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
, looks good to me.