Proposal: Limit on-curve liquidity to max(520 x 7 day fees, 100k BNT)

Very interesting proposal. Thanks for the effort you put into this research. Seems promising. You have my support

Could you make some kind of simulation to estimate how long it would take to erase current LINK deficit with such a scenario?

to be blunt, this proposal has little to do with attempting to pay for the damages inherited from v2.1

all the numbers i used were based on data from the TKN in the vault and available for trading liquidity (and exposed to IL) right now, not TKN owed to people based on the staking ledger and their bnTKN balance

this is mostly about a partial fix for a broken and bleeding protocol, using the tools that already exist in B3 but haven’t been activated yet

if you try to fix the 2.1 deficit with fees alone then any reasonable approach will be 6-10+ years, whether you try to use defi or tradfi to generate the income

you simply won’t find real 10%+ APRs on millions of TKN that would be needed to fix a 45% deficit any faster, not without exposing the protocol to some other gigantic risk along the way, which will implode :person_shrugging:

safe and trustless 5-7% APRs on an AMM for single sided TKN liquidity would actually be kinda miraculous, it’s not a trivial thing to achieve at all, nobody else has done it and only bancor is even attempting it

really though, because there’s so much inherited IL from v2.1, BNT numba has to go up to fix the deficit in any reasonable timeframe, a lot of damage was done already

this proposal mostly mitigates new IL, which is mandatory for survival and great for new participants entering the system, but the existing IL baked into the migrated positions from v2.1 is best repaired by making people feel safe/greedy enough to buy BNT again - i’d say that’s a challenge for some other proposal(s) to tackle more directly than this one can

so not a simulation but a speculation:

  • vote NO and don’t offer an alternative = deficit not only never heals but balloons in 3-12 months :skull_and_crossbones:
  • vote NO and do something else to support 2 million link with 550 weekly link fees = magic :sparkles:
  • vote YES and do nothing else = slow grind back to 2020 by 2030 :yawning_face:
  • vote YES and combine with other ways to restore faith in BNT as an asset worth buying = fix deficit in 1-3 years :white_check_mark:

The thing is, by keeping my linkies in Bancor, I’m just afraid to lose more than if I take the 45% haircut today. So with your proposal, IL could not increase more than it already is today (45%)?

Just trying to undesrtand.

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yeah i hear you, we’re all figuring out B3 together :slight_smile:

that’s exactly what i will work to simulate with mark

all i’ve done here is some pretty rough numbers

in theory the answer is yes, the proposal is designed to stop things getting worse than they already are with a much larger safety margin than we have currently


This proposal in combination with the purchase of BNT from the market, by the foundation, would largely solve the problem we’re facing currently. I personally think this would be the best way to deplay a small portion of the ico funds, as described in: Bancor foundation BNT investment/buyback

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Thing is, those solutions need to be implemented ASAP. ETH merge and LINK staking will come in september, and will certainly have positive impact on their price compared to BNT. If nothing is done, the situation will only get worse. A lot.

i agree

i put up a proposal, not sure what more i can do to move it along personally

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Thanks for your proposal, very well explained and very interesting. I hope Bancor team willl accelerate things now.

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Agree, this proposal almost sounds like a nobrainer.

  • If we combine it with the migration of v2.1 positions, all of the v2.1 positions would be net positive capital, because it won’t be part of the on-curve liquidity in this case. This would give us a lot more off-curve capital to put in native staking and thus making the protocol much more resistent against these moon scenarios.
  • We need to make a fast decision on the 2.1 pools though, because they don’t have the technical ability to limit on-curve liquidity and thus are a threat to collecting unlimited IL if stalled I think.
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small update on this is that @tfns and i are looking into producing a simple scatterplot that plots every 24hr fees against liquidity on that day for every day across all time

right now i have no idea what that will look like so i don’t want to speculate too much until i see it

this is separate to simulations, what i’m looking for here is a way to visualise the real onchain trading data

at this stage i don’t really care why fees might be higher or lower at different liq levels, i just want to show at a super high level how things have played out so far


so small update:

  • i got slammed with work so had not much time to do anything this week
  • something to be mindful of is that if we take a lot of liquidity off curve it changes the dynamic between BNT price and the deficit, i.e. less BNT liq => BNT price movements change the surplus/deficit less
  • i really need to get a mac so i can install tableau, seems like it’s the standard for bancor moving forward, but in the meantime i can maybe do some clojure scripting
  • there is actually going to be an ongoing liquidity optimisation strategy “soon” which is great, it’s not going to require random ppl to put proposals up ad hoc

what would happen in the event of a # of large wallets or another mass exodus occurs in a particular pool.

If the funds have been deployed in another revenue generation protocol, then the pool itself may not be able to handle the withdraws … then might that not lead to a similar situation as to what we are facing today?

@Jindo yes for sure, liquidity of the revenue mechanism itself is important to consider

obvious example being stETH vs. native ETH 2.0 staking

if we used stETH directly then the surplus/deficit would reflect the stETH peg, so if people exited then the protocol would do a swap from stETH back to ETH and pay those that exited according to revenue vs. peg situation

if we natively staked ETH 2.0 ourselves then the deficit would look like 100% for all funds locked in ETH 2.0 until withdrawals are enabled natively for ETH staking, after which point those funds would become available again + staking revenue - anyone who was withdrawing while the ETH was locked would effectively be donating that locked stake to everyone who remained (i think it’s clear why stETH is so popular…)

do you know how long it will take or a better definition of soon? linkchart is killing me and im close to withdraw but i really dont want to.
Thanks for your contribution in your free time!

as i understand it the analysis is happening already, the bit that is “soon” would be figuring out how that fits into a DAO decision making/feedback loop

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@thedavidmeister I went ahead and did some analysis for your proposal using actual data. The last section still needs to be completed, but should be able to finish up later today - research/limit_tradingliquidity_proposal_study.ipynb at quickstudies · bancorprotocol/research · GitHub

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ok so this is only b3 data, which we have a lot of reasons to be a bit skeptical of

still, it’s better than nothing

the crazy spikes in fees in the middle are probably NOT indicative of some magic liquidity zone and more likely to be due to broader market conditions on those days

sadly i don’t think we have enough liquidity in the protocol to test that that :sweat_smile:

what i’m NOT seeing here is a clear trend like “when we double liquidity our fees more than double”

there is a tiny bit of data near 0 during which b3 was bootstrapping i guess

then we blow way past any kind of curve that we could measure into the millions of $ for all three curves

at this point LINK gives maybe a 1.5x for a 2-3x in liquidity, DAI doesn’t seem to care how much liquidity it has and ETH has a link-esque modest improvement for a 3.5x in liquidity

Is someone alive here? This conversation has been going on for almost a month now… When level 2?

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