DAO treasury also produces little impact on outside perception of $BNT value as they have seen recent BNT printing for IL protection.


I think the key to Bancors long term success is regaining LP confidence so that they will deposit assets with us. At the moment many of them are trapped by IL and we are bleeding the majority of the fee income into Bancor. So it’s going to take time to rebuild our reputation.

However, long term, we need new LP’s who will expect yield and the ability to redeem.

The good news is that I think many people have realised that the days of double digit yields are over.

Somethings we can do:

  • Highlight that we haven’t collapsed or run away.
  • Highlight the Fee income to the protocol.
  • We should be on cryptofees.info and showing we generate more income for Bancor that many protocols.

I’m wondering if rather than burning the BNT we have collected we should sell it for DAI and / or ETH. We get a selling pressure on BNT, but we build a non BNT reserve.

Then we can start thinking how we can best use these assets to strengthen the protocol and our reputation:

  • Hold as a reserve.
  • Allocate the DAI / ETH as IL protection on selected pools (smaller TLPV / long tail tokens where we can dominate market liquidity). This restores some LP confidence, and builds a narrative for long tail tokens. Obviously covering the larger (ETH, LINK, Stable coin) pools would not be possible for what could be a significant time. But it all helps.
  • Eventually use the reserve to compensate those who took a IL hit when they withdrew.
  • Deposit into the Bancor liquidity pools to improve our trading depth.

Maybe we do a hybrid approach: 20% vBNT burn, 40% DAI and 40% ETH. :thinking:


One final thought, what if we set the vortex on BNT deposits to 0%.

Then BNT would be showing >3.5% LP fee (and No IL is possible).

Would that attract people to buy and stake BNT?

If that is the case, what else can we do to build staked BNT income (without issuance)?

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I don’t understand this, if we know that this is good for the long term health of the protocol why do we think that we need to do something else? I am all for continue to use the vortex until it is not economical and I think this is when it is close to a vBNT-BNT rate of 1 or above 1 as has been mentioned in other threads. From what I can tell, the current rate is .85 at the moment based on the dune chart and there is some more to go before we get there.

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lets run through this

so when the vortex sells bnt for vbnt, it locks away bnt.

whose bnt does this lock away? _____ the bnt of the vbnt lp

the current vbnt lp’s will not be removing their positions and selling their bnt in the short term. they have suffered from IL just like everyone else and they are trapped in. ← the vortex is targeting their bnt

I would rather have circulating supply of bnt being removed rather than further trapping in the vbnt LPs ( which at some point, these guys will also expect to be reimbursed in some way for the IL that they received… which is totally another basket case on its own )

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Thanks for posting this.

Lots of interesting ideas here.

highly appreciated.

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Thanks @foxsteven

I’m still working through my mental model, and I think the easiest way is to write about it. Doing so in public allows others to join in / point out my fallacies.


The best way to remove the Ominipool deficit is for BNT to outperform the other tokens.

There are two main mechanisms to do this:

  1. Fee capture and burning so that we pull BNT out of the pool relative to the other tokens and so pull the price up.
  2. Get people to buy and stake BNT

I get the impression that most of the work to date has been focused on 1:

  • Stopping BNT issue for IL protection - severe brake on withdraws for many pools.
  • Optomising pool fees - ongoing work.
  • increasing vortex % take to increase BNT
  • Other ways to gain income.

However, this is a step hill to climb. $39 M USD deficit on $44 M TLV when we are collecting ~$10,000 per day. And this is a case where BNT having massive liquidity on chain hurts us: it takes a lot of buying to move the BNT price.

I could argue that performance vs stable coins is more related to overall market trends (i.e. if CRYPTO doubles in the next 12 months, and BNT follows the market, we will wipe all the IL on stable coins pools without doing anything…). So ~ $11 M of the problem is dependent on the general market. But we still have $27 M to work on…


So, how do we get people to buy and stake BNT?

Bancor / BNT’s reputation is not great at the moment. Over 12 months we are down 76% vs ETH while DPI is down 52%. So we have dropped 50% relative to ~Defi (lets not get side tracked into how DPI is a poor index for DeFi…)

BNT vs ETH over 12 months

DPI vs ETH over 12 months

However, as far as I know, BNT stakers don’t suffer IL loss when they withdraw BNT. (as BNT has not lost any value compared to BNT). So BNT is actually the safest token to stake in Bancor: you are only exposed to price movements.

For me, this implies that anyone who wanted to sell BNT in June (either to exit the project, or buy back lower when further IL protection was minted ) has done so.

However, I don’t think many people have an appetite to buy BNT at the moment. Personally, I’m letting my BNT stake ride in the hope that we pull off the recovery I think we can. However, I’m not adding any more $ to my BNT position. [Personally, I’m unwinding other positions to get more ETH].

So, how do we encourage others to buy and stake BNT?

  1. We have to stop the rot in BNT price - largely done.
  2. We have to offer a BNT yield that becomes attractive.

I do not think that a 0.39% BNT yield is attractive.

I think that if we removed the vortex on B3 BNT so that the yield was ~ 3.9%, then some people would start thinking about buying and staking BNT. Obviously higher fee capture / more market volatility will help.


So what about TKN stakers?

For individual taken stakers, I think the only rational thing to do is withdraw from Bancor as soon as the pool is in surplus.

  1. If TKN pumps vs BNT, then they get trapped by IL.
  2. YIelds are pathetic due to a combination of low market volatility and high vortex % take.

So the risk-based return is poor.

I currently have $INDEX in Bancor. Since May $INDEX has actually underperformed BNT :roll_eyes: . So, the pool is in surplus. However, at times it has been in deficit so I was locked in with a ~10% exit penalty.

In May, I was in the INDEXcoop forum telling people about IL-protected 5% yields on bnINDEX and that they should consider it. I would not recommend that anyone deposits INDEX into BNT at this time.

Note, the economics are different for protocols depositing their governance token, they may well have a longer-term view and be more focused on the benefit of DEX liquidity rather than the ability to exit. (However, they don’t want to see $BNT drop in price as that will effectively dump all their governance tokens onto the open market).


So what happens when $BNT price outperforms TKN’s?

Personally, I think people will withdraw TKN.

Say we x2 vs ETH over the next 6 months. The deficit vanishes. bnETH earns 0.04% and has the risk of IL if BNT drops vs ETH. Meanwhile, AAVE aETH is earning 1% and is always redeemable vs ETH at par?

Where would you put your ETH?

So, if we are successful in building $BNT price, we risk loosing TKN deposits / TLV.

Now a 2x vs ETH may take some time, but 2x vs USD could be achieved by a general bull market for ETH, BTC, LINK and make the stable coin pools IL free while earning ~0.4%.

My concern is that if we lose the ETH, wBTC and stable coin TLV, then our performance as an AMM suffers greatly.


So, what can we do?

Personally, I think the roadmap looks like:

  1. Stop the rot - Done by stopping IL protection minting BNT.
  2. Increase income - in progress for % fees optimisation and other methods.
  3. Strengthen BNT price - this discussion.
  • Personally I’m in favour of reducing vortex on BNT so BNT yields increase.
  1. Maintain TKN balance as BNT value grows and deficits vanish on pools.
  • Personally, I think this means we will need to reduce the vortex % on some pools (can we be selective?) so yields increase and build a non-BNT reserve for IL protection to build LP confidence.

A couple of extra points:

  • I don’t think minting / using BNT for IL protection is the way forward. It may actually work economically, but will LP’s trust it a second time?
  • I don’t see any need to mint BNT for LP rewards, we should be able to generate yield from fees.

Please note, that I’ve not done any number crunching / analysis on this. It’s just how I see the liquidity moving as prices change and pools come out of deficit.

Some additional analytics that could be interesting:

  • BNT flows in and out of B3 staking over time - what are BNT holders doing? Are we seeing an accumulation by historic holders, new BNT stakers?
  • Are we seeing anyone accumulating BNT?
  • TKN flows in and out of bnTKN - do LP’s withdraw from pools when they switch from deficit to surplus?
  • Are we seeing much TKN being unstaked under deficit?

Finally, are we doing any market research interviewing BNT and / or TKN stakers?

  • What do they think about the current situation?
  • Do they plan to unstake TKN? If so, when?
  • What would get them to stake more BNT / TKN?
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Thanks for writing all of this up man, all good things to think over. I’m the same way, I have to just write it all out to help me think.

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OK,

How about we put BNT yield on steroids:

  • Set B3 vortex for BNT to 0% ~ 3.5% APY for BNT stakers.
  • Keep B3 vortex for TNK LP’s at 90% and transfer the BNT collected to BNT stakers (effective adds another 3.5% to bnBNT yields)
  • Take the ~650 K BNT collected by the B3 vortex to date and auto compound it for BNT stakers over 2 months.

~650,000 BNT placed into the staking contract (~45 M BNT) so ~ 1.3%. Then burn the BnBNT over 2 months so ownership of the underlying BNT transfers to current BNT stakers at a rate of ~ 7.8% annualised.

For 2 months we get (3.5% + 3.5% + 7.8%) = 14.8% yield on BNT then we drop back to ~ 7% BNT yield.

Accompany it by publicizing the BNT yields in the native token for the next 2 months - “non incentivised yield”

Basically, BNT takers get ~95% of B3 swap fees to boost the BNT rewards and encourage more people to buy and stake BNT.

Burning BNT won’t make anyone buy BNT on the open market. Returning it to BNT stakers may get people to buy and stake → BNT price climbs.


BNT in the v2.1 vortex can be burnt or used to buy and burn vBNT.
B3 vBNT from staking the 650 K can be burnt (no impact), or held in reserve to sell vs BNT (which defeats the purpose of buy and burn vBNT…)

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Staking the 650k BNT would have no effect for the protocol. Staking it would only reduce the protocol owned BNT by 650k, in the end the protocol would earn the same amount. Then what you suggest is LM.

I agree. Staking the protocol BNT collected from fees has no impact on how the AMM work / TLV of tokens.

What I was trying to describe was that we use the auto compounding function in B3.

My understanding is:

  1. The DAO takes the 650 K, collected from fees and stakes them - this has no great effect other than generating ~650 K bnBNT and ~650 k vBNT.
  2. The DAO take the bnBNT and puts it into an Auto compounding contract.
  3. The contract burns the bnBNT. This has the net effect of making the remaining bnBNT gain BNT. i.e. all the other BNT stakers gain BNT without doing anything.

The only remaining question is what to do with the vBNT the DAO now owns.

  • Hold
  • Burn (has no impact on the vortex.
  • Sell for more BNT (reduces vBNT : BNT ratio and so works against the vortex design.
  • Stake for governance – all sorts of recursive governance mess…

Ok, so liquidity incentive on BNT stakes.

5th option for vBNT is to stake it in the protocol (vortex pool). This way it would increase the liquidity, possibly earn more fees (lock up more BNT) and could be used as a back up treasury (sell vBNT when 1vBNT > 1BNT). Which in this kind of LM will occur, because to withdraw 1BNT you’ll need 0.9bnBNT and 1vBNT.

I think your suggestion is a better solution then just burning vBNT. It’s a trick, you provide LM incentives and at the same time you have the possibility to burn vBNT.

Yes, it locks away the vBNT of people that are providing liquidity in the vBNT pool (what you call long term holders) but also anyone that has leveraged their vBNT as well:

vBNT in the pool = vBNT staked by vBNT LPs + vBNT that has been sold (essentially leveraged)

assuming that the rate goes back to 1 or higher, I expect more selling of vBNT from people leveraging their vBNT. I guess this also means that the vBNT pool could go back into surplus in the future when this happens.

Is there a way to calculate how much of the vBNT from the pool beings to stakers, and how much belongs to vBNT which was leveraged?

I would assume its mostly from stakers, but hopefully some data could shed some light on this.

And if this is the case where its mostly from stakers ( long term holders ) then I stand firmly behind my point that further locking away their BNT is not helpful for the short term ( until the deficit is repaired ).

Repairing the deficit should be priority #1, and all actions currently taking place should be directed towards repairing the deficit in the fastest way possible. A direct burning of circulating BNT will have a greater impact in the short term.

The main issue is that there is a lot of BNT in the system. Create organic demand for BNT making new deposits having to buy BNT to stake. If the protocol print BNT with every deposit then that BNT is effectively for sell. People underestimate the damage of adding BNT to the pool hs done to the protocol. Adding liquidity = adding a sell order at a price range. Dilute the liquidity as much as possible or BNT won’t ever recover

If people buy BNT then stake it, the protocol does not print BNT my friend. Increasing organic demand and buy pressure will be good for bancor

Yeah I’m talking about single sided staking. It should be eliminated for new deposits.

What about this idea, if what you are saying is correct, then what bancor needs is for BNT to be purchased and removed from circulating supply, rather than BNT being purchased then lp’d

so what if we use the scenario I described in a previous post about BNT having additional features

  • in order to qualify for ILP, BNT must be purchased and used in the protocol in order to qualify for ILP, and the amount of BNT will depend on the size of the position, similar to curve requiring staking crv for x period of time

** heres the kicker that removed BNT from circulation **

with the above example - when the individual buys BNT to qualify for ILP, this bnt is NOT staked in the BNT pool, but rather staked elsewhere that removes the BNT from circulation for x period of time

during this period of time where the BNT is locked away, the user should still receive some sort of benefit within the system for locking up their , BNT, however, if the user ever removes their liquidity and exercises their rights to ILP, the BNT is then locked away for a new period of time && this BNT will also no longer give the individual the benefits it did prior to exercising their rights to ILP

the benefit of locking up BNT in this particular pool could be … rights to ILP & trading fees

this will increase buy pressure for BNT and demand for BNT and will cause individuals to stake and lock away their bnt in order to earn trading fees & the rights to ILP. here bnt is effectively removed from circulating supply. if the user execute their rights to ILP, their BNT will no longer give them trading fees and will then be locked away for X period of time post ILP execution.

Im sure this idea can be tweaked out, but if bancor creates a new staking pool that is separate from the BNT that facilitates trades, then these BNT tokens are effectively bought and removed.

It doesn’t matter if BNT is added to LP. You get more tokens while BNT supply remains constant = higher BNT price. A BNT locking mechanism is indeed neccesary, though. We could even adapt this idea to current LP’s trapped with deficit. Make them buy and stake a proportional amount of BNT to be able to withdraw without deficit. You will create a virtuous cycle where the deficit will self correct

Unless Bancor team gives us details on how they plan to increase yield as a protocol, shouldn’t we just put a limit back on and restart from that safe point? Thorchain is literally a copied use case from bancor that is still working.

On top of that at this point perhaps the best way forward isn’t to be innovative on untested methods, but use what is known. Flash loans, actual loans, curve style voting etc.