(BIP) Increase Vortex Burner to 15%

BIP Proposal to increase the Vorter Burner rate to 15%

This proposal is expected to appear on Snapshot for voting on 2021-10-17T12:00:00Z. Make sure to stake your vBNT for voting before this date and time to participate in the DAO decision.

To pass, this proposal requires 35% quorum and 66.7% supermajority.

TLDR

  • The Vortex Burner rate was increased to 10% in the beginning of June [1], 4 months ago.
  • Initial Vortex Burner rate schedule specified periodic incremental increases of 5% every 6 months [2].
  • Bancor’s average APR wouldn’t decrease significantly with this change.
  • The benefit to increasing the Vortex Burner rate is clear - increase the speed at which BNT liquidity is locked in the protocol forever. The projected vBNT burnt at 15% justifies the early increase.

Discussion

Average APRs

The impact of changing the vBNT rate from 10% to 15% on the average APR for an LP can be assessed by analysing the APRs of the bigger pools in Bancor. The weekly average APRs for 89% of the TVL were accounted for, with the total average APR changing from 7.74%±0.85% to 7.275%±0.803% (Figure 1).


Figure 1 - Analysis of the Vortex Burner rate impact on the weekly average APRs for the major pools.

Projected vBNT burnt

Accumulated vBNT burnt has followed a linear pattern with an R^2 of 0.9966 (Figure 2).

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Figure 2 - Accumulated vBNT burnt since the 1st of June [3].

Assuming this linear pattern is maintained until the end of the year - when the vortex burner rate would have been increased to 15% as per the original Vortex Burner proposal [2] - 1.98m vBNT would have been burnt by then.

Increasing the rate to 15% from the 21st of October and assuming that the vBNT/BNT ratio remains constant would mean that, by the end of the year, 2.82m vBNT would have been burnt by then. This represents a 834k difference in burnt vBNT, or roughly $1.08m (with vBNT at $1.290).

Comments

  • As expected, the vBNT/BNT ratio, as well as fees accrued by the protocol, are not constant and the former will be greatly affected by the increase in the Vortex Burner rate. However, increasing the vBNT burn rate should have a positive impact on the BNT/vBNT ratio as more vBNT is taken out of circulation.
  • As of the 11th of October, roughly 2% of vBNT supply has been burnt.
  • vBNT supply has been burnt at an average of 0.0151%/day since the 1st of June [3].
  • For a better analysis on the impact of the burner on the average APRs, a higher % of the liquidity can be accounted for, and other metrics can be analysed, such as minimum APR and median APR.

Voting

FOR

Increase the Vortex Burner rate to 15%.

AGAINST

Keep the Vortex Burner rate at 10%.

[1] (BIP) Increase Vortex Burner to 10%
[2] (BIP9 ADDENDUM) The Bancor Vortex vBNT Burner: Proposal to Switch to a Flat Burn Rate
[3] Data collected from Dune Analytics

3 Likes

The original proposal was created at a time where the uncertainty surrounding the precise impact of the vortex was relatively high. The proposed increase schedule was the result of targeted guesswork.

Increasing the burn increment 2 months ahead of the deadline is reasonable, considering the unknowns that presided over the initial modelling.

I don’t have any strong feelings one way or the other. If this ends up on Snapshot, I will probably vote for it (the Automaton will certainly support it). If it has to wait a couple more months, no big deal either.

It’s a good housekeeping proposal. Thank you for you hard work, @tfns! <3

4 Likes

I agree this is well worth doing. Unless we push the envelope, we don’t know what the effect of a more aggressive vBNT burn will be. Increasing the vBNT/BNT ratio is desirable as it improves leverage.

4 Likes

The first burn event happened on 4/4/21 and assuming that in 6 months the rate would have increased to 10% then that would have happened sometime earlier this month in October. This means that we would have been at 15% in April of next year (2022).

I don’t feel strongly about changing the rate now vs letting it happen automatically as was originally intended (every 6 months). With that said, the current low rate has been good for the protocol since it has been able to acquire vBNT at a fairly cheap rate and hopefully, this doesn’t have the opposite effect of folks trying to acquire vBNT now for fear of the ratio going higher in the future and therefore pushing the rate higher than expected. Presumably, we might have folks on the sidelines that would be leveraging while this is happening but I guess we will have to wait and see.

1 Like

I assumed 6 months from the last increase, as that would represent 6 months at a 10% burn. But I understand what you mean. Some things I considered when writing the proposal:

  • The previous burn rate increase from 5% to 10% is a 2x increase vs the proposed 1.5x here.
  • The last burn rate increase didn’t significantly change the vBNT/BNT ratio (Figure 1). If the ratio increases, I don’t see that as a disadvantage because the vortex would then become a more interesting leverage tool for Bancor LPs.
  • It’s definitely interesting to experiment with the Vortex Burner rate to analyse the impact of these changes, even if that means potentially burning less vBNT because the vBNT/BNT ratio increased significantly (which we haven’t observed in the past).
  • We can propose to lower the Vortex Burner ratio in the future if justifiable.

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Figure 1 - vBNT to BNT ratio, with the 1st of June ratio highlighted, taken from Dune Analytics

1 Like