Hey Bancor DAO! I’d be happy to discuss an introduction of an “Admin fee” to increase BNT’s utility and value proposition for holders & stakers alike: incentivizing BNT holders to stake their tokens, create an additional deflationary mechanism and to fund the community’s DAO developments.
Introducing some kind of admin fee (e.g., 0.02-0.05%) taken from liquidity providers who provide single-sided, non-BNT liquidity in the system (i.e., “TKN” liquidity providers).
The purpose of such a fee is to add new incentives to hold & stake BNT, create an additional deflationary mechanism via burning, and incentivize long-term protocol participation of LPs. This will also give BNT holders and BNT liquidity providers an additional source of revenue, on top of and regardless of the pools they provide liquidity to. Furthermore, part of these fees can be used to create a treasury fund for governance-driven grants such as technical development grants, third-party integrations, community marketing and other project collaborations.
Let’s say Alice has 1000 DAI, and wants to buy ETH via Bancor. BNT/ETH pool’s swap fee is 0.1%, and BNT/DAI pool’s swap fee is 0.1%. As two hops are required, she pays 0.2% to buy ETH through DAI, which equals $2. With the existing implementation, these two dollars go directly to the liquidity providers of these pools. If we add the admin fee, 10% of the $2 (or $0.20) could be sent to a smart contract that market buys BNT and distributes the proceeds to all BNT holders. Users who are staking BNT in a protected pool (i.e., holders of vBNT) may also receive a greater share of the fees based on how long they’ve been holding vBNT.
Note: as the fees accrued are in various ERC20 tokens, a “buyback” mechanism must be in place that automatically converts the accrued TKN to BNT by market buying BNT, which creates a buying pressure on the secondary market (and generates fees again).
Once the TKN side is converted to BNT, all tokens are sent to the main admin fee smart contract. From there, a percentage is distributed to all BNT holders, a percentage is distributed to BNT stakers based on how long their BNT has been staked in the protection contract, and a percentage is sent to a governance-controlled treasury contract and used for further community development. (FYI: the Curve DAO had a proposal for a similar mechanism, the details of which can be viewed here
Every BNT token holder who provides liquidity in the protocol receives vBNT in return, which is used to vote on-chain for proposals. Should we introduce a source of revenue for vBNT holders, a stickiness factor is essential, to promote LPs keeping their BNT staked in protected pools. The longer you stake your BNT in the protection contract, the bigger the boost you get and therefore more rewards as opposed to those who “lock” for a shorter time frame (this does not mean we must enforce a lockup period).
Why should I want this?
As a trader: This proposal does not increase the fees traders pay for executing orders: it still depends on the pool’s fee (e.g., 0.1% fee for ETH/BNT). By increasing the incentive to stake BNT in protected pools, the admin fee can lead to more liquidity entering the system, bringing down the cost of swaps.
As a vBNT holder (a user staking BNT in a protected pool): Previously BNT LPs received swap fees only for the pool they supplied liquidity to, and only to the BNT side unless they provided dual-sided liquidity. If implemented, the admin fees would provide an additional source of revenue from ALL the pools. The underlying asset of vBNT which is BNT also gets another value proposition, which should make it more attractive to hold & stake.
As a TKN Liquidity Provider: In the short term, as an LP providing TKN-only liquidity, the admin fee would slightly decrease APR from swap fees. However in the long term this proposal’s goal is to increase liquidity depth by increasing the incentive to hold and stake BNT, which will ultimately allow for more single-sided TKN deposits, generating more volume which translates into higher swap fees & APR.
BNT holders: The protocol will swap the TKN accrued (through bancor.network) to BNT, which creates automatic and consistent BNT buying pressure. Additionally, %X of the BNTs would be burnt, while %X could be re-distributed specifically to vBNT holders
Would appreciate any feedback and input. As you see I left the percentages part as a variable, as I’d like to see what numbers the community members think might be a good fit.