Proposal: All V3 pools to Max Approved Trading Liquidity

Expected on Snapshot August 7th, 2022

TL;DR

  • At the time of writing, there are 18 pools in V3 that are not at their maximum approved trading liquidity.
  • This proposal seeks to increase all the pools to the max
  • BIP 15 outlined how trading liquidity is increased up to its max in the protocol
  • BIP 17 outlined the max trading liquidity for each token
  • The protocol currently has deposits disabled so only migrations can increase TKN trading liquidity.
    • NOTE: By the time this goes up for a vote it is possible deposits are enabled, but not via the UI

To solve this, a proposal was passed by the Bancor DAO to introduce a function to do this without deposits.

Context

Increasing trading liquidity in pools has two main effects:

  • Likely increase in fees - More liquidity means lower slippage, more volume from aggregators and a better deal for traders overall.

  • Potentially more deficit - Only the TKN that is on the bonding curve is exposed to IL/deficit

    • If the ETH pool has 5 ETH on-curve and 20 ETH off-curve, only the 5 ETH on-curve is subject to IL/deficit while the 20 is not affected by market forces.

Parable of the Soccer Team

Allow me to tell a brief story about a soccer team.

The team didn’t play enough defense and is now losing 3-1 at halftime.

During halftime, the team discussed options on what to do next.

Many correctly pointed out that they are not playing enough defense so perhaps that’s what they should focus on.

However, a focus on defense at this point would almost guarantee they cannot win. Even though it’s counterintuitive, their best option at this stage is to press aggressively for offense.

Discussion

If we view the protocol as the team at halftime, I see many of the conversations in the community pushing for defense. However, that seems to almost cement many of the existing deficits.

The logic here is that not using a pool’s maximum liquidity when it is in deficit actually reduces the ability of the pool to reach balance.

While I understand the push to move TKN off-curve, I think the timing is wrong. We should be putting TKN off the curve when those pools are in surplus, not deficit.

Data

Token Percentage Increase in Trading Liquidity Surplus %
BBS 172% -8.9%
BORING 733% -15.8%
CHZ 51% -43.5%
DAO 605% -10.3%
ENS 100% -18.7%
GTC 81% -2.2%
HOT 1293% -22.1%
INST 247% -41.5%
LQTY 188% -2.0%
MFG 1642% -6.3%
MKR 64% -68.5%
RARI 107% -4.7%
RLC 33% -6.8%
RPL 142% -45.3%
SHEESHA 827% -3.1%
STAKE 16% 11.3%
VITA 77% 0.0%
WSTETH 144% -4.5%

Tokens Affected: 18

Also, an important consideration is that if we increase these pools to their maximum approved trading liquidity, we will have among the deepest DEX liquidity in Bancor pools for the following tokens.

Token Max TKN Trading Liquidity (USD) Uni V3 TKN Liquidity (USD) Uni V2 TKN Liquidity (USD) Sushi TKN Liquidity (USD) Combined TKN Liquidity Outside Bancor (USD)* Bancor to Outside Ratio*
BBS $38,683 $8,500 $0 $0 $8,500 455.10%
BORING $113,770 $10,000 $20,000 $0 $30,000 379.23%
MFG $224,326 $215,560 $3,024 $0 $218,584 102.63%
HOT $450,016 $458,580 $19,373 $1,000 $478,953 93.96%
  • as compared to Uniswap V3, Uniswap V2 and Sushiswap on Ethereum only.

Note: This proposal also includes new pools such as CROWN and ACRE

Voting Instructions

FOR - Immediately move all V3 pools to max approved trading liquidity

AGAINST - Take no action

4 Likes

I’m definitely for this. I strongly agree that it’s time to go on offense.

4 Likes

Thank you @foxsteven for this proposal. Smart MFG (MFG) fully supports this proposal & appreciate the work the team & DAO are putting forth. :raised_hands:

3 Likes

I have been very consistent when saying that I believe the protocol does not generate enough revenue. Maximizing trading liquidity, I believe, will increase revenue. I will be 100% forthcoming on the risks/benefits here:

Does this expose us to a potential increase in the deficit? Yes.
Does this expose us to a potential reduction of the deficit? Yes.

In the Bancor Monthly Recap - July I stated I would be making this proposal because I believe it would be the best way forward. I’m glad you beat me to it Steven.

3 Likes

A few updates here:

$USDT, $MONA, $PHTR have already been approved separately and can be removed from this proposal:

TOKEN On Curve % Surplus %
USDT 34.5% -41.2%
MONA 19.2% -57.6%
PHTR 5.1% -0.4%

The Bancor DAO approved a reduction in the $ICHI trading liquidity so that should be removed from here as well:

TOKEN On Curve % Surplus %
ICHI 6.2% -34.3%

Note: ICHI is currently at max trading liquidity and should not have been included in this data. Will try to update.

We should not touch the trading liquidity in the $vBNT pool since that should be given special consideration. @foxsteven please update the listing above, thanks.

Done - credit to @NIX

Thanks :+1: , looks good to me.

1 Like