Yes, this is very easy to do upon your claiming of DAI and would generate fees
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WOW @ZenoBNT
What a well thought out and well articulated reply.
- Open to your view on vBNT but waiting to hear more feedback. Maybe we should make a poll.
- I agree with you on the market fit for DAOs who will want DAI
- “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.” - agree
- Agree that protocol arb is likely to be the highest ROI feature and that’s why I had it first on the list.
- Agree
And again, thank you for the long form explanations
3 Likes
my only concern with such solution is that:
- it will take few months to develop
- it forces bnTokens to be staked into a new contract (adding cost to opt in and claim)
- it require several abuse prevention functions
i do like the DAI model, but think we need to start with the solution that is quickest to release and then move on.
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there is no real “automatic” transactions on chain.
we can try to create a vortex style functionality that allow external users to trigger such trade and collect some of the ETH for doing so.
my biggest concern with such thing is that DAI<>ETH rate keeps changing. meaning you might expect to receive x amount of DAI but if they are traded for ETH at different price points, you might be losing some value in the process.
2 Likes
reading all these comments i am a bit torn.
on the one hand, the v3 auto compounding rewards was designed to reduce the stake, claim and unstake transactions which to the most part on most cases cost more money than the amount you earn. this pose a limitation on smaller LPs as they just wont be able to access this benefit.
however, it is preferable for LPs to have the option to collect rewards/yield without touching their deposited position, basically liquidating only the earnings.
to some degree, this resulted in many users claiming and selling their BNT rewards on v2.1 (which is why i am torn as it has good&bad results at the same time)
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Are there alternatives we could use to a standard rewards contract for DAI distribution?
Is an airdrop feasible?
What about a contract that collects DAI & knows how much each address should be able to withdraw? (Writing this it does sound very heavy)
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re: “Does burning BNT give benefit over burning vBNT?”
This is all my current personal understanding, please correct me if I’m wrong on any points as I believe this is an important question.
Here I will discuss ONLY the B3 vBNT burning, because as per BIP15:
The process on Bancor 3 is significantly changed from that of version 2.1
High level steps from the protocol:
- TKN sold for BNT
- BNT sold for vBNT
- vBNT burn
So there’s an omnipool/vault in v3 with all the BNT in it that everything trades against.
BNT was taken out in step 1. and put back into the same vault in step 2.
In reality it doesn’t even move, as per BIP15:
- The accrued BNT exists inside the vault, and remains there until the Burner is triggered.
- During a burn, the BNT remains where it is, vBNT is burned directly from the vault, and the trading liquidity on the vBNT pool is updated as though a trade was performed.
So assuming you don’t know anything else about B3, there’s two possible ways you could interpret the impact on BNT/TKN price:
A. As the same BNT was taken out of the pool and put back, the net impact to TKN/BNT price is 0
B. There is some internal accounting that treats the withdraw and deposit differently such that the net impact to TKN/BNT price is non-zero
as per BIP15 we see several diagrams showing “trading liquidity” and “vault balance” as totally separate things, e.g.:
So therefore B. is true, in step 1 BNT is taken from the TKN trading liquidity and in step 2 it is added to the vBNT trading liquidity.
This means that after step 2 we have raised the price of BNT relative to TKN and lowered the price of BNT relative to vBNT. Provided the vBNT that was purchased in step 2 is not sold this sets up an arb opportunity for every TKN other than vBNT to “smooth out” the BNT price increase, averaging it across the entire system, reducing deficits.
The BNT that was deposited in step 2 is internally bound to the vBNT trading liquidity, which means the ONLY way it can move to the trading liquidity for ANY other TKN (and therefore decrease BNT price denominated in literally anything) is by redepositing the vBNT that was purchased in step 2 to withdraw the BNT from step 1, then sell that BNT for some TKN. The omnipool/vault never “double spends” a single BNT as trading liquidity for 2 different TKNs, and BNT in the vault is not a “slush fund” available to all TKN at all times.
Clearly once step 3 happens to burn the vBNT it is not possible for the entity performing steps 1-3 to access the BNT from step 1. It’s like burning the keys that hold a token rather than burning the token itself.
So who DOES have access to the BNT from step 1?
The other vBNT holders of course, who are now free to dump their slightly more valuable vBNT for their share of that BNT, which happens when they trade vBNT for any TKN. Note however that because the BNT deposited from step 1 is shared proportionately between vBNT holders, they ALL have to dump ALL their vBNT to unlock ALL of that newly deposited BNT. vBNT holders were already free to dump their claim on BNT that was already available for vBNT trading, we’re only considering the impact of newly deposited BNT here. Meanwhile, new fees would be coming in and burning vBNT at an ever increasing ratio while that mass vBNT dumpage is occuring, so the system trends to either “zero” vBNT having a claim on “infinite” BNT (burning vBNT > burning BNT), or the vBNT dumping stops (vBNT = burning BNT).
OK so what if people front run the above and pump vBNT purchasing it in anticipation of the burn? Well, the moment the buy and burn is no longer leveraged from the perspective of the protocol (burning BNT > burning vBNT) is the moment that people can deposit BNT directly to mint vBNT and dump it for instant profit to bring the price of vBNT down again.
So, given all the above and that:
- vBNT is currently worth significantly less than 1 BNT (e.g. the “leveraged burn” explained by @ZenoBNT )
- vBNT can ONLY be minted by staking BNT
- BNT can ONLY be acquired by purchasing it (as mints are disabled)
- Fees are typically less than deficits caused by IL, therefore a ratio >1 amplifying fees vs. new liabilities per trade is a hard requirement for the system
Where is the benefit to burning BNT vs. vBNT?
3 Likes
few benefits i can think of:
- easy to understand. burn BNT create a direct deflationary force on BNT supply
- free vBNT to be a DAO token. currently, we “force” users to decide how they want to use their governance tokens:
- use it to decide on the future of bancor as a DAO member
- deposit it in the BNT/vBNT pool and try to earn fees from all the known vortex burn activities
- sell it as leverage
- stop selling BNT. when we collect BNT in a bucket and sell it at once, the sell pressure is always perceived to be greater. we should avoid any self made actions that create such sell pressure on BNT.
1 Like
re: “We should burn BNT for short term psychological/market reasons”
This is a euphemism.
What it means is “Trick external people into buying into something that is unsustainable based on all data and math we have, to the sole benefit of current participants.”
Let’s assume you do “fix” the deficit in “the short term”.
OK, so what next.
This is a psychological and market based argument, so what will the market do?
Pump and… bank run 2.0.
The moment the deficit is sufficiently closed it will be a race to the exits for many.
Sadly this is true regardless of how the deficit is closed, many only seek to leave Bancor with minimal loss at this point and will leave because the deficit decreases.
The question for the DAO immediately after “how to close the deficit?” is “how does the protocol continue to function after mass exits due to the deficit closing?”
At that point, the sustainable vs. unsustainable question will need to be answered one way or another.
For every current vBNT/BNT holder who sees and understands this, will they continue to buy/hodl or will they sell when they see vBNT burning replaced with BNT burning?
Is it definitely true that BNT burning achieves a “psychology pump” given the above?
2 Likes
- easy to understand. burn BNT create a direct deflationary force on BNT supply
The protocol is supposed to be a “friendly whale” and behave rationally/mathematically/optimally despite sentiment.
If you program the protocol to behave according to sentiment then what is the justification for it holding and controlling the majority of liquidity?
- free vBNT to be a DAO token. currently, we “force” users to decide how they want to use their governance tokens:
This can be solved for directly by allowing the BNT/vBNT pool token to also participate in governance based on its staked balance, which is a benefit of the single sided staking system
Keep in mind that people who sell for leverage and want to keep the voting rights they sold will be able to gain significantly more influence in the DAO vs. what they deposited initially according to how much they leverage. That seems like a governance attack waiting to happen IMO.
- stop selling BNT. when we collect BNT in a bucket and sell it at once, the sell pressure is always perceived to be greater. we should avoid any self made actions that create such sell pressure on BNT.
What sell pressure? Did you read my post? Please explain where what i said is incorrect. I clearly stated that there is no sell pressure, so if you disagree you have to show where the selling happens.
If the issue is perception then the solution and onus is largely on the people who design and deliver the front end and other user-facing materials/discussions to educate people better, not worse smart contracts and governance.
2 Likes
What sell pressure?
B3 collect tiny amounts of BNT over time coming from different trades in the system.
once the amount is large enough, a vortex burn is triggered which result in selling BNT for vBNT.
this signals a sell transaction to the market.
since market is irrational, larger sell events create more noise.
assume the following.
every day i buy $100,000 worth of ETH → expected buy pressure is not visible as the amount is small and not noticeable.
after 100 days, i sell $10,000,000 in a single transaction.
would the sell impact be greater than the buy one?
1 Like
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:
-
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. -
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? -
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. -
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. -
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 
) -
- 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
- System schematic based on the latest description… as I understand / see it. Happy to provide edits/updates as needed.
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)
-
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.
-
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