Fast Lane Update and Parameter Adjustment

DAO Archive (SUBMITTED)
1

Expected on Snapshot on March 22rd, 2023

TL;DR

  • This proposal follows the first proposal introducing the Fast Lane which is designed to reduce the deficits.
  • The major functionality of the Fast Lane Contract is live and in testing. As a reminder, it is not complete as it will continue to be adding additional exchanges (for example Balancer, Curve , Carbon).
  • Testing of the Smart Contract has been and is underway.
  • While the Fast Lane does indeed work, some parameter changes are required.
  • This proposal seeks to change the BNT split (burn and caller) from 90/10 to 50/50 in order for this system to become economically self-sustaining. The change seeks to ensure that the gas cost to reward a Fast Lane caller is not greater than the rewards themselves.

Summary

As noted above, the main functionality of the fast lane is complete.

As an example transaction, let’s look at: Ethereum Transaction Hash (Txhash) Details | Etherscan

While technical readers may be interested to see the full transaction, I would like to discuss the last two parts.

1582×136 32 KB

The top line in the image above is sending 116 BNT ($64) to the BNT token contract - where they are immediately burned.

The last, is sending 12 BNT ($7) to the address that informed the Fast Lane of the arbitrage - the caller.

However, the associated gas with the tx was $13.

Accordingly, this proposal seeks to change the BNT split (burn and caller) from 90/10 to 50/50 in order for this system to become economically self-sustaining.

Details

The data below only includes the data collected since the V3 fee exemption was implemented.

*** Arb Stats ***

Number of Txs: 63

Unique Callers: 3

Total Flash Volume: 924,380 BNT

Total BNT Burnt: 4,898 BNT

Avg BNT Burnt: 78 BNT

Total Rewards Paid: 544 BNT

Total Gas Paid: 0.998 ETH

*** LeaderBoard ***

Top Burn: 227.51 BNT

Arb Path: [‘Bancor V3’, ‘Uniswap V2’, ‘Bancor V3’]

Txhash:Ethereum Transaction Hash (Txhash) Details | Etherscan

*** Interactions Count ***

Bancor V2: 0

Bancor V3: 63

Uniswap V2: 37

Uniswap V3: 12

Sushiswap: 14

As highlighted in bold above, the rewards paid to the caller are not sufficient to cover the gas at the moment.

Next Steps

If this proposal passes, further testing will be done with the new rates and updates will follow.

Additionally, the open sourcing of a bot that can find these are opportunities is expected shortly. Such a bot would have parameters that individual users can set based on their preferences to try to compete for the caller rewards.

FOR

Change the Fast Lane BNT rewards split from 90/10 to 50/50

AGAINST

Take no action

5 Likes
2

really encouraging results for the arb activity so far.
i believe changing the distribution to 50/50 still make sense as the protocol benefits from this activity in multiple ways:

  • more arb activity
  • more volume
  • bnt burn pressure (even if small)
2 Likes
3

I fully support this!

I just want to emphasize that even if the 50% earned by the caller is swapped, for example to ETH to pay for gas, the other 50% is still permanently burned!

2 Likes
4

What is the maximum burn percent for the split is while still keeping the arbitrageur in profit?

The math looks something like this:

Total BNT Burn: 4989 BNT
Total Rewarded: 544 BNT (1/9th of the burnt)
ETH Spent on GAS: 0.998
ETH Spot: 3258 BNT (Analytics Dashboard)
Total BNT: Burn BNT + Rewarded BNT = 4898 + 544 = 5,442 BNT

To be in profit the arbitrageur needs at least BNT equal to the eth spent which would be

Eth Spent * Eth Spot = 3251 BNT which is 59.7% of the total BNT. So even with a 50/50 split the arbitrageur still isn’t in profit, but considering that the Fast Lane is not finished a change to a 50/50 split seems appropriate at this time.

2 Likes
5

So, if arbitrageurs need (rounding up for sake of simplicity) 60% of the split to be profitable, does them using fastlane defeat the purpose of its creation (deficit reduction)?

Assuming that reward is always in BNT, and assuming that reward will be sold off ASAP to actually book profits (like BNT was insta-sold by most when provided as ILP compensation), then does there not exist a risk that creating more sell pressure than burn pressure (or even equal amounts with the 50/50 proposal) actively works against deficit reduction via BNT price appreciation? People who are comfortable arbitraging and working out complicated flashloans should have no problem insta-dumping (or even auto-dumping) those BNT rewards.

That math makes it look like you’re either creating a system where you incentivise more selling than burning, or you’re creating a system where sell/burn are at parity, but you actively lose money by using it, which seems like a surefire way to not win users. I assume that burn amount > sell amount is desirable for price appreciation, same as buy amount > sell amount makes BNT price go up. Carbon’s buy+burn mechanism obviously makes sense for upward trajectory, but less sure about a burn+sell equal-or-greater-amount mechanism, which this would probably be in the vast majority of cases if used by actual arbitrageurs.

1 Like
6

If the fast lane didn’t exist then 100% of the value of the arb would be lost. Closing the arb in BNT changes this dynamic. And then burning 50% of the arb changes it even more. When arbitrage opportunities are closed they are typically arbs between several pools which means that the arbitrageur has the choice of which asset they ‘close’ the arb in. If the fast lane is used then at the 50/50 split then this means that the bot which triggered the fast lane forfeits 50% of the value of the arb in BNT. This is in contrast to closing the arb in ETH which would cause 100% losses in ETH and ALSO increase the amount of BNT in the protocol which de facto ALSO causes BNT de-valuation.

This is all so very, very hard to explain over text, but the thing to understand here is that even if the fast lane was 20/80 (with 80 going to the arbitrageur) it would STILL be better than just letting the arbs go for “free.”

3 Likes
7

Please take this tx as an example:

The arb captured 80 BNT (about $45)
Gas costs $17

If there was a 50/50 split - this would mean the caller who identified the arb would make about $5.5 ($22.5-$17=$5.5).

It also means that 40 BNT would be burned.

1 Like
8

@ZenoBNT gave a fantastic explanation above. Even if a 50/50 split doesn’t sound beneficial if 50% is sold back, it’s actually still massively beneficial because 50% of that BNT is permanently burned, plus the current paradigm is arbs keep 100%.

2 Likes
9

Zeno has given a good explanation for this proposal. I will be supporting this proposal in snapshot.

10

Can we get a tutorial on how to use it? Maybe we can also test it and propose improvals.

1 Like
11

Excellent idea!

In addition, there are some instructions here:

1 Like