Feedback Request: Potential Direction for Recovery

I don’t agree. For example, one MASSIVE problem with the cooldown was that it was great in terms of protocol safety, but terrible in terms of perception.

What I imagine was missed, is that the cooldown presented a perception problem where users can see others intent (maybe) to leave an this can snowball. Remember, in 2.1 there was no cooldown.

That perception was ignored and we all paid for it IMHO.

I suggest we do more to create positive perception and mechanisms that are well understood by the DeFi community.

I’m fairly sure most people in the Bancor channels have no idea how the vortex benefits them - so think about the wider community.

Point being - we should keep perception in mind. Not doing so has cost us.

3 Likes

gonna say something that might be a difficult pill to swallow, but people hate bancor right now

no pumpenomics, ponzinomics or gimmicks are going to save the day here, you need strong positive sentiment to already exist for any/all of those tactics, which we don’t have

as there’s no “foundation bailout” then the ONLY options are those that work despite outright pervasive hatred in the wider community that isn’t going to go away any time soon

that means the only option is to tackle the fundamental problems from first principles in a trustless, mathematical way that can be programmed and executed successfully without any positive sentiment whatsoever - IMO the only sane thing to do is start from the position that “everyone” is waiting to dump at the first opportunity and work backwards from there to see what can be done to move forward

So the fundamental problem is this:

there are ZERO examples of an AMM outpacing aggregate IL with fees across the hundreds of AMMs that have been tried and analyzed, including those far bigger and more successful than bancor

that’s not FUD or hyperbole, bancor itself commissioned a report showing this, that there may be individual winners and losers but in aggregate every AMM on a constant product curve is evaporating value with every trade

@mbr specifically called this out on the last community call, that other protocols are billions in the hole, if they were to calculate their aggregate deficits

there are not enough trading fees in all of crypto to compensate for associated IL, more fees will NEVER imply safety from IL unless all we do is relegate trading to roughly equivalent tokens like stables

this is scary for the industry as a whole if you internalize and extrapolate the ramifications of that, but let’s focus on bancor only for the moment

the B3 design removes all individual gains and losses and replaces it with a single shared gain/loss that is the pool surplus/deficit model

This means that even if ILP is permanently disabled, value can still be bleeding from the protocol, widening deficits shared by every LP with no individual winners, only a community of shared losers

it is VERY simple now, compared to v2.1 and all other AMMS, instead of a complex shitcoin casino with individual winners and losers (where the MEV house always wins), we have a single equation:

profit = income - expenses

ALL problems we face right now stem from profit being a negative value which causes pool deficits to increase over time and lots of other bad things. Make profit positive and there will always be reasons to LP, reasons to trade, reasons to buy vBNT/BNT.

As long as profit is negative there are no reasons to participate in bancor at all, in any capacity, unless it is run as some kind of ponzi or similar scam (which will eventually implode).

As long as profit is negative then nobody will be “made whole” and no recovery plan will work, new participants will be fleeced to try to repent for past sins, eventually that approach too will need to be paid for.

If bancor breaks even (profit = 0) then it can still survive as a niche ecosystem, probably with cult followings within specific use cases like project treasuries etc. where it can act like a decentralized liquidity insurance product. This may also be fine if the alternative is protocol death, but may be an unsatisfying result for BNT holders.

I argue the market is NOT irrational right now, it sees the negative numbers and wants out. Unless a (quick) path to profitability is clearly shown both in theory and delivery, that’s completely rational.

The only solution to negative profits can be to increase income and/or reduce expenses.

We have several ideas to reduce expenses that sound great such as:

  • Reduce trading liquidity during high volatility (aka TKN moons) to mitigate % IL
  • Reduce ability for external parties (e.g. MEV) to extract value from protocol participants
  • Limit deposit/withdrawals with a “turnstyle” to limit “bank run” style liabilities
  • Third party IL protection paid for by TKN project treasuries etc.
  • Removal of BNT minting

However almost none of these exist yet (even though some were already roadmapped for b3 phased rollout) and timelines on them existing has been described as “an unknown rabbit hole”.

We also have several unimplemented rabbit holes to improve income by taking “off curve” capital and applying it to:

  • Native token staking
  • Lending
  • Charging premiums for ILP-style protection/insurance
  • Token launchpads
  • Etc. etc. as outlined by OP
  • Other defi ideas we can invent or copy that bring in additional revenue and are not “more trading”

The only mechanism/narrative b3 currently has to present a case for potential profit is:

1 unit of fees can mitigate more than 1 unit of IL when the protocol burns leveraged vBNT.

(If this is correct we should be shouting it from the rooftops to repair perception btw, not trying to kill it off…)

If 1 unit of fees burns 1 unit of BNT instead then unless i’m missing something (i might be, happy to be shown otherwise), it’s impossible to turn a profit ever without completing production rollout of one or more “rabbit holes” of unknown effectiveness.

4 Likes

so the direct response to this would be to make the vortex threshold higher, as in, only allow burns to take place once they hit say 1 million vBNT rather than 1000 vBNT

this argument doesn’t address vBNT vs. BNT burning as the omnipool vault math is different for each token/approach and both can be configured to only burn large amounts

also the many small purchases actually has a larger impact than a single large purchase IIRC due to how slippage works… i think what you’re pointing to is the expectation that arbitrage makes it look like the price impact is smaller because selling on one platform is then smoothed out to other platforms more quickly for a smaller individual sell (i’m ignoring cascading liquidations)

1 Like

Based on the feedback here, I have updated the proposal to reflect a 50% burn and 50% vortex when it comes to the network fees.

increasing the vortex will result in larger burn actions (which might be good tbh), but this doesnt change the fact that i personally fail to see any value in burning vBNT that is net positive for the protocol and LPs.

burning BNT is an attempt to change the burn mechanics and see how the market react to it.

2 Likes

Ok this is going to be another long one but few points I want to address:

  1. vBNT vs BNT burning
    After reading the comments here, it makes sense to me to keep burning in vBNT.
    However, both solutions can be modified to allow vBNT vs BNT burning in any desired ratio.
    So for the sake of efficiency, I suggest we assume we’ll have another discussion around that later on and for now let’s focus on the proposed solutions themselves.

  2. DAI distribution solution
    I think it’s a good solution but one thing I don’t quite understand is how that has an advantage in terms of getting new liquidity in.
    As soon as an LP deposits into a pool with a deficit, they take a % haircut, and then they get DAI distribution that’s initially supposed to cover that haircut. Does it matter that they get something in their wallet if it’s still lower than the deficit?

  3. New liquidity
    It’s true that while pools are in deficit, they aren’t very appealing to new LPs.
    However, not all pools are in deficit, the DAO can whitelist more new pools - these won’t be in deficit and can potentially even get into a surplus if the solution is viable. If we focus on these pools (and many of them), that can actually be a significant amount of new liquidity.
    The fee distribution (in both solutions) can also be dynamic based on the deficit in the pool, so that LPs in pools with lower deficit or surplus can enjoy higher portion of the fees.
    Re. LPs leaving when the deficit is lower - it’s true that there are probably many LPs that are waiting for the deficit to close in order to leave, but on the other hand, if the deficit closes, it means that these pools are actually getting profitable for LPs, so this might also present new opportunity for other LPs.

  4. Fees vs deficit
    Very important to note that in any case the bancor community has lots of very bright minds that are going to keep building!
    New planned features that are mentioned above are going to get the focus, features that improve the health of the protocol and increase fees, so any number that’s based on current/historical state shouldn’t be assumed as the baseline for the path to recovery/growth.

  5. Implementation details
    Ok, since there is already sufficient positive feedback for these solutions, I think it’s time to start discussing some of the implementation details, as these are an important part of the decision making process here / time to market.
    Both solutions have some open issues that we still need to finalize.
    Both solutions require tokens to be traded to DAI (or ETH) through an external system, so that not to affect the pools.
    Both solutions require fees in pools to stay off curve (v3 is unique in its ability to do so), so that fees aren’t accruing IL as well.

a. DAI distribution
How do we do the fee distribution?
Fees need to be normalized between all participants. Probably based on TVL contribution and potentially take deficit in pools into account - this is one issue we need to figure out.
Distribution should probably work similar to a standard rewards contract but with a variable distribution rate.
There were some discussions around an epoch based system - you need to stake your bn tokens into a contract and distribution is done after each epoch is over (day / week / month etc.).
It means tokens are staked for participation, a bit challenging in terms of UX etc.

b. Protection mechanism
How do we distribute the protection?
Assuming that fees are traded into ETH/DAI and then sit in the mutual protection bucket, how do LPs get access to it?
One of the options discussed is a dutch auction/leaky bucket approach (credit isn’t mine :slight_smile:) -

  • every day (for example), X amount of tokens can be accessed when an LP withdraws
  • let’s say we start with 10% (parameter) coverage
  • the next day, if the bucket isn’t empty, we add X amount of tokens again but this time the coverage is increased to 11%
  • whenever the bucket gets empty, the next day the coverage drops by 1% again
  • we can potentially also take the deficit in the specific pool into account, giving some advantage to LPs in pools with more deficit

This creates an interesting dynamic that LPs have an incentive to wait in order to get more coverage while LPs that leave earlier cause the deficit to reduce.

Of course all of the above are just preliminary ideas that should be hashed out.

8 Likes
6 Likes

I strongly believe that we should NOT capitulate here, we should keep are foot on the gas and burn vBNT only NO SPLIT. A fee burn is always a trailing factor as far as impacting price, look how much ETH has been burnt with EIP-1159. As far as the Dune analytics not showing accurate info that can be communicated and fixed. The key point is that burning vBNT has a double positive benefit over burning BNT directly. (read below)

  1. Burning vBNT preserves the BNT captured via trading fee building liquidity and driving further trading volume and revenue. If we were to burn BNT instead we would lose this liquidity capture aspect of the trading fee.

  2. vBNT/ BNT ratio is still at about a 20% discount and now with V.3 it will soon be at a surplus. THIS IS MAJOR! So by burning vBNT we are getting the same circulating supply reduction effect as burning BNT directly but doing so at a 20% discount and we’re also driving up the value of vBNT potentially adding value for existing LP’s since they already have vBNT and when vBNT is greater than BNT it will create an arbitrage oppurtunity and drive further trading activity on the protocol. (Economic effects of vBNT can be complex @mbr would know more if he is available to comment)

This crises has presented a very rare opportunity for us to turn on the turbo chargers on the vortex and really set the stage for supply scarcity in the near future and vBNT burning allows us to preserve liquidity at the same time so I think it’s extremely important to commit to burning VBNT only to maximize this opportunity.

4 Likes

The new liquidity attraction for the DAI model would be the fact that someone looking to LP while a pool is in deficit can look forward to collecting their fees in DAI and being able to withdraw those fees locking in revenue while they wait on their pool to close the deficit and reach 100% impermanent loss protection. That new LP would also be encouraged by the fact that they are potentially helping to close the deficit by contributing more liquidity driving trading volume while we have this increased fee capture system in discussion.

That’s my understanding,
but for right now I’m more in favor of the Potection Model over the DAI model since it could be implemented faster as Mark on the community call expressed distribution of DAI would be complex and costly. But maybe we can do it in the future or even have the option to collect a portion of your fees in DAI vs your TKN, that would be amazing. But one step at a time.

1 Like

Thank you. What a great explanation!!! We gotta keep burning that vBNT especially with the higher protocol fees being discussed near 100% its the perfect weapon in our arsenal to rapidly close the deficits and make this a rapid recovery! I’m getting pretty pumped!

3 Likes

Some thoughts from my end with either solution

  1. On ETH/DAI as distribution:

Both of these models required us to source ETH or DAI (DAI to pay LPs and ETH/DAI for the insurance bucket) using outside sources which means that the Bancor DAO will be paying fees to another entity. I would much rather that we do not do that and we keep as many of the fees internally to us. For this reason, I like the “DAI” solution that collects a portion of fees in the native TKN and keeps it off the curve to cover deficits for that pool. I also like the “protection” solution for the specific reason that LPs will not be getting DAI but rather fees in their own native token. If we want LPs to have access to fees being collected in their native TKN (for quick cash), we don’t have to add it to the pool but rather make it available to be collected separately (they can deposit back into Bancor if they want and we can give them the option to do so).

A lot of LPs in Bancor are LPing with these tokens and HODL them because they want to accumulate more of the same token that they are staking. If you are not bullish on the tokens you are holding, then why even HODL or LP with them? I think this is an important value proposition that should not be ignored. Yes, we can always offer LPs the option to convert their DAI distribution to another TKN when they collect their fees but then again, you have already lost value by converting these TKNs to DAI in the first place (payed fees to someone else).

  1. On the topic of LPs:

On the DAI model, a compelling case can be made for TKN LPs that if we have pools in surplus and there is a bunch of TKN outside of the curve, a portion of this can be distributed to everyone based on some cadence. We obviously want to keep some surplus or reserves “off the curve” for any insurance payments in the future and we can figure out what that percentage should be. This might be a benefit to attract LPs into Bancor. I am not sure if BNT LPs should be entitled to a portion of these tokens since there are other benefits of being a BNT LP.

  1. Protocol Treasuries

We should take into consideration treasury deposits from other protocols that are TKN LPs. Some preliminary comments received are that selling TKN for DAI is not a net positive. Essentially, it can be seen as putting selling pressure on their TKN and they see benefits from collecting fees in their native token instead (not selling their native TKN for DAI or ETH).

  1. Withdrawal Fee

There is no longer a cooldown anymore and I would also consider removing the .25% withdrawal fee to make it attractive for TKN LPs. Consider collecting a security fee on the fees generated (e.g. when distributing DAI or TKN to LPs). This essentially means that we are not collecting fees on the principal but rather on the fees that are earned.

3 Likes

I like how both of these methods are alleviating the ILP burden on BNT. A possible solution could be a mix of both:

BNT DAI model (modified to describe my observations)

100% network fee {90% network fee - adjustable}
Distribution (TKN1->TKN2 trade):

TKN1->BNT → 100% vortex {90% vortex; 10% to LPs}
BNT->TKN2 → 100% {90%} of fees in TKN2 moved outside the curve in that pool (ILP reserve)
{10% to LPs}

  • Notice that only the exiting side of the trade (TKN2) accrues off curve TKN reserves for ILP
  • This method builds up ILP reserve on a per pool basis
    • IL/ILP differs for each pool
      [ If the ILP reserve on a particular pool is far greater then the IL on that pool, the surplus should be transferred to LPs, or the fee distribution changed; the network fee doesn’t accommodate for this (% of ILP reserve redistributed between pool LPs by governance vote?]
    • Requires micromanagement of the pools

Treasury as a ILP reserve

TKN1->BNT → same as above
BNT->TKN2 → 100% {90%} converted into DAI and moved to protection bucket/treasury {10% to LPs}. x% of the treasury could be staked in curveFi (dependent on total IL and the reserve amount)
- If it’s triggered every trade it could be costly (I’d suggest an off the curve TKN2 reserve threshold)

  • The ILP coverage is in a stable asset and it’s earning fees, not an idle reserve in the pool
  • DAO & the public can clearly see how much funds the protocol has for ILP
  • There is no divergence of ILP reserves per pool
  • More simplistic and straight forward
  • The treasury could grow with other sources of revenues

I’d refrain from DAI distribution as rewards:

  1. There was/is always a problem of claiming rewards for small stakers on Ethereum (see the popularity of YFI, migration of SNX etc.)
  2. I presume that it would make the protocol more costly to use, which the v3 was aiming to lower
3 Likes

Why not change the burn rate to the deficit % ?
I think right now we are ~$34m in the red. So IF we have to make a change to the Burner, why not a dynamic % of BNT buybacks.
34% bnt burn/66% vbnt burn.
AS the deficit decreases the ratio switches back to being in favour of buying vbnt over bnt.
(I am against buying/burning bnt personally)

2 Likes

So If I LP to a TKN pool that’s in deficit, what is my kickback ( other than DAI div’s)?
Is it more risky to deposit then have to wait for the pool to close the gap? Would I not expose myself to the same issues v3 is facing with potential further deficits?

Could we also further incentive LP’s that are adding to riskier/ deeper shortfall pools?
For instance Link being 45% short. Could adding more DAI rewards to LP’s help keep the pool TVL’s high/ keep new LP’s happy? ( this would fluctuate as the gap tightens)

2 Likes

do you understand that when you sell BNT for vBNT and then burn the vBNT you bought that the BNT you sold is trapped unless ppl then dump vBNT?

2 Likes

This is how high and what the trend for the vBNT rate is with vortex to date

image

This is how much BNT sits under the vBNT liquidity on B3 alone, therefore unable to be bought (same as burning) until/unless vBNT is dumped.

If vBNT/BNT ratio is trending up then more BNT is being trapped in the trading liquidity for vBNT over time.

If vBNT starts to dump relative to BNT then this will release some of this 1.2 million BNT back into circulation.

Look at the charts and think for yourself about where the vBNT/BNT ratio might go under different tokenomic models.

vBNT pumping also pumps BNT, the reverse can be true if it moves BNT from the vBNT trading liquidity to TKN liquidity.

2 Likes

@ashachaf

The only people that can sell vbnt are:

  1. BNT LPs that received vbnt and decided to abandon their BNT position. This is the most idiotic scenario since you would be getting back a fraction of the BNT that you would if you just withdraw your BNT at a greater than 1:1 ratio with your vbnt in B3, due to fees.

  2. BNT LPs try to temporarily short vbnt thinking that they’ll be able to buy it back cheaper at a later date. @thedavidmeister 's graph above shows that with B3 that is a bad bet since vbnt is only getting more expensive relative to BNT over time. Assuming BNT’s price also stabilizes with no more ILP or LMR, then it becomes a really bad bet. The vortex should be more than happy to take that vbnt and burn it, resulting in that trader losing access to their BNT forever.

  3. People with surplus vbnt selling. This is the only scenario that can actually create BNT sell pressure again since they will likely take TKN from the trade. BUT, in order for this group of people to have bought extra vbnt, they also bought BNT in the process - TKN → BNT → vbnt. So this group of people provided buy pressure on BNT previously, the same way that the vortex continuously does it. The liquidity of the vbnt pools is also ridiculously small, so they can’t apply much pressure at any single point in time. And once again, while vbnt is under fair market value, the vortex should be more than happy to take that vbnt back and burn it at a cheaper price.

So unless there’s another source for people to retrieve vbnt and sell it for TKN, the BNT that is going into the vbnt pool is being locked forever, the same result as burning BNT. You’re just buying additional and future BNT by burning vbnt directly.

4 Likes

Beautiful I love it. Love the idea of the treasury reserve bucket earning yield of curve or a yearn vault. Just use nexus mutual cover for protection. I also agree that the DAI model should be modified so that we don’t burn 100% of the BNT fee collected because BNT Lp’s would like to earn some fees. However I would be ok with it being at 100% for a few weeks to accelerate the recovery of the deficit of ILP and then later adjusted so that Lp’s earn more fees.

3 Likes

what is the point of the DAI model? Why not just leave 100% of the TKN side split fees to build the pool reserves? i could care less about getting 10% worth of TKN fees in DAI. There should be no arguments other than to clear the protocol deficits. 10% in TKN fees is barely anything. We should focus on the goal of making LPs whole.

4 Likes

It’s easier to bring back TKN through rebalancing than to make up the deficit in fees, aka, make Bnt go up vs TKN. That’s why the 90% share is focusing on buying back and burning Bnt/vBNT.

4 Likes