burning vBNT →
burning BNT →
based on the situation at hand, anything that is able to reduce BNT supply should get 100% attention.
Therefore
- Assume the protocol generates $35,000 per day in fees (numbers used here are for ease of explanation - the math is simple enough anyone can test with their own assumptions - accurate 24 fees can be seen on the UI)
- I have seen that on some dune pages the fees displayed ignore the vortex/network fee
- Total fees would be about $1,000,000 for the month
- About $500,000 BNT gets burned
- About $450,000 of TKN gets moved outside the curve in the respective pool
- About $50,000 DAI gets added to DAI bucket and distributed to LPs
- It is very easy to allow LPs to claim any supported TKN which would also further increase trading fees
This to me is the most unrealistic part of this whole proposal. You can’t just make an assumption that $1M of fees will be generated per month without any quantifiable evidence or analysis. That is just crazy!
The fees are totally dependent on trade volumes and more liquidity coming through. This proposal doesn’t give any new incentives or reasons for LPs to put in more liquidity. I think liquidity is more likely to dry up than increase due to the lack of trust, unclear pathway for recovery, and the crypto/macro bear market.
If liquidity dries up, then volumes dry up. Volumes will likely dry up faster than other AMMs because Bancor is constant product which requires more liquidity than say Uniswap or Curve.
I don’t see how making $1,000,000 in fees per month is realistic. Even if it was, we’re $30M in the hole. It will take years to make up that deficit.
Can I ask the question, what would make a person want to make this transaction on Bancor?
I may not understand this fully so please entertain my knowledge gap…
We seem to be changing the mindset from incentivizing LP’s to incentivizing BNT LP’s and generating fees from trading of all tokens into the LP’s.
So that’s great but what reason would a person have to make transactions on Bancor to make these two proposed changes growth based and sustainable?
Wouldn’t Bancor need to offer traders the lowest fees to encourage volume throughput (fees)?
Feel free to plug in your own assumptions.
Hi @skydancing8
This can either happen because a user makes this trade on the UI, via an aggregator, or an arb is putting the pools back into balance.
In all 3 cases, the outcome is the same.
I like the framework of these, although I believe that the fee structure should not be so heavily dedicated to deficit or else it will not give incentive for liquidity to stay or attract liquidity. A better balance would be best IMO. 75/25 ratio for TKN and possibly 50/50 for BNT side would be better ratio for the fee delegation. This rewards those who remain long on the protocol, as well as offer some level of additional compensation who had to wait longer to get their positions back. This along with new fee generation initiatives would certainly make for a long term bullish case for the protocol.
Bro! My point is that you cannot just make assumptions without rigorous financial modeling taking a bunch of factors into consideration.
It’s completely ludicrous to just say we’re going to make $1m in fees per month. HOW?? You’re the one making the proposal, so you’re the one that needs to bridge the gap to getting those fees.
Lack of quantitative research and modeling about IL insurance is how we got here in the first place. We need actual quants and actuarial scientists modeling this out. We can’t just carelessly make these assumptions about protocol revenue. It’s completely irresponsible.
This is in the community chatroom - if there is support, you should expect to see a way more in depth proposal, similar to the proposing V3 proposal n nature.
When the protocol is in deficit is when you should be working the hardest to push the real deflationary measures, aka burning vBNT.
By not burning vBNT, you are missing out on getting rid of future BNT sell pressure since the BNT and fees being earned by BNT LPs that vortexed themselves are more easily accessible to those LPs to unvortex themselves.
I don’t see any version where only paying retail to burn 1 BNT instead of locking it in the vBNT pool and reducing future BNT sell pressure as well is a better decision.
But if Bancor really wants to burn BNT, do it at 50/50. Don’t get rid of the most deflationary mechanism in the protocol, especially when it has the deficits that it has today.
How is it advantageous to reduce that BNT supply instead of locking it in the vBNT pool?
All I see it doing is reduce the BNT market cap.
What other advantages are there?
burning vBNT is locking BNT LPs.
Don’t forget, it’s trading TKN for BNT before it buys the VBNT and burns it.
I’d just add for completeness:
burning vBNT:
4. price increase of vBNT relative to BNT, 1vBNT>1BNT incentivizes buying BNT from open market → deposit into bancor → sell vBNT (increasing user owned BNT in the protocol)
5. reduces the protocol owned BNT, thus future earnings (if the liquidity doesn’t grow)
The burning of BNT could be considered as the protocol reinvesting in itself. Burning vBNT is transfering value to vBNT holders.
@foxsteven , thanks for the idea. Love the protection model. It needs to come with timeline of implementation from the devs (or a good PM in this space) for that and the dai solution to make a call, do you think we’ll be able to have that?
Importantly, where are you seeing 1mil fees per month on the dune page. The v3 page shows from May 11 to June 11, at 300k fees, that’s before people realised there’s an issue, these days fees are at 5k per day, assuming people stay. Which comes up to around $100k fees per month.
And therefore future BNT selling.
The vortex first buys BNT
Tkn → Bnt
Then
Bnt → vBNT and vBNT is burned.
The price impact of BNT to TKN is the same in both cases.
That’s the chicken and egg issue. The current proposal is a way to make up the deficit by utilizing current trapped liquidity + past scorned liquidity. That’s NOT going to increase liquidity and volumes. We need new liquidity coming thru, but that will not come thru from this proposal because it proposes using all trading fees to burn BNT and pay off past bad debts. Who would provide in such an environment? This closes off getting any new liquidity from the start. And the new mechanisms of burning and arbs to get more revenue? Yeah, that also depends on more liquidity which will lead to more volumes. That is the main crux of the issue with this proposal. You need more liquidity and volumes to make the revenue generation work. But you won’t get that because new LPs would not provide if they have to pay off bad debts and incur all potential losses.
So this post is going to have a few parts
I am going to make a very peculiar argument in this section: I don’t think that that Bancor Vortex has ever truly been active since it was created and launched. It wasn’t able to do its job because it was relegated to counteracting a portion of the BNT emissions from LM. The practical basis for the existence of the vortex is to burn vBNT which is the EXACT same as buying BNT with leverage and then burning that. I made a video about this: Why does Bancor burn vBNT instead of BNT? #Bancor #DeFi #Loans - YouTube
While liquidity mining rewards were active the Bancor burner served as a deflationary mechanism (as it always does), but the protocol wasn’t actually ever net deflationary in any substantive way. In this regard, the Bancor vortex was akin to reducing the LM rewards by “some” amount. With the end of LM rewards and the end of IL insurance the Bancor burner will finally be able to do its job uninhibited. vBNT is DIRT cheap right now and it would be a catastrophic mistake to burn BNT instead of vBNT.
During conversations that I have had with community members of the protocol there has been some reference to the idea that “the market doesn’t understand vBNT” but to this I have a counterpoint: it doesn’t have to. With the removal of LM and IL insurance, the buy pressure created by the vortex, even with anemic fees, would be extremely substantive.
The Bancor Vortex is, essentially, reverse liquidity mining. The Vortex provides TKN to the protocol to reduce deficit (and create surplus) while simultaneously increasing the price of BNT (all while paying users in DAI - which is the model I am in favor of - which requires no liquidity to be removed from the protocol).
Many users feel trapped in the protocol. They risk taking a severe loss in IL of around 40% - a ‘haircut’ is an understatement. These user need something - anything - to help ease the pain. With this in mind, I think the DAI model is the clear winner (and this will be refrained in section 3). Having a payout in DAI will help users in the short term by providing them with capital they need to make ends meet.
Based on community feedback, users who are choosing to take a ‘haircut’ are doing so under financial duress of the bear market. They say they “need” this money in the short term and were “forced” to withdraw at a loss. If users were paid out in DAI while they are ‘stuck’ waiting for a surplus then some of that burden would be alleviated.
This also seems like the best choice for DAOs who will no longer be paid in their native token and will instead be paid in DAI.
Question 1: in the protection model, do I have to withdraw to get access to the fees my positioned has earned? Because if so, the fees themselves that I have “earned” are also potentially in deficit and I will take a haircut on that withdraw + 0.25% exit fee. Unless the fees earned are in a separate contract that I have to claim from, in which case wouldn’t it be better if I were just to be paid in DAI or ETH, claim that, and then buy my token of choice?
The protection model covers IL in DAI and ETH which is fine, good, dandy, etc., but it doesn’t really fix the issue of not being able make money without a withdraw. If I deposit TKN_a I don’t get to make any money on that deposit until the protocol is in surplus. This might be fine - in theory - but from a new user perspective “why would I have faith the protocol will ever be in surplus?”
Being able to be paid in DAI on a stake without needing to remove any portion of the stake is very attractive. It is the most approachable model and doesn’t require a withdraw of funds to get paid (no 0.25% exit fee like in the protection model). It also, based on claims made in section 1, supports the vortex in a larger fashion. The dai model also seems more adjustable in the future - it could become a 80-10-10 split with 80 going to the vortex, 10 going to LPs, and 10 going to an eventual BancorDAO treasury.
The protocol is going to survive. There’s a handful of potential features listed at the end of this proposal that would increase volume. These features are pleasant, feasible, reasonable, etc., but they don’t do anything short term and all of the future features seem like they align with both the protection model and the dai model equally well.
The notable exception is that in the protection model the protocol performing an arb to capture value with nearly 100% of the proceeds going to the TKN side is very appealing for DAOs and users alike. Protocols pooling liquidity to perform arbs is not a new idea and being able to facilitate an AMM while performing such an arb would massively increase the value in the protocol. Its also interesting that such an arb could be a payday in DAI under that model.
The DAI model is the clear winner for its short term utility and long term flexibility, it ameliorates the pains of TKN providers, and it creates the most clear “bull thesis” for BNT mooning.
The protection model is great, but the job it performs is not what is needed for the current situation. It fails to provide immediate relief for TKN providers, it has no immediate incentive to attract new LPs because new deposits would immediately be subject to any deficit the protocol has, and it lacks a clear “bull thesis” for the BNT token.
Both of these models are a good way forward and I do have a preference for the dai model, but I would not be upset if another model was accepted - my major area of concern is the Bancor Vortex.
Anyone who says we should be burning BNT over vBNT is objectively, mathematically wrong and I demand proof of the claim that a direct BNT burn would be superior to a vBNT burn. My case is clearly made in this post and in the video I created (above) and I will provide more mathematical evidence if asked.
I think this proposal is a great step forward and burning vBNT will help reduce the deficit by increasing the value of BNT relative to TKN.
