burning vBNT is locking BNT LPs.
2 Likes
Don’t forget, it’s trading TKN for BNT before it buys the VBNT and burns it.
2 Likes
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.
3 Likes
@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.
2 Likes
And therefore future BNT selling.
1 Like
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.
4 Likes
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.
2 Likes
So this post is going to have a few parts
- vBNT
- People are “Trapped” in Bancor
- Why would anyone LP on Bancor ever again?
- Future Features
- Final Thoughts
- vBNT
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).
- People are ‘Trapped’ in Bancor
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.
- Why would any new LP stake on Bancor?
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.
- Future Features
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.
- Final Thoughts
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.
12 Likes
@JensTelegram this was touched upon in the call today but I wanted to bring it up again, I think a lot of the fear people have right now has to do with them worrying that they might continue losing funds if they stay in bancor due to TKN price going up while bnt falls. I think something that can really help alleviate some of the stress and panic is to implement mechanisms to ensure that ‘worst case scenario’ is capped and that people don’t have the fear that they might lose everything. Mark mentioned that there are things that can be done like suspending trading if IL is more than some set percentage. I just wanted to say that this should be a priority, recovering everything with time is obviously important but this is something that can be implemented in the short term and alleviate a lot of the stress and panic
4 Likes
I’m curious how that would work with arbitrage once the trading is re enabled…
1 Like
Finally, some hope from somebody that seems to understand the best path forward. What a great post @ZenoBNT!
4 Likes
Fully agreed. This even clarifies further why I suggest that if a solution like this is put in place we get more aggressive with the payout % to holders and less aggressive to the deficit reduction. This would act as a magnet for new liquidity, which also helps to reduce deficit even further. For the TKN side, I would recommend a 75/25 split, with 75% going to deficit and even as aggressive as 50/50 on BNT since the growth in value there is also a fast way to offset deficit in short timeframe. It makes this approach a win/win/win IMO.
4 Likes
Having an incentive to remain in LP while having the certitude of not losing it all certainly would be beneficial on the short term and prevent a future spiral scenario. All the while having the Vortex slowly but steadily decreasing the deficit. One thing though, I may miss something but where does the DAI come from? Is it from the DAI LP pool? How does that work without new liquidity?
Great post Zeno. Thank you
3 Likes
Brilliant post Zeno, you totally sold me on burning vBNT. You’re right, its significantly more effective and works on multiple factors at once. Really interesting take on the DAI route, and I think you are onto something I didn’t consider; It provides an immediate reason for new users to participate without the potential threat of joining an existing deficit. And like you said, the protection route wouldn’t be bad either.
5 Likes
Would it be possible to create an auto invest option to market buy TKN with DAI every x days / month?
1 Like
GM @DFV
Interesting you prefer the protection model.
At this stage, we need to understand which direction is more interested in the DAO and then we can spend time building out a spec and timelines.
I did not say I saw 1M on dune. I am pointing out that due to the way our fees and the vortex are arranged, they should both be taken into acconut when discussing these models.
The 1M, as noted, was to simply explain the concept and the read can input whatever numbers they would like.
In a large part I agree with you. As noted on the proposal:
Such additional fee generating ideas that have been suggested by the community are:
- Protocol level arbitrage
- Use flash loans for JIT stakes on concentrated liquidity protocols
- Integrations with off chain market makers to allow for support for additional tokens and slippage fee trades. Affiliate fees can be passed to the bucket.
- Trading competitions
- Stable swap. Use a dedicated bonding curve for stable to stable trades
- Dynamic trading fees
- Token launchpad
However, none of these can be implemented until the DAO decided which is the basic framework we will build on top of.
The DAi would not be purchased from the pool on Bancor for exactly the reason you are referring to.
For users. Lets say you deposit ETH and earn DAI then it would be nice to activate a function that will automatically convert DAI into ETH every x period. If you want to receive rewards in the token you’ve deposited.
1 Like