Proposal: Extend LM Rewards on DAI/USDC/USDT Pool For 8 Weeks (Attempt #2)

[tfns]

Second Proposal to Extend LM Rewards on USDC/USDT/DAI pools for 8 weeks

This proposal is expected to appear on Snapshot for voting on Monday 31th May 2021 at 4:00 pm UTC. Make sure to stake your vBNT for voting BEFORE this date and time to participate in the DAO decision.

For the proposal to pass, 20% of quorum and >67% FOR votes are needed.

TL;DR

• Bancor v3 strategic positioning and maintaining pool competitiveness justify an extension on the LM rewards for the Stable Coin Pools (USDT, USDC, DAI) for the next 8 weeks. The proposal to extend them will most likely fail and the DAO is adamant about giving the LPs in the Stable Coin Pools (USDT, USDC, DAI) a chance to express their vote.

• A considerable voting power centralization in the past few days has been observed, enough to warrant a second proposal to be submitted.

• LM rewards impact on BNT inflation is minor. After Bancor v3 comes, LM rewards can be reassessed.

• The community synergy between Stable Coin LPs and Bancor cannot be overlooked. The second proposal will give Stable Coin LPs and BNT stakers in the protocol the option to stake their vBNT and participate in the voting process.

• The protocol doesn’t currently allow the LM rewards rate to be altered so these will remain unchanged.

• Upon release of the shadow pools, a new LM incentives program may be considered by the DAO. It is a reasonable expectation that DAO will choose to incentivize these pools; however, it is under no obligation to do so.

• The launch of Bancor V3 and maintaining pool competitiveness justify an extension on the LM rewards for the stablecoin pool for the next X weeks. The proposal to extend them will most likely fail.

• The community was largely surprised by the failure of this proposal (and other large LM extensions) and there is reason to believe that this proposal may pass if pushed again.

• It is not feasible to change the duration or amount of LM rewards due to contract complexity. Further, if LM rewards end on a pool, it is very difficult to restart them.

• If these pools are going to be renewed, it must happen immediately.

• Bancor V3 has been announced and is likely to launch within the 8 week period that these LM rewards would be extended.

• Cutting LM on these pools now is a huge change made without knowing the effects of V3.

• It is bad business and user experience to make multiple large scale changes to the platform in a short period of time. It is smarter to wait for V3 then reassess.

• The effects of LM rewards on inflation have been overstated and the protocol can clearly gain ground in TVL and volume while they are active.

Justification

Renewed Interest in Bancor Governance

The proposal to renew liquidity mining rewards for the DAI/BNT, USDC/BNT and USDT/BNT pools is being resubmitted over concerns that the DAO’s voting power has become significantly centralised, with the top wallets holding a considerable % of the quorum, whilst more than two-thirds of the total vBNT is unstaked and could be voting on Snapshot.

• Total Unstaked vBNT: 48,590,025

• Unstaked vBNT not in Vortex: 46,634,361

• Total vBNT staked for Governance: 13,827,950

• Only 22.2% of total vBNT is staked for Governance.

Top two vBNT addresses own 15.9% and 11.2% of quorum, respectively, at a total of 27.1%.

We have seen, through massively increased activity on Twitter, Discord, and Telegram, that there is significant public concern about LINK/wBTC/stablecoin LM rewards failing to pass. The Bancor community was lax and the failure of these proposals caught them by surprise. We have seen a large amount (1.5m and counting) of vBNT stakes in governance since they failed. It is clear that the community wants to vote on this proposal again and there’s reason to believe this proposal might pass now.

Contract Complexity Means We Must Act Now

• Due to the design of the liquidity mining contracts, it is very difficult, bordering on impossible, to change the amount or duration of LM rewards once they have been assigned to a pool.

• For this reason, we have an all-or-nothing decision in front of us even though it may be more desirable to choose some middle ground.

• Due to the design of the contracts, it is very difficult to reinstate LM rewards once they have lapsed. The YFI pool, for example, had LM rewards renewed a month ago which are still not active due to the heavy lifting required by the Bancor team.

• This means that if we do not renew these LM rewards immediately, we will not get them back for weeks and perhaps ever once V3 launches.

• This decision is urgent and requires an appropriate amount of our attention.

Bancor V3, Business Positioning and Pool Competitiveness

According to Bancor’s team recent announcement:

• Bancor V3 will be Bancor’s largest and most significant upgrade to the protocol.

• V3 incorporates community feedback in the past 8 months since v2.1 went live and leverages a brand new discovery in the core AMM design that will dramatically improve the protocol’s capital efficiency while reducing friction and costs for users.

• V3 unlocks a new way for passive LPs to earn even higher yields on their staked capital while being fully protected against IL. Just set, forget and earn high APRs, with no risk of IL.

• The new design will encourage more liquidity to flow into the protocol, and vastly more volume to be processed, driving sustainably high yields for Bancor LPs, and allowing the protocol to collect more revenue.

• V3 lays the foundation for Bancor to capture a much larger share of total crypto liquidity and trading revenue.

Bancor is on the cusp of V3. Every indication that we have says that this new version will be a massive change to the ecosystem. Meanwhile, we have seen the protocol continue to build TVL, trading volume, and general momentum on the back of LM rewards.

Removing LM rewards at this time is highly disruptive and flies in the face of every principal of change management. It is a change made without understanding what V3 will bring and will put Bancor’s users through two significant disruptions in a short period of time. Total protocol changes like V3 should be made during periods of stability, not during the turmoil that would occur in this case.

Some comments:

1. The protocol is still in a growth phase, both in TVL but especially in volume (Figure 1), since Bancor v2.1 was released.
2. Stable Coin Pools (USDT, USDC, DAI) pool have seen an average APR of 5.2% for DAI (past 60 days, Figure 2), 6.6% for USDC (past 60 days, Figure 2), and 5.6% for USDT (past 60 days, Figure 2) and gathered a total of $2,224,978.06 worth of fees combined in the past 30 days (Figure 3). To remain competitive with other protocols, LM rewards are necessary to incentivize Stable Coin Pools (USDT, USDC, DAI) liquidity to remain staked before Bancor v3 arrives.
3. Stablecoin pools are arguably the ones that represent the highest risk to the protocol from their increased impermanent loss. However, not only have rewards already been reduced for the pool but it should also be noted that these pools are closed and hence won’t attract more liquidity, until shadow pools are released.

Figure 1. Bancor monthly volume. May 2021 data doesn’t include the last 3 days of the month.

Figure 2. Bancor USDT/USDC/DAI pool daily APR.

symbol	total_fees
DAI	$627,435.88
USDT	$643,455.51
USDC	$954,086.67

Figure 3. Fees per stable coin last ~30 days

Liquidity Mining Rewards and their Impact on Inflation

1. At this stage, LM rewards on these primary pools (ETH, wBTC, LINK, stablecoins) are allowing Bancor to stay competitive and exceed the yields offered by competitors. Swap APYs, as they exist now, are probably not enough to draw the depth of liquidity we need.

2. 7,894,347 BNT LM rewards have been claimed from 2,557 unique addresses. Given a total current BNT supply of 204,096,941 (supply is elastic), these represent 3.87% of total supply.

3. 20,909,923 BNT LM rewards have been re-staked from 2,095 unique addresses, far outweighing the claimed BNT.

4. A large majority of the LM rewards are re-staked to the protocol, increasing the TVL and the space available for TKN deposits with single sided exposure. If this trend continues, the LM program is more of an asset than a liability, and can be managed more assertively.

5. Inflation is a complex phenomenon and simply increasing the amount of BNT tokens does not necessarily lead to inflation. And, regardless of the amount of inflation that is occurring, we don’t have enough information to say that our increased TVL, decreased slippage, and attractiveness to aggregators is not worth that inflation.

Conclusions/Comments

1. Stopping LM on these pools now may unnecessarily alienate communities who are staking on Bancor when a new solution will be released soon.

2. The protocol is still in a growth phase, both in TVL and Volume.

3. In response to the failure of these proposals and the concentration of voting power in a few large wallets, we’ve seen a huge increase in the amount of vBNT entering governance and discussion on social platforms. These facts alone warrant a resubmission of this proposal.

4. We now call on all the communities that have a stake on Bancor to make their voices heard.

5. Once V3 launches, there is nothing stopping the DAO from reexamining and even cancelling the LM rewards program in light of new information.

6. Data taken from Dune Analytics.

Update 30th May 2021:

• The consensus on the community call and the team’s opinion was that setting the duration for 12 weeks is sensible.
• This duration would also allow the DAO to direct its focus to other proposals, such as whitelisting and coinvestment quorum and supermajority requirements update as well as setting the guidelines for a delegation system.
• With a long enough duration, it is a guaranteed that we will have more information on Bancor V3 to make a better decision in the next round of extension votes.
• The stablecoin LM rewards extension is set to 8 weeks to keep liquidity in these pools for Bancor V3. These rewards are more controversial as the stablecoin pools incur higher IL protection costs, so the duration of the extension is shorter than 12 weeks to invite another debate sooner and independently from the rest of the pools, should the proposal pass. More information then should be available.

Vote FOR to:

Extend LM rewards for the USDT/USDC/DAI pools for 8 weeks.

Vote AGAINST to:

Do NOT extend LM rewards for the USDT/USDC/DAI pool.

[BurnVictim]

I’ll be voting no on this proposal.
The only change was a reduction from 12 to 8 weeks, and includes a blatant lie.
(Edit: every time I refresh the page the timeframe changes. The only thing the new proposal does is allow for negotiation on time frame of rewards. This was never the issue. The size of the rewards and lack of clear plan moving forward are the issue.
None of these new proposals are accompanied by any sort of plan to make LM sustainable moving forward and for this reason, I will be voting against.)

@tfns

The protocol doesn’t currently allow the LM rewards rate to be altered so these will remain unchanged.

We have already had proposals with their rewards reduced pass voting and be implemented. This language is different than the stable coin proposal which says they outright cannot be changed. Inconsistent messaging on every post - a blatant lie is sniffed out.

There was no good faith effort made to create a sustainable LM plan moving forward. I cannot reasonably see minting this much $BNT as a wise decision.

@tfns

A considerable voting power centralization in the past few days has been observed, enough to warrant a second proposal to be submitted.

The rules of voting are known to all. The proposals were left for the agreed upon time frames and the voting was not compromised in any fashion.

Serious implications here. Nothing abnormal occurring in the voting process. Votes are on chain and open to all. People are free to stake and participate whenever they want. 90% of the entire vBNT did not participate in the last vote. Voters simply do not care. We cannot “run it back turbo” any time people are upset with the results of a vote.

These proposals are attempting to seed doubt in previous votes that the DAO has cast and were totally legitimate. What we are seeing here is the Bancor team, and or the writer of this proposal attempting to rewrite history and change the rules of the DAO in real time.

[tfns]

Duration of LM rewards has been changed to X for now, to allow discussion on the best timeframe. The team has stated that it should be preferably longer than 4 weeks.

@BurnVictim

We have already had proposals with their rewards reduced pass voting and be implemented.

There was no good faith effort made to create a sustainable LM plan moving forward. I cannot reasonably see minting this much $BNT as a wise decision.

From what the team as said, reducing LM rewards can’t “easily be done”. I’ll personally be voting no on the proposal to extend LM rewards for the stablecoin pools.

@BurnVictim

Serious implications here. Nothing abnormal occurring in the voting process. Votes are on chain and open to all. People are free to stake and participate whenever they want. 90% of the entire vBNT did not participate in the last vote. Voters simply do not care. We cannot “run it back turbo” any time people are upset with the results of a vote.

I don’t believe that anything abnormal happened. If anything, the past voting evidenced how lazy and inactive voters can be prejudicial to the protocol.

We’re trying to change the narrative by bringing these “upset” voters and making them realise that voting is important. Should the proposals fail, that’s definitely acceptable. But at least we should have sufficient quorum so that a unanimous decision can be made.

[tfns]

It’s now time to debate on the proposals and reach some consensus in the forum. Feel free to voice your concerns.

[TheOneJM]

I absolutely support this second attempt to pass LM Rewards.

We shouldn’t be shackled to a blindside vote orchestrated by a few whales.

Let’s see what the DAO really thinks about this proposal when the vote goes up.

[TheOneJM]

How strange that your position is perfectly lining up with @Simp2Win. It’s almost like you are Sam…

[thedavidmeister]

Serious implications here. Nothing abnormal occurring in the voting process. Votes are on chain and open to all. People are free to stake and participate whenever they want. 90% of the entire vBNT did not participate in the last vote. Voters simply do not care. We cannot “run it back turbo” any time people are upset with the results of a vote.

yes serious positive implications

the goal of voting is to let people say what they want to have happen

if there is a strange result one day that upsets many people, it makes perfect sense to vote again

if the result was true to what people want overall then then the voting results should match, so there’s no harm in a recount

[tfns]

The proposal is up for discussion. This means that the current proposal can suffer changes that arise from debate.

[furs]

It’s clear that continuing rewards for these pools is important for protocol stability and growth as we head into V3.

[DarkKnight]

Rewards should continue!

[bias]

@BurnVictim

These proposals are attempting to seed doubt in previous votes that the DAO has cast and were totally legitimate. What we are seeing here is the Bancor team, and or the writer of this proposal attempting to rewrite history and change the rules of the DAO in real time.

Voting on things more than once is attempting to rewrite history? You must hate every legislative system ever devised then. If you defeated this proposal once, certainly you can defeat it again if that is the community’s choice.

Personally, I would prefer to reduce or eliminate stablecoin LM rewards. Stablecoin APRs have been competitive enough without LM and even losing LM I don’t think we will lose that much liquidity. I will be voting no on this proposal.

[BurnVictim]

We are witnessing the proposer’s attempt to commandeer another vote before his first one has even resolved. It’s a desperate attempt to take over the DAO.

[bias]

@BurnVictim

We have already had proposals with their rewards reduced pass voting and be implemented. This language is different than the stable coin proposal which says they outright cannot be changed. Inconsistent messaging on every post - a blatant lie is sniffed out.

I would also like to applaud Tiago for turning all these proposals around in such a short period of time. Any inconsistencies you see in them I would attribute to getting them to governance ASAP, not some kind of trick.

It’s much harder to craft thoughtful proposals than it is to, for example, tear down a proposal. I encourage everyone to debate all these points so we can have a well-informed vote.

@BurnVictim

We are witnessing the proposer’s attempt to commandeer another vote before his first one has even resolved. It’s a desperate attempt to take over the DAO.

There is no new on-chain proposal. We are simply discussing a future proposal, isn’t that true? We are under time constraints and there is enough new discussion and vBNT in governance to think that the result will be different this time.

If you are pro-DAO, you should applaud this swift rebuttal and discussion. Interest in governance is very high right now! If you are upset at this, I wonder what this says about your perspective.

[tfns]

The first votes ARE resolved. They can’t pass, unless >95% of the rest of quorum votes FOR. The vote for the stablecoin LM rewards extension has mathematically failed, would need a quorum higher than 100%. This is due to supermajority rule.

The votes being put up this fast is so that a second decision can be made before the timers expire, as restarting rewards involves extra effort from the dev team.

[tfns]

@bias

There is no new on-chain proposal. We are simply discussing a future proposal, isn’t that true? We are under time constraints and there is enough new discussion and vBNT in governance to think that the result will be different this time.

And like bias said, no new proposal is being put up to vote yet. Just debating.

[BurnVictim]

@bias

If you are pro-DAO, you should applaud this swift rebuttal and discussion. Interest in governance is very high right now! If you are upset at this, I wonder what this says about your perspective.

A rebuttal that changed parameters would be welcome. A repeat proposal unchanged will do nothing more than trap new voters into the governance contract for 7 days and for that I applaud the author. We will build strong hands together.

The network creates $20m~ of BNT (at current prices - much higher two months ago) every month to pay for Eth, Link, and wBTC pools.

The network also $9m~ of BNT (at current prices - much higher two months ago) every month to pay for the stablecoin pool rewards

These pools combined bring in less than $3m in monthly fees to $BNT holders. (~half of the total fees)

Why is BNT crabbing? This is why.

The rewards program for this pool was designed at $.50c BNT and $500,000 TVL.

Current TVL exceeds $1,500,000,000 and $BNT price is $5~. It’s time to rework.

[bias]

Public awareness and interest in the vote has changed.

edit: That was unkind, I retract it.

[tfns]

@BurnVictim

A rebuttal that changed parameters would be welcome. A repeat proposal unchanged will do nothing more than trap new voters into the governance contract for 7 days and for that I applaud the author. We will build strong hands together.

Please refer to my comment above where I explicitly say that this proposal is up for debate. Willing to change it in any way that is sensible to the community’s opinion and doesn’t involve excessive effort from the dev team.

What do you suggest? We’re aware that changing LM rewards rate can’t be done easily. We can adjust the duration to allow more information on Bancor v3 to come out. If you have any other suggestions, feel free to voice them, they are more than welcome.

[BurnVictim]

We all know that rewards need to be cut. Better now than in 6 months, same result of angry people, except for that fact that if we wait a further 6 months there will be 100s millions $USD of strengthened CRAB.

The time has come to face our fears.

Lower LM, higher BURN >> healthy and sustainable BNT model.

[tfns]

It doesn’t have to be one or the other. We can for example cut some of the LM rewards off, but not almost all of the big pools at the same time before a major protocol improvement.

A proposal can include other conditions such as tapering the LM rewards after say 4 weeks, to allow the team enough time to do it given that an action needs to be taken in the next 5 days. Sounds more sensible to you? I’m sure we can come to an agreement of some sort. If that’s not the case, everyone is free to vote again and by the time these proposals are up, the current ones would’ve failed. If these proposals fail, that’s fair and the rewards should indeed be cut off.