I would love to say yes, however, from what I have seen on chain, I don’t think so (and I would love to be proven wrong)…
So, what does it mean, what can we do?
What is happening?
Looking at the (excellent) IL protection Dune we see IL issuance of BNT has spiked in the last week:
I think ETH is our main issue (and I’m going to focus on ETH), however, I suspect all the other TKN:BNT ratios are showing similar trends.
Coingecko shows BNT : ETH fairly steady over the last 90 days, then dropping in the last week.
Note, this weeks volume is higher than recently, but not greater than other periods in the last 90 days. However, this time, we see more price impact. What’s happening is rather than buys and sells being about equal, there are more sells, and so sells are going into the protocol and changing the # of BNT in each pool and pushing the BNT price down.
So, a key problem is simply more sellers than buyers.
Are Celsius selling?
I believe so, and I think that (one of) the Celsius wallets selling is this one 0x3B65.
If we look at the last 3 days we see the following pattern each day: Exit B3 withdraw queue receive ETH and BNT, Sell BNT for ETH, transfer ETH.
Looking at the transactions we can calculate the ETH to bnETH ratios:
| Date | transaction | bnETH redeemed | ETH received | % ETH | BNT received | BNT $ |
|---|---|---|---|---|---|---|
| 14 June 11:20 | link | 1999 | 1418 | 71% | 835,000 | $680,000 |
| 15 June 12:03 | link | 1999 | 1362 | 68% | 1,000,000 | $740,000 |
| 16 June 12:45 | link | 1999 | 1331 | 67% | 1,097,000 | $648,000 |
Note, these values are significantly smaller than the global BNT volume (~$35 M, which may miss B3 volumes) so there is lots of other things happening (Bancor 2.1 IL issuance, other Bancor B3 IL issuance).
As the BNT : ETH ratio drops (i.e. ~ BNT price falls in $USD), then ETH IL in that pool increases, so Bancor issues more BNT.
This is the key to our short term problems:
When there are large withdraws at a time when BNT price is low, we issue more IL BNT, if it’s large enough, then resulting sale pushes the BNT price down further.
Remember, IL is vs BNT for all other tokens, BNT dropping away from the market, is bad.
Celsius are not the only people causing large IL protection BNT issuance
Note, these values are significantly smaller than the global BNT volume (~$35 M, which may miss B3 volumes) so there is lots of other things happening (Bancor 2.1 IL issuance, other Bancor B3 IL issuance).
In fact, looking at this bundle of (not verified! ) Celsius wallets, they have only sold 5.5 M BNT (for 3,724 ETH ~ $4 M) in June.
According to this query, there has been ~36 M BNT issued for IL in June. So, the identified Celsius wallets are 15% of the IL issuance in June (or the wallet bundle has missed some Celsius wallets… 
)
Have the sales stopped?
I’m assuming that most of the large v2.1 withdraws have been done as they only include a 24 hour lock up…
Looking at this chart:
Protected balances in v2.1 dropped for ~140 M on 30 May to ~$95 M on the 13th June.
(Note, I don’t know what happens when tokens migrate to B3, does the BNT IL debt get transferred, or is it paid in some way and B3 has a fresh start 
)
Looking at selected tokens in the B3 withdraw queue:
| Bn number | Price (1:1) | Value in queue | |
|---|---|---|---|
| ETH | 30748 | $1,095 | $33,669,060 |
| Link | 2653358 | $6.46 | $17,140,693 |
| wBTC | 41 | $20,979 | $860,139 |
| DAI | 7905495 | $1.00 | $7,905,495 |
| USDC | 2000014 | $1.00 | $2,000,014 |
| Total | – | – | $61,575,401 |
i.e. There is another $61 M to exit with the majority being ETH…
However, this is much less than in the queue at the start of the month (but we could get more IL issuance as BNT price has moved…).
How much is Celsius?
In some respects, this is irrelevant, an LP is withdrawing, and is expected to get BNT which we expect they will sell.
However, we can see from here that the suspected Celsius wallet has ~14,877 ETH in the withdraw queue. So about
- ~$15 M of ETH to be removed,
- IP protection paid in BNT,
- and presumably sold by Celsius. (50% of total ETH exiting B3)
So we are expecting IL issuance and sales over the next week (some Celsius, but most others).
What can we do?
Firstly, BNT is one of the most liquid tokens. The vast majority of BNT in existence is sitting in constant product AMM pools.
This means that a $1 M sale (or purchase) of BNT has a much smaller effect than a $1 M sale of anything else.
So, we are in a better place than others to weather this storm.
I see a few options for what we could do in the immediate future. None of them are great, and they will all have effects.
1. Do nothing
Bancor is a robust protocol, this scenario has been modelled. BNT will get issued to cover IL, but nothing breaks (However, BNT holders get diluted)
2. Build more liquidity on Bancor.
More liquidity means two things:
- In pools below the liquidity limit (or cap on v21.) sales have a smaller impact on BNT price, and so reduce the IL paid to those leaving any pool.
- In B3 pools above the liquidity depth, we have more surplus TKN which dilutes IL for the withdraws from that pool.
In both cases, it effectively pushes back the IL to a future date / spreads it around.
3. Increase trading depth on B3 pools with a surplus.
Increasing depth, reduces price impact. So BNT $ value drops less for a given trade. Opening up more ETH / USDC / DAI to trade, we reduce BNT issued for IL protection. So less dilution.
However, once again, while reducing IL overall for Bancor (for other pools), it increases it in those pools adjusted (which will need to be paid in some way in the future).
- Increase pools fees when we expect BNT sales.
If we increase v2.1 and B3 pool fees (e.g. ETH from 0.1% to 1%) for the next 2 weeks it will have a few effects (and probably some I miss):
- We capture more fees to the protocol for IL protection and vBNT burns.
- We penalise those selling (and those buying) BNT by taking a larger slice of the trade.
- APY’s on pools increase, so we may gain LP’s and cause some to stay in the pools.
- We will loose some volume to other DEX’s / CEX (mainly on TKN to TKN trades).
Please note, I’m not an expert on Bancor economics, so there may be critical things I’ve missed. I’m happy to be corrected.
Any comments?