After talking to glenn on discord and as a non tech guy who is on a timer and completely helpless in the whole situation (like most of the people) i would like to get the DAO to a decision for one of the three recovery models.
This way way we can get a proposal as fast as possible and be on the way to recovery before the ETH Merge and Link staking
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@ohweoh FYI (forgot to reply to your comment):
Essentially, since we are always burning vBNT then LPs in this pool will always be exposed to price divergence and token re-balancing risks. The deficit in this pool will always exist since there will never be enough vBNT to give back to all depositors.
Note that there is always an incentive to create more vBNT when the price of vBNT > BNT (even in the bancor 3 vortex this is true where the price of vBNT can well be above BNT which wasn’t true in v2.1) so an outsider has an incentive to buy BNT in order to receive vBNT (replenishing the pool) and swap for BNT which he can then sell.
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Like all of you, I continue to gain more understanding of how each of these scenarios would work, pros/cons, etc. I still believe this option is the quickest and most effective in the short term. However, long term, there will always be a need for deficit coverage depending on a pool’s performance in the market. Because of this, I believe the long term solution should be Option 2: Protection Fund. This would be an evolutionary upgrade to our prior IL protection, but with checks/balances and without the minting/dumping of BNT. Doing this enables us to still offer protection that no other DEX is really able to offer, give confidence to those that would be attracted to such an offering, but want to ensure it would not fail like our previous ILP did under the market conditions. I think the key is limiting coverage to a certain level of deficit coverage per pool (i.e. 10-15%). By doing that, we can war out scenarios that tell us how deep that fund needs to be and show that it can weather the worst of situations.
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Right that’s why I bring up the issue. As you said, VBNT will/should always be in deficit. So if the pool is in deficit when LP’s withdraw, what are we going to pay them back in?
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So can we come to a decision ans move on?
Maybe someone smart can summarize all three models with the changes adjusted we made in the discussion and put a poll below?
Model 1
Model 2
Model 3
Not clear now keep doscuddiin alive
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I’ve been keeping the post updated with the changes as we go.
To clarify, vBNT is deflationary vs BNT but the pool itself can still be in surplus or in deficit state. E.g. someone might vortexed themselves into the pool when the rate hits 1 in which case he would add vBNT into the pool and remove BNT. This should lower the deficit (or increase the surplus if there is one). Additionally new vBNT can always come into existence and will be added to the pool if the vBNT-BNT rate is >= 1 and when it is profitable to do.
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I’m in support of this option as well. I think we’ll need to define some constraints and potentially take pool deficit into account when calculating how the production fund is used but we can do these optimizations at a later stage.
I think there is an extreme amount of execution risk here, where the features literally have to work. We’re putting everything on the line on solutions that likely have a less than 50% chance of working. We’re trying to generate $35M+ of value from TKN liquidity of less than $50M. This is an insane and tall order by the team.
I’m sure the team is under a lot of pressure here to get this right. And the timing isn’t working in their favor as the deficit continues to get worse and will only get bigger until a viable road to recovery is realizable.
The protocol deficit is now at $36.5M, when just last week it was at $29M.
I think we need a solution here that will clear out the deficit in one go where all losses are socialized by BNT LPs and TKN LPs alike equivalently, and the team can work on a solution without the time constraints and pressure of losing even more money the longer this plays out.
My idea is this:
- We socialize the BNT surplus of $21M among all LPs (Both BNT and TKN LPs), and in doing so, all LPs take a smaller haircut and we wipe out the deficit, and no longer hold the protocol liable for any IL going forward. So no more deficit will accrue after this.
- To prevent inequity in recoveries, all the $21M of BNT surplus should be sold at the protocol-level by Bancor, and the proceeds should be distributed to all the LPs.
- One way to mitigate against the tremendous price impact of selling $21M of BNT is if the Foundation would be willing to buy in an OTC deal all of that BNT at current market prices. This would not be a bailout given that the Foundation isn’t simply just handing money over. They are buying the BNT in an OTC deal.
The benefits here are that (1) this is NOT a bailout as the Foundation would receive considerable BNT in return (2) the Foundation gives confidence that Bancor can survive as a going concern and also doesn’t crater the BNT price because it buys it in an OTC deal (3) the deficit is wiped completely clean and (4) most importantly, the devs and team can experiment and break things without the time pressure and financial pressures of losing even more money.
6 Likes
You mean take BNT and give it to TKN stakers?
If yes, they will likely immediately sell and increase the deficit
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.
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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.
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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
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 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.
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