Feedback Request: Potential Direction for Recovery

No take the BNT surplus and have Bancor sell the BNT in an OTC deal to the Foundation. And the proceeds of that deal get distributed to all the LPs.

That way you don’t get the price impact, and this technically would not be a bailout but a buy back. The Foundation will increase its BNT holdings and will have the most to gain from turning Bancor around. And most importantly, we clear out the deficit. Everyone takes a smaller haircut, and we clear out the deficit. The protocol is NOT liable for any further IL of the LPs going forward.

7 Likes

This is a proposal to the BancorDAO.

If you have suggestions for the Foundation, that’s great. But this is not the right place.

Ok, we make a proposal to the BancorDAO to make the offer to the Foundation of selling $21M of the BNT surplus in an OTC deal. If they take it, they take it. If they don’t, they don’t. But we can at least make a proposal to offer that deal to the Foundation. Again, this is NOT a bailout. It’s a buyback from the Foundation for BNT at a very low price.

And even without the Foundation, Bancor can still sell the BNT on the market and just suffer the price impact loss. BNT would not go to zero. But I just see a huge problem right now where the devs and team are fighting against time to do the impossible. Making $35M+ of value (which will likely go up by the time any solution is implemented) on less than $50M of TKN liquidity is something that even the biggest and greatest hedge funds and investors will have difficulty doing. All the while hoping that further drainage of liquidity doesn’t happen.

1 Like

This is a proposal to the BancorDAO.

If you have suggestions for the Foundation, that’s great. But this is not the right place.

Bro did you not read my last comment? I said this is a proposal to the BancorDAO to make the offer to the Bancor Foundation…

Also, you ignored the second part of my comment where I said even without the Foundation, we could still socialize the losses but have BancorDAO market sell the surplus BNT in the liquidity pools with the lowest price impact and distribute those assets to the LPs. Obviously this would crater the BNT price, so it wouldn’t be as favorable as an OTC deal

2 Likes

I think that finding a solution in conjunction with this proposal -

Might actually reduce the pressure.
But I don’t think anyone here is delusional about the recovery happening in a single day, it’s gonna be a long process, but during that process we can also upgrade and improve the protocol, and start attracting new liquidity in healthier pools.

2 Likes

I’m looking at small things that are shared between all the solutions that we can already make progress on using smaller, separate proposals.
One thing that’s possible because of the unique design of having liquidity off curve is to accrue the fees off curve instead of on curve - meaning that fees aren’t suffering IL as in the traditional model.
Would like to hear thoughts about that in case I’m wrong here.

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Zeno did a good job of laying out the fee generation solutions, and see my responses why I think these are NOT the solutions that will get us out of this hole.

1.) Protocol level arbitrage - In the example given, the only value add is that you don’t have to pay the 1% fee on the Bancor side of the arb. But the value accrual of the arb is also dependent on the price impact on the trade, which will only get more costly over time due to the draining liquidity situation. So the amount of liquidity in the Bancor pools is directly related to how much can be made in the arbs. The lack of liquidity and price impact is what is more troubling and value diminutive than the 1% fee on the Bancor leg of the arb.

2.) JIT liquidity - There’s not much value here, and you’re also entering a crowded space where you’ll have to compete with other LPs. See this dashboard for how much value has been extracted from JIT liquidity on Uniswap v3 in the past year. This also takes skill and expertise in winning. Also the market is slowly dying as more large traders are learning to use Flashbots Uniswap v3 Just-in-Time Liquidity MEV (JIT)

3.) Flash Loans - This is also a very crowded space with Aave being the market leader. Not sure exactly how much we can make given that again this depends on how much liquidity we have.

4.) Stablecoin swaps - You need extremely high liquidity here, which we don’t have. We won’t be able to compete with Uniswaps 1 bps stablecoin pools nor Curve’s ENORMOUS liquidity pools.

5.) Dynamic fees - Again this is completely dependent on existing volumes and liquidity. Even lowering the fees to zero would not be enough to get the price impact down to materially compete on trades. Dex aggregators are currently allocating nothing to the Bancor pools.

6.) Token Launch Pad - Is this still viable given the lack of trust that Bancor has in the market? All those new projects will have their tokens paired with BNT, which is severely handicapped. So the biggest impediment here is lack of trust in BNT.

7.) Forking LINK pool and Synthetix - This will likely take some time. And as you said…it’s rather crazy, but honestly it sounds better than the other options mentioned lol.

5 Likes

How confident are you that the current proposals* will generate the fees required to eliminate the protocol deficit in a reasonable amount of time?

(Scale of 1-10, with 1 being the least confident and 10 being the most confident)

*These include protocol-level arbs, JIT liquidity, Flash Loans, Stablecoin Swaps, Dynamic Fees, and Token Launch Pad

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  • 10

0 voters

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How about IOU’s? It’s clear we have no faith that the currently proposed methods will work to fill the deficit in time. Maybe if this didn’t happen at the bottom of the market they’d have a chance. But realistically, the deficit will grow faster than these methods can shrink it.

So instead of making everyone go through months of stress and panic, give everyone some IOU token for their ILP. Withdraw now with the haircut. Enjoy Link staking in the meantime and give Bancor the time to PAY US BACK. I want my funds safe, and not threatened by TKN mooning and deficit ballooning. But I don’t want to risk some legal BS argument locking me out of getting my money back if I take a haircut because of impending market pump. Give us an IOU token so that our remaining funds aren’t held captive anymore, and can be used elsewhere (there is opportunity cost in staying in Bancor). Then once the Bancor team has figured out a reliable method to fill in the deficit, just start paying back our IOU’s with TKN. This should go for people who already took the haircut too.

tl;dr. Instead of racing to fill the deficit before it balloons. Give yourself more time and pay back IOU’s instead while not holding the other 50% of everyone’s funds captive in the meantime.

3 Likes

Yeah I agree. To stay in the protocol is definitely a high risk endeavor given all of the obstacles that must be overcome. They should allow the LPs to leave with a receipt token that gives rights to some sort of a vested recovery pool that will be funded after the new features are battle-tested, vetted, and proven to generate yield. I don’t like how easily they think this can be done. It’s definitely NOT easy and should be stated as such.

5 Likes

Yeah it’s clear time is the enemy here, IOU’s/Receipt tokens give us that time, and allow us peace of mind and de-stresses us in the meantime. Even if it took years, if I got a slow monthly payout of a few Link from the recovery pool, I’d be happy to be paid back that way, rather than try to fight a ballooning deficit and watching my remaining 50% accrue even more IL. I think this is the best way to do it, and we should be speedy about implementing it, too much time has been wasted already. It’s been a month and I see no solution implemented yet.

Does anyone have any arguments against issuing IOU receipts to so we can rescue all our hostage capital, and have a clear head and lots of time to solve the deficit problem without it being a ticking time bomb?

6 Likes

This would be great for LPs but would ruin Bancor as LPs would have no reason to stay. BNT holders would be screwed and thus the proposal would never pass a vote.
The DAO needs to turn on the vortex burner in accordance with one of the proposals IMMEDIATELY. A month has already passed and the situation has only gotten worse. We don’t have time for endless debate. BNT needs to be forcibly pumped and thus lower the deficit to start building positive sentiment among the community.

2 Likes

Just trying to serious flesh this idea out here. Pulling liquidity with an IOU in place is a double edge sword in a way. You are reducing deficit by taking the haircut and placing the balance of the haircut into an IOU situation (whatever the details of that may be)…however, pulling liquidity also removes liquidity needed to perform swaps, generate fees and work to eliminate deficits. Not sure the short term benefit is worth the long term consequence.

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I think the bones of the concept have merit…going to simmer on it and post any additional thoughts/factors that come to mind. Thank you.

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From the telegram:

"I think the biggest issue is the loss of trust. We need an announcement from the foundation, promising to make the OG LP’s whole if they stay until a certain date. They should put 30k ETH on a public wallet and write a smart contract to distribute the ETH as ILP to LPs on this date. The news alone would push the BNT token up, making the problem possibly nonexistent when the date arrives.

This way LPs could rest assured they will get back their original stack back no matter what, so more liquidity would stay and the protocol would have a better chance to recover. Devs can experiment and if the experiment fails, the foundation makes up for it and fullfills the promise of 100% ILP with the ETH wallet. If it succeeds the foundation can retain the ETH."

Not the worst idea, is it?

7 Likes

To give people an informed choice on how to manage their risk, I’d like to see each proposed solution, (DAI, Protection, Throttling) wargamed in relation to a token mooning against BNT. The purpose of this would be to provide understanding of the potential timeframes involved in being made whole.

For example;
TKN and BNT hold parity = 25 weeks until the deficit is closed
TKN goes 2x against BNT = 50 weeks until the deficit is closed
TKN goes 10x against BNT = 250 weeks until the deficit closed
etc

As far as I can tell, this is the primary concern of all token holders and is something that has been seemingly underplayed by the team as it relates to the current situation. Putting this front and centre may help to alleviate a lot of the nerves around this problem. Pretending it doesn’t exist is a surefire way to feed the negativity and contributes to the/my own perception that the team is too under-resourced to handle this in a way that will prove optimal for LPs.

4 Likes

should we at least draft up the DAI model for a vote since it seems to have the most support out of everything here? its a start, right?

1 Like

I believe that @glenn was going to post a temp check here, and then eventually on Snapshot.

Is there a specific timeline for the snapshot? Rather than eventually.