There is at least ~3m vBNT that needs to be bought (and burned) before the vBNT-BNT rate is 1:
I think burning vBNT until this happens makes sense given the discount. We can switch to burning BNT directly once that is no longer the case.
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I was thinking about this question. There are few things that Iâd like to understand and clarify.
The BNT in the contract is out of the circulation, this means it already had the buying pressure on the BNT price.
- If itâs sold for vBNT itâll have downward or upward pressure on the BNT price?
â BNT = $0.45; vBNT = $0.35. Selling BNT for vBNT would result in:- BNT = $0.43; vBNT = $0.36,
- or BNT = $0.45 (decreasing by 2xAPY of the locked BNT); vBNT = $0.38 [this is more probable IMO].
- If the BNT is sold for vBNT, then this BNT is no longer off the circulation. It participates in the market, itâll burn the protocol owned BNT (virtually reduces the market cap) and earns trading fees (currently ~10% p.a. - future earnings of the protocol that now go to users)
- I think itâs not a problem in a short term, when the network fee is set high due to the current circumstances (the earnings from the locked BNT go to the protocol anyway). In the long run it may cause issues when the network fee is reduced; the protocol wonât earn as much from trading fees.
- If the BNT is swapped for vBNT at a 20% discount, that would mean, the protocol has <1 year (20% compounded - 10% that would go to the protocol goes to users) to earn back the swapped BNT to be in profit on this trade.
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With this in mind itâs better to not burn vBNT and stake it instead. It will perpetually lock up more BNT and somewhat mitigate the earnings of locked BNT. This is more beneficial for the protocol. Now in v3 there is no vBNT deposit limit.
- The vBNT accrues value after purchase
- The more vBNT is staked, the more BNT is paired toward this pool â increases the protocol owned BNT, because 1vBNT<1BNT
- It can act as a treasury of sort because itâs a capital that could be used by the DAO (however this could lead to price manipulation that could impair the trust in the DAO â deliberately pushing the price of vBNT down by buying BNT when 1BNT<vBNT)
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The vBNT burned locks in more BNT than is used to buy it.
1,000 BNT buys 1,200 vBNT
1,200 vBNT locks away at least 1200 BNT.
So for the price of 1000 BNT we burn 1200 BNT.
I donât know what you are trying to say here, but the protocol isnât trying to âearnâ anything - it certainly doesnât have a timeframe either. The vortex is designed to lock BNT up as efficiently as possible.
While vBNT is cheaper than BNT we should burn that to maximize the efficiency of the burns and when vBNT is more expensive we switch to burning BNT (itâs a little bit more complicated than that, but that is basically how it works).
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The vBNT burned locks in more BNT than is used to buy it.
1,000 BNT buys 1,200 vBNT
1,200 vBNT locks away at least 1200 BNT.
So for the price of 1000 BNT we burn 1200 BNT.
This doesnât make it false what Iâve written.
The protocol doesnât burn 1200 BNT in this process (it reduces the protocol owned BNT).
The protocol locks it and itâs user owned, this is a notable distinction.
I donât know what you are trying to say here, but the protocol isnât trying to âearnâ anything - it certainly doesnât have a timeframe either. The vortex is designed to lock BNT up as efficiently as possible.
There seems to be a minor miscommunication. Let me clarify:
If you realize that the 1200 BNT isnât burned, but itâs locked and earning fees for the users, youâll come to the conclusion that there is indeed a timeframe. The longer the locked BNT earn fees the more the discount diminishes.
For example: protocol locks 1200 BNT now, after one year this BNT earns 120BNT in fees at 10% apr. this is earned by the user instead of the protocol, effectively it costs the protocol 24O BNT.
vBNT burning is short sighted. If the protocol would stake the bought vBNT it would earn ~10%/p.a. = ~10% more BNT locked (probably less, BNT is more traded then vBNT). However the protocol still misses out on the 10% that the protocol owned BNT would earn.
This is not a problem when there is a limited supply of BNT, or when itâs deflationary. All the BNT will end up in pools and theyâre recycled, pushing up the price.
Itâs a disaster when there is unlimited BNT supply and itâs inflationary.
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First and foremost I understand this has been a widely discussed topic.
I understand the reasons for burning VBNT as the price of VBNT < BNT therefor you get more bang for your buck by burning VBNT
However, this very idea is assuming that all BNT are equal and the only thing that matters is reducing the total supply will prop up the price and reduce the deficit. This is not the case.
My assumptions
- Those who stake their BNT & their VBNT are more than likely more committed to the Bancor protocol and are more than likely longer term users.
If this idea is true, then the likelihood of these BNT being sold on the open market are less likely than those who simply have their BNT sitting in their wallets, ready to be sold.
By burning VBNT the vortex is targeting the wrong type of user
- Long term users
- Short term users
The long term Bancor users, like myself, have simply accrued BNT over the years and re-staked. I have personally never sold any of my BNT holdings. Therefor, by burning my VBNT, it literally had no effect on the protocol whatsoever
However, if the protocol has burned BNT from the open market, then perhaps this could have had an effect on the price itself. And when the price of a coin pumps, it helps to gather attention from others and it puts Bancor back into the spotlight.
If you still disagree with what I said above, then take this extreme example
Say the bnt total supply is 100,000, and I, the whale on bancor owns 90,000 bnt. I also have agreed that I will NEVER sell any of my bnt. I will simply become the LP for bnt and vbnt. I will also be the ONLY LP for bnt and vbnt ( once again this is an extreme example being used to help you understand my point )
With the above scenario, if the vortex burns my vbnt and removes some bnt from circulation, will this lead to positive effects on the price ( once again im the only LP for bnt and I will NEVER sell any of my holdings ). The answer is no. I wont be able to withdraw all my bnt because some of my vbnt was burnt⌠but I wasnt going to sell anyways
The vortex right now is currently targeting the group of users who are less likely to add sell pressure to the bnt token. Why not flip this around?
At minimum, is this not worth a 7-14 day trail period?
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Just to add here, there are folks that will Vortex themselves by leveraging their vBNT via the vBNT-BNT pool and swapping for another token. These folks are making a bet that the ratio of vBNT-BNT will not be as high as when they vortexed and they can later on purchase back the vBNT in order to unlock their positions. The vortex burner is also targeting these individuals by burning this vBNT as these folks are essentially adding vBNT into the pool, removing BNT, and potentially swapping BNT for another token.
In order to maximize the leverage BNT LPs can get, Bancor protocol will purchase vBNT from the pool and burn it to provide a consistent buying pressure. The cost of leveraging staked BNT is basically the difference in vBNT:BNT rates at the moment of selling and re-buying the vBNT. This makes it an important consideration for LPs wishing to leverage their capital. While the consistent vBNT price support is designed to stabilize the system, it also means that opportunities to re-buy vBNT at dramatically discounted rates will be rare. Further, LPs considering a leveraged position at a low vBNT swap rate should be mindful that the protocol burn would keep the upward pressure on the vBNT price which might result in a higher cost of leverage. An LP could then wait in the hope of the vBNT price falling again in order to avoid the cost of buying vBNT at a higher price.
Make no mistake â all leverage involves an element of risk, and swapping vBNT is no different. The relationship between the price of vBNT and BNT on the pool, and the price of BNT vs the market overall, makes the decision to leverage non-trivial. However, amidst these volatile forces, there is an island of certainty. Any position can be recovered by buying BNT, and staking it in the contract to receive the vBNT required to unlock the leveraged deposit. This provides a ceiling that effectively protects leveraged LPs from absurd short squeeze conditions, such as those that rocked Wall Street during the GameStop phenomenon; however, that ceiling climbs with the market price of BNT.
This might be relevant to the discussion at hand:
This whole concept of the vortex, vbnt and bnt is quite complex, and probably too much soo for my small brain to decipher.
So with your above example, it is in these users best interest to keep the price of bnt down in order to protect their leveraged position?
I also had additional thoughts on the vbnt/bnt pool which I felt had an error in the logic⌠and I reported it to the foundation as an error in an attempt to get a logic bug bounty ⌠however Mark emailed me and gave me a response to which I could not fully wrap my head around.
- Since v2.1 until ILP was turned off, users who were an LP for the VBNT pool did so risk free. If their position suffered from any IL, ILP then reimbursed that user with BNT to make whole their initial position size.
The vortex uses funds collected by the protocol to buy and burn vbnt⌠but if the vortex reimbursed a user from the vbnt poolâŚand minted new BNT for the user⌠then wouldnât the initial funds of burning vbnt have simply just been a 100% waste? as the goal of the vortex is to remove supply of accessible bnt âŚ<- this was the error in logic that I thought I discovered as itâs wasting the protocols funds and I donât believe VBNT lpâs should have ever been granted the right to ILP
I was under the assumption that the vortex only buys vbnt from the vbnt pool⌠therefor it must mean that if vbnt is purchased⌠it is then removed from the pool⌠and the LPâs in the pool will have then sold their vbnt and will now be left with an imbalance from their initial stake. Therefor when withdrawing from the pool, a user will have been exposed to IL.
Marks response to this was
" not necessarily - the bnt ILP only covers the pools quoted value of the token; it does not consider the requirement of vBNT in performing a withdrawal "
and to this my small brain couldnt fully understand his answer, so if any big brains here can help me with understanding it, Iâd much appreciate it.
I have no objection to a trial period to collect data.
Also, given the current status of the V3 vortex (collecting BNT, not burning yet) seems like a good place to start.
lets vote on this and give it a shot. I have never put together a formal proposal, but I have the vbnt required. Should I do so or wait for others to comment ?
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Feel free to draft a proposal for a trial period where you outline exactly what should happen and let people comment on it.
It is my understanding that it is in their benefit for the ratio to be lower as compared to when they initially vortexed themselves in. E.g. If I vortexed myself when the vBNT-BNT ratio is 1-1 then it is beneficial if this is lower in the future (say .5) so that with 1 BNT I can get 2 vBNT later on. You also have to consider the price of BNT if you ended up swapping for another token (i.e. vBNT to BNT to TKN) and its performance since you are going to have to buy BNT to unwind (if you are looking to unlock your deposit later on).
The current BNT collected by B3, approx 300k BNT, should be burnt. It should not be market sold for vBNT as a sale of 300k BNT right now would hurt the health of the protocol by increasing deficits.
We should advertise that we have a big burn of BNT and do it on some pre-determined date. I suggest a month of lead time; so a âmonthâ from today would be Friday September 2nd.
We should use this as a time to experiment with burning BNT to see how the market reacts.
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The real question here is whether the immediate impact to the recovery of the protocol is achieved more quickly by burning vBNT or BNT. Burning vBNT has benefits to the protocol as extensively covered in the above comments, but I believe that the impact accrues in a manner that is severely invisible to the exchanges and market at large as evidenced by the rather stagnant BNT price, even though the vBNT burning has tripled.
The buying and burning of BNT results in a constant and immediate demand effect to the exchange price. Unfortunately, if the capacity of the protocol fees to buy BNT is only about 20,000 BNT/day or $12,000/day, I am not sure if this is going to have any impact either. A cursory look at the CMCâs reported daily volume for BNT is roughly steady at $30M/day. $12,000 is only 0.04% of daily volume. Eventually it could have an impact, but a couple of weeks is not going to make a dent that you can actually measure. Further, its impact will be drowned out by any other macro influences on the market as a whole, so it will be nearly impossible to assess its effect.
Just like Binance burn BNB with fees, BNB should be purchased at a fixed time and then burned. This is also a marketing strategy.
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