- The LM program has proven to be a powerful tool in growing the TVL of the Bancor system.
- Alleviating governance congestion associated with the current implementation allows for LM rewards to be activated ad hoc.
- The result is a significant improvement to the strategic utility of the LM scheme, allowing Bancor to capitalize on critical opportunities as they appear.
- The pre-approved maximum budget of 28 million BNT for LM rewards remains unchanged unless governance votes to update this, while the distribution and voting process is up for change.
- Enable governance to propose activation of LM rewards on any token that meets whitelisting criteria at any time.
- Enable governance to vote to extend LM on tokens already in the program that have proven to be beneficial.
- Eliminate overlap of token votes and end logistical issues with current bi-weekly voting schedule.
So far, LM has been successful at driving liquidity to Bancor’s pools. TVL is up 800% since October, currently around $140M, and Bancor Network swap volume is up 470% during the same period. After just over a month of LM, it has become apparent that the current system for admitting new tokens to the program may be too restrictive and also creates some logistical complications with recent updates to LM admittance criteria (specifically, extending from 72-hour to week-long Discord voting, addition of majority rule requirements during on-chain voting + $400,000 liquidity threshold requirements for a pool to be admitted to LM).
Current LM Voting Process
The original LM plan proposes a strict schedule of adding two new tokens to the program every two weeks. 12 tokens are selected by Bancor governance and admitted for a week-long vote on Discord.
The current week-long Discord voting process is an extension of the originally proposed Discord voting time of 72 hours. Adding time was considered beneficial as it allowed more room for governance to engage with token communities and rally them to vote.
The top 6 tokens from the Discord voting move to on-chain voting, where a YES/NO proposal is created for each. The two tokens with the most YES votes that also receive a 66.7% majority are admitted for BNT liquidity mining rewards after crossing a $400,000 liquidity threshold.
Problems with current voting process
Complicated logistics: In practice, the process of a week-long Discord vote, 72-hour on-chain vote and tokens being admitted that fall beneath the $400K threshold — which requires allowing additional time for projects to pool liquidity — actually takes between 3 to 4 weeks per round. This creates confusing overlap when LM has yet to begin on tokens that have just been admitted to the rewards program, but a new LM vote is required to begin according to the rules of the current LM voting process.
Diminishing engagement: The same tokens are admitted for multiple rounds of voting, which leads to diminishing engagement from those communities with each new round. Similarly, tokens that have rallied substantive community engagement during the Discord phase, become disenfranchised following rejection by Bancor governance. This is likely doing more harm than good with regard to building positive relationships with outside communities.
Competitive restrictions: Restricting to bi-weekly updates limits governance ability to make quick changes according to market trends.
Proposed Solution: ad hoc LM votes
Rather than limiting the community to admitting two new tokens within a specific time frame, we propose an ad hoc (“as needed”) system to regulate LM rewards, where the community can propose to activate LM rewards on any token that meets whitelisting criteria at any time, and extend reward periods on pools where LM has previously been activated. These governance decisions would be considered routine protocol maintenance, and require 20% quorum and 66.7% supermajority.
The proposed revision of the LM program governance eliminates much of the bureaucratic congestion currently suffered by Bancor governance during LM decisions, affords governance more flexibility with determining which pools receive rewards, and allows for changes to be made based upon what is proven to be working successfully and as new trending tokens emerge.
Implementing an ad hoc LM program is purely aimed at eliminating bureaucratic restrictions created by the current bi-weekly voting system. No changes will be made to the original budget allotted to LM or to the economic design of the rewards program unless governance votes to update these parameters.
The current program allows Large Cap pools to receive 100,000-200,000 BNT per week and Mid-Cap pools to receive 10,000-20,000 BNT per week, for 12 consecutive weeks after LM is activated. Governance must work within the economic boundaries of the current LM program which allows a maximum of 28 million BNT to be minted over the 72-week duration of the program (program began on November 21, 2020).