Proposal: Increase the funding limit on the ACRE pool to 100K BNT

[federaljahannam]

This proposal is expected to appear on Snapshot for voting on Sunday 28th August 2022 at 12:00 pm UTC.

TL;DR

• Increase ACRE/BNT liquidity by 100% to reduce slippage and increase trading volume.
• The current funding limit is at $50k BNT and due to markets being volatile at the moment, we would like to propose to add an additional $50k BNT to the pool

Justification

Motivation:

The motivation to add more liquidity to the ACRE/BNT pair is to increase trading volume by reducing slippage.

The current funding limit of the pair is at $50k BNT at the moment, we would like to increase the liquidity by 100% or an additional $50k BNT to compensate for the change in the token price of BNT since our original proposal passed.

Arable currently has ~$40K worth of liquidity on Polygon and ~$35K on Avalanche. We would like to have a similar level of liquidity at Bancor.

ACRE can be used by farmers, traders, and collateral providers when Arable launches its dApp on Ethereum.

Protocol Description:

The Arable Proccol offers synthetic multi-chain trading and synthetic farming, a first in DeFi! Our objective is to make multi-chain farming accessible, affordable, and simple for everyone. Both seasoned and novice farmers can easily stake in yield farms from various chains thanks to a user interface that is straightforward but effective.

We are actively marketing Arable Protocol and engaging with our community through multiple avenues:

• We run numerous competitions, including our current “Arable Olympics” series of high-rewards events.
• We host our own AMAs on our social channels and are guests at AMAs of our partners, such as Multichain.
• We publish a variety of articles and educational content.
• We collaborate with many partners across the DeFi space and micro-influencers.

References/Useful links:

Linktree: https://linktr.ee/arable_protocol

Website: https://mvp.arable.finance

Litepaper: https://github.com/ArableProtocol/arableintro/blob/main/Arable_Litepaper.pdf-

Communities: Twitter: https://twitter.com/ArableProtocol - Telegram: https://t.me/ArableProtocol - Discord: https://discord.gg/d8vHPxGfGx

[sylentz]

Perfect time to use the simulator to evaluate fees and IL and discuss constant co-investment @thedavidmeister @mikewcasale

[thedavidmeister]

The current funding limit of the pair is at $50k BNT at the moment, we would like to increase the liquidity by 100% or an additional $50k BNT to compensate for the change in the token price of BNT since our original proposal passed.

minting BNT for coinvestment is fine as a concept, but minting it to compensate for price changes is not imo, and here’s why:

if the amount of BNT on the curve has decreased due to the price changes, that means that BNT that was minted back then was released from this curve and moved to other curves

if we mint more BNT and the price moves again, we will be releasing more newly BNT into circulation

this minting would put downwards pressure on BNT price, which even without ILP and even if you don’t care about BNT price, hurts other tokens on the protocol

this is because as TKN price decreases (e.g. ACRE in this case) the people selling that TKN into the TKN/BNT pool, unless they hodl the BNT they pulled out, are swapping it for some other TKN, which increases the deficit “somewhere else”

it is safest and reasonable to mint more BNT for coinvestment for tokens that behave most similar to BNT in price and already have high volume, i.e. similar to the crypto market overall. Minting more BNT for some TKN each time its price drops to try to maintain some external liquidity peg (e.g. $X) is dangerous for both the protocol and for TKN LPs. Minting more BNT to increase liq on a low volume token on the promise of future volume “due to slippage” is dangerous (e.g. LINK).

As I understand, that strategy would cause deficits elsewhere across the protocol as TKN price goes down, but also if the price reverses, lock in a large deficit for TKN on the way back up as it would be mooning relative to a larger amount of BNT that was minted somewhere near its local bottom. Or to say it another way, the TKN “IL” breakeven point would be a number much closer to its post-dump price.

This is something that @mikewcasale would know how to simulate to confirm/reject what I’m saying.

@federaljahannam

Increase ACRE/BNT liquidity by 100% to reduce slippage and increase trading volume.

7d trading volume is $28

unless these fees are demonstrably significantly higher on other AMMs (e.g. 100x+)

increasing liquidity won’t drastically increase the bancor volume because

@federaljahannam

The current funding limit is at $50k BNT and due to markets being volatile at the moment, we would like to propose to add an additional $50k BNT to the pool

high volatility moments are typically when we see (in data for tokens that naturally attract volume) high fees regardless of the liquidity

slippage is generally a concept that is most relevant to low-volatility, high-volume times because by definition the trades themselves are happening in a tight price range, so the slippage has to be less than that range, when prices are trending then the slippage isn’t particularly relevant

if we expect large price changes then that’s when we should be taking liq off curve, only putting it back on when things calm down

it’s not possible on a constant product curve to have fees offset IL during a clear price trend, and adding liquidity only makes that worse

@mikewcasale is indeed working on showing how price trends and liq interact in the simulator

you can read about it here Proposal: Limit on-curve liquidity to max(520 x 7 day fees, 100k BNT) - #44 by thedavidmeister

[lesigh]

I agree with your sentiment in general, but this seems like a reasonable ask to bring their liquidity in line with the depth they have on other exchanges where they do have more volume.

I see this request as very in-line with their project size - to go from a 50k to 100k BNT funding limit seems reasonable - IE if they were asking to go to >200k BNT it would be more of a consideration for me.

Also, I’m overall happy to support projects that are coming to us right now.

Given the relatively low level of co-investment, do you still have a problem with it @thedavidmeister ?

[thedavidmeister]

@lesigh the fact that other’s have done so beforehand, or that the scale of this proposal is relatively small, or that we want to generally adopt a strategy to encourage new projects, as justification for approving something we believe is bad for protocol health, is just setting the stage for the next proposal to do the same in a slightly more wrong way, and so on and so forth

the coinvestment limit is a risk mitigation strategy, i.e. it is initially set low as a “trial period” then raised ONLY if/when the TKN proves it is safe to do so, by demonstrating appropriate price action and volume

minting to compensate (ACRE’s wording) for poor price/volume is a risk amplification strategy (i think, that’s a question we can ask the simulator), it’s effectively acknowledging that something undesirable happened and asking bancor to help cover the cost/risk associated with that through BNT inflation

it also sets clear precedent for future teams expecting compensation for their own token’s price action, or what they don’t like about BNT’s price action

not that i take any issue with ACRE, they’re proposing something completely in line with what people before them have proposed, and there’s not many levers to pull in the protocol itself around this problem, so it isn’t surprising to see this suggestion

i’ll put up a proposal shortly for some other way we could address this kind of situation

[thedavidmeister]

here, i had a crack at proposing some alternative, but i haven’t done much modelling Proposal: Weight BNT/TKN according to R value

[ZenoBNT]

For security purposes my vote on this issue is “yes, just wait 60 days first.”

As Dave has accurately stated:

@thedavidmeister

minting to compensate (ACRE’s wording) for poor price/volume is a risk amplification strategy

And this just doesn’t need to be done at this exact moment. If this was proposed for October 28th (2 months from now) instead of August 28th it would certainly have my vote, but lets just wait like 60 days for safety purposes.

[glenn]

It would be good if we can increase the trading fees from .2% to 1% for this pool (separate proposal). Essentially, tokens with less liquidity in the market that have a lower market cap tend to be more volatile in nature and hence having a higher trading fees for these assets is warranted.

From what I can see the BNT trading liquidity for this token was maxed out on the 16th

ignore the linear increase from the tableau chart (this is most likely some smoothing that they are doing with the data and the line in red is what it should be) and we have the following liquidity currently:

BNT: ~49888
ACRE: ~4129747

what this means is that very few BNT have left the pool (Funding limit is 50K BNT). This pool has roughly $46K in liquidity:

Doubling the BNT funding limit in this pool would put us at 96K (assuming that it is all made available as trading).

[foxsteven]

I support a fee increase for the reasons @glenn pointed out

[lesigh]

I also support the fee increase.