Proposal: Increase the trading liquidity limit in the ICHI pool from 1M BNT to 2M BNT

DAO Archive (SUBMITTED)
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For this proposal to pass, it requires a 40% quorum and 66.7% supermajority.

This proposal is expected to appear on Snapshot for voting on 2022-04-02T22:00:00Z. Make sure to stake your vBNT for voting before this date and time to participate in the DAO decision.

TL;DR

  • This proposal seeks to increase the trading liquidity limit from 1M BNT to 2M BNT.

  • The ICHI liquidity on other liquidity sources justifies the increase.

  • ICHI to Deposit 30k ICHI ($1,344,000 at time of writing) from the ICHI Treasury into the Bancor protocol pending ICHI Governance approval

  • Pool volume and fees accrued are presented.

  • Increasing the pool’s liquidity will improve price impact and help direct more volume to Bancor.

Background & Rationale

Since the most recent trading liquidity limit increase, ICHI released a new product to its suite of Uniswap v3 liquidity management - HODL Vaults!

Since their release, ICHI has already launched its first HODL Vaults, locking in over $10M in TVL in the two weeks. HODL Vault partners include Gnosis, Nexus Mutual, and Celsius.

Trading Liquidity Limit Increase Justification:

With the recent release of ICHI’s HODL Vaults and its 4x price increase, Bancor has been able to continue to grow its TVL through the market downturn. ICHI currently provides a 22.4% APY to this pool via xICHI rewards. With only 19,697 of ICHI able to be deposited, an increase in trading liquidity limit to 2M BNT will enable:

  1. ICHI to deposit 30k ICHI to the Bancor protocol.
  2. Additional ICHI holders to deposit ICHI to Bancor protocol.
  3. Bancor to strengthen the partnership with ICHI and continue to grow TVL.

Liquidity

The ICHI pools with deepest liquidity in Ethereum DEXes are:

The oneUNI / ICHI 1% Uniswap v3 pool with $27.10m liquidity [1].

The ICHI 0.3% Bancor v2.1 pool with $12,159,707 liquidity [2].

The ICHI / wNXM 0.3% Uniswap v3 pool with $5.70m liquidity [3].

The ICHI / GNO 0.3% Uniswap v3 pool with $5.32m liquidity [4].

The ICHI / WETH 0.3% Sushiswap pool with $4,429,479.02 liquidity [5].

The ICHI / ETH 0.3% Uniswap v3 pool with $1.06m liquidity [6].

The ICHI / USDC 1% Uniswap v3 pool with $857.39k liquidity [7].

The extra liquidity would bring the total pool liquidity to at least ~$13.5m if the space in the pool is filled.

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Figure 1 - ICHI Weekly Volume since the beginning of August 2021.

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Figure 2 - ICHI Weekly Fees since the beginning of August 2021.

FOR

Increase trading liquidity in the ICHI pool from 1M BNT to 2M BNT.

AGAINST

Keep the trading liquidity in the ICHI pool at 1M BNT.

[1] Uniswap Info

[2] Bancor: Converter 619 | Address 0x4a2F0Ca5E03B2cF81AebD936328CF2085037b63B | Etherscan

[3] Uniswap Info

[4] Uniswap Info

[5] ICHI-WETH | SushiSwap Analytics

[6] Uniswap Info

[7] Uniswap Info

4 Likes
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I love it. BNT<>ICHI to the moon

3 Likes
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Like this proposal! ICHI and Bancor already have a great partnership and would love to see it continue!

4 Likes
4

Wow! I would love to get the ICHI pool deeper. However, the ICHI token has been mooning so I’m a bit scared of the IL.

Would the ICHI team be willing to devote 2,000 ICHI tokens in the new V3 external IL protection feature.

If yes, this has my vote.

@dhtal @glenn @tenzent @mbr

2 Likes
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I would also agree with this. The ICHI Pool is huge as is but I’m a bit concerned since as I understand it HODL Vaults essentially are Uniswap V3 Buy Walls. That means ICHI is routing almost all of its buy pressure through Uni, correct me if I’m wrong. This means we get a small cut of the volume and a majority of all the loses since this perpetually drives price up while funds last. If we’re going to allow such a huge amount of risk to be taken on I’d like to see this Volume routed through Bancor although I understand this might require dev time from your side(Should be well worth it for 2.5M dollars worth of BNT Insurance).

Ichi brings a good point with them providing additional yields on Bancor through their site but that misses the fact that the BNT liquidity issued by the DAO does not earn any of these returns.

For such risk I would like to see either:

  • External IL Protection via ICHI.
  • Volume/Limit Orders routed exclusively though Bancor for the ICHI Pool.
3 Likes
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Strong points Tenzent - I can do incremental increases of 100K BNT at a time, or a bigger one with IL insurance.

1 Like
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hmm, a 1m $BNT increase would open up roughly ~38K in space for $ICHI tokens. There is also an additional ~18K available at the moment so we are looking at roughly ~55K in ICHI single-sided capacity. In total, this pool would hold roughly ~170K in ICHI tokens if it filled up completely:

image

Currently, there are incentives on the ICHI sushi pool as well as the bancor pool:

image
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note that the Bancor pool is >~2x as deep as the sushi pool. The impermanent loss on the ICHI pool for sushi swap appears to have negated any LM rewards for LPs in the last 30 days. For any LPs since inception, they are down roughly ~25% at the moment due to IL:

image
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what this means, is that if you are an ICHI LP on any other DEX besides Bancor then you are probably hurting at the moment.

Based on the latest “week in review”

image

I see that the ICHI-ETH pool on sushi swap gets .01210 in rewards while the bancor pool receives .01427 in LM. If an Ethereum block is roughly 12 seconds, then we are looking at the following:

Sushiswap Daily Rewards: 87.12 ICHI
Bancor Daily Rewards: 102.74 ICHI

Given the above, I would suggest the following:

  1. Stop the LM program on sushiswap since we can provide the trading liquidity from our end for sushiswap LPs to migrate over. I don’t see a need for incentivizing liquidity there since it’s clear that these LPs are losing at the moment and we can provide the required trading liquidity. This would also free up $ETH capital and give these LPs capital efficiency (they can use half their liquidity for another purpose).

  2. The ICHI tokens that were being provided to the sushiswap pool as LM can be used for external IL protection on Bancor:

I actually suggest a much higher amount and was thinking .5% of the total ICHI supply which is roughly 25K ICHI tokens. Assuming that you were distributing 87.12 ICHI daily to sushiswap LPs, then this would pay itself off in ~286 days. Ideally, I would suggest 1% of the total supply but I think this is a good starting point and we can monitor the utilization of these tokens over time. Note that neither we nor anyone else can touch these tokens and they will only be distributed to ICHI LPs at withdrawal if the 50% in $BNT trading liquidity contributed by the protocol hasn’t made enough in $ICHI fees to cover IL suffered by $ICHI LPs.

  1. The $ICHI LM that is being distributed to the Bancor v2.1 pool to move to the $ICHI Bancor 3 pool when we launch in May. These rewards will serve as trading liquidity on Bancor from day 1 and will be used to support trading activity for the $ICHI token. Over time, they get distributed to your LPs automatically and won’t require a separate transaction to collect them. Essentially, $ICHI single-sided LPs will have $ICHI fees and $ICHI rewards that will auto compound automatically for them.

I think the above, would signal a commitment from the ICHI protocol to Bancor and we could potentially provide higher trading liquidity beyond the request 2M $BNT in the future as needed.

2 Likes
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I should note, I don’t think that the $ICHI pool ever received $BNT rewards from our end and if you decide to do LM in Bancor 3 then you can qualify for 50K $BNT rewards distributed to $ICHI LPs over the course of 2 years:

2 Likes
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Wow Glenn, excellent work, I fully agree

1 Like
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I would be so happy if Glen’s vision came to fruition. If we could remake the proposal as follows, I think we could get a lot more bang for everyone’s buck:

  1. BancorDAO agrees to double the trading liquidity for the ICHI token.
  2. IchiDAO agrees to use the Bancor 3 auto-compounding rewards system for their own community LPs. I think you guys will like it; there is no selling ICHI (unlike third party auto-compounders), LP’s gain their rewards without, paying gas, and without a contract interaction, and ALL budgeted ICHI rewards are liquid.
  3. BancorDAO agrees to add 50,000 BNT in standard rewards on the ICHI pool (i.e. ICHI liquidity providers are receiving both BNT and ICHI rewards).
  4. IchiDAO agrees to support the external IL protection contract with a small subset of their token supply (i.e. assist BancorDAO to cover the upside - we cover all of the downside).
1 Like
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“That means ICHI is routing almost all of its buy pressure through Uni, correct me if I’m wrong.”

There is no buy pressure as the ICHI protocols do not actively swap for ICHI. ICHI just provides passive liquidity with stablecoins. When all/part of its liquidity position converts to ICHI, it pulls the ICHI and sends it into xICHI. This is impossible on Bancor as every token trades against BNT.

“Vaults essentially are Uniswap V3 Buy Walls.”

The vaults just manage two Uniswap V3 liquidity positions. One of the positions is beneath the ICHI price and consists of the deposit token. One of the positions is above the ICHI price and consists of ICHI. Most liquidity pools on Uniswap V3 have similar positions.

“This means we get a small cut of the volume and a majority of all the loses since this perpetually drives price up while funds last.”

It is necessary to increase liquidity to get more of the trading volume. That is why this is an important proposal. Bancor used to get a greater share of the volume but now its pool is no longer the biggest pool.

1 Like
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Thanks for this @mbr !

We just wrapped up a great conversation with some of the Bancor core contributors and really love what you all have built with Bancor 3. We think the new auto-compounding deposit feature will make liquidity provision simpler, more efficient, and create a more sustainable reason for LPs to continue to hold their liquidity on Bancor. We are super excited to continue this partnership and build in a way that best helps both communities. I agree with your points above and based on this ICHI definitely wants to participate in all of those aspects. Let’s grow the pool and deploy to B3!

1 Like
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Wow! Awesome @dhtal - Before the vote starts, how many ICHI will you use for external IL protection?

1 Like