BNT Liquidity Mining Proposal
Goals
We propose a BNT Liquidity Mining (LM) program aimed at achieving two primary goals:
- Attracting new liquidity into Bancor pools
- Creating stickiness to incentivize long-term liquidity provision
With more liquidity, Bancor stands to win more conversions in the market, which generates more fees for liquidity providers (LPs) and results in increasing APY and protocol revenue.
Users who are initially drawn to yields from BNT Liquidity Mining rewards will hopefully become acquainted with the unique benefits of Bancor v2.1, including impermanent loss protection and single-asset exposure.
High-Level Program description:
The following is pending community approval via Bancor governance:
- The program will start with 8 pools, representing 6 Large-Cap and 2 Mid-Cap tokens. The first round of tokens proposed are the following:
- Large-Caps: ETH, WBTC, USDT, USDC, DAI, LINK
- Mid-Caps: OCEAN and renBTC
- The protocol will distribute an amount of BNTs to LPs in each qualifying pool on a weekly basis: Large Cap pools receive 100,000-200,000 BNT per week; Mid-Cap pools receive 10,000-20,000 BNT per week. The exact amount of BNT rewarded in a given week depends on how long LPs have been staking in the pool.
- Every two weeks, two new tokens can be added to the program. Once activated, a token’s pool will receive BNT rewards for 12 consecutive weeks.
- Pools will be selected for rewards via Bancor governance. If deemed by governance, a pool may be selected more than once to receive rewards for a 12-week cycle.
- We anticipate the entire program lasting a total of 72 weeks.
- BNT liquidity mining rewards will be distributed 70% to the BNT side of the liquidity pool and 30% to the base token (or “TKN”) side of the pool.
- Liquidity providers who keep their rewards staked to the protocol receive a “Bonus Rewards Multiplier”, which increases their BNT rewards by up to x2 per week.
- Based on simulations, it is estimated that around $50M-$60M USD could be locked in Large-Cap Pools and around $5M-$6M USD in Mid-Cap pools, maintaining competitive APY (see Estimated Performance).
- Starting today, November 16, 2020, any user who is providing protected liquidity to a proposed rewards pool (i.e., ETH, WBTC, USDT, USDC, DAI, LINK, OCEAN or renBTC) stands to receive retroactive BNT rewards when liquidity mining rewards eventually launches. In other words, if a user is currently providing protected liquidity to an eligible pool, and BNT liquidity mining goes live 3 weeks from now, the user will receive 3 weeks worth of BNT rewards when the rewards ultimately go live, including the Bonus Rewards Multiplier.
Plan Details
Stake and Claim rewards
Stake
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In order to qualify for BNT liquidity mining rewards, you will need to provide liquidity to a qualified pool and protect your liquidity against impermanent loss. Holding unprotected pool tokens will not qualify you for BNT LM rewards. (See this guide on how to protect your liquidity from impermanent loss on Bancor.)
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BNT rewards are calculated dynamically on-chain. The number of tokens available for the user to withdraw will be visible in real-time, but won’t be minted by the protocol until the rewards are claimed by the user.
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Retroactive Rewards:
- Following the announcement of the proposed Liquidity Mining plan on November 16, 2020, a block snapshot will be taken. Any protected liquidity positions that were created before this block will qualify for retroactive BNT LM rewards.
- Any new protected positions created between November 16, 2020 and the launch of Liquidity Mining will also qualify for retroactive BNT LM rewards.
- Once the LM program contract is live, protected positions registered on the LM contract will be able to claim their retroactive rewards.
- For example:
- Between November 16 and the launch of LM rewards, an LP maintains 5% ownership of the BNT side of the LINK pool.
- Over the course of the next 3 weeks, the LINK pool receives 100,000 BNT per week, with 70,000 going to the BNT side of the pool.
- The Bonus Rewards Multiplier increases the LP’s rewards by 0.25 every 7 days (up to x2).
- If rewards launch on December 7, at that time, the LP will be eligible to claim 3,500 BNT per week with a 1.75 BRM, or 3,500 BNT * 1.75 BRM * 3 = 18,375 BNT
- The LP can choose to claim rewards, which moves the rewards to their wallet and resets the Bonus Rewards Multiplier to x1. Alternatively, the LP can leave the rewards unclaimed or re-stake the rewards to a protected pool, which allows the LP to continue compounding gains through the Bonus Rewards Multiplier for the remaining 9 weeks of the pool’s rewards cycle.
Claim
Claiming rewards is an opt-in action.
- Claim - you can always claim your BNT rewards, which moves them from the rewards contract to your wallet. This will reset the Bonus Rewards Multipliers for any of your positions in pools receiving rewards.
- Claim and stake - you can claim your BNT rewards and atomically stake them into any whitelisted pool in the network. When re-staking claimed BNT rewards, you will receive the following benefits:
- Maintain Bonus Rewards Multiplier on all your eligible positions
- Create a new staked position that will be eligible to receive:
- Protection against impermanent loss
- Swap fees
- BNT LM rewards (if the pool qualifies for LM)
Withdrawing liquidity
Liquidity providers are free to withdraw their liquidity at any time. When liquidity is withdrawn, multipliers on all eligible positions are reset to x1.
Multiplier
This section provides additional information on the Bonus Rewards Multiplier (BRM), which creates an additional incentive for LPs to hold liquidity in the protocol, and is applied based on time.
- Each eligible position has its own BRM
- The BRM:
- Starts at x1
- Increases by 0.25 every week
- Max possible multiplier is x2
- BRM is applied retroactively - e.g., if the LP chooses to claim rewards after 4 weeks, and the base weekly reward is 100 BNT, then accumulated rewards after 4 weeks will be 100 BNT * 2 BRM * 4 weeks = 800 BNT
- How the multiplier works
- You have 100 BNT staked
- The multiplier is x1
- The rewards distributed weekly are 100 BNT
- Total BNT staked in the pool is 1,000 BNT
- You will be entitled to 100/1000=10% of the weekly rewards
- You are entitled to get 10 BNT
One position
- You have 100 BNT staked
- The position multiplier is x1.5
- The rewards distributed weekly is 100 BNT
- Total BNT staked in that pool is 1,000 BNT
- You will be entitled to 100/1000=10% of the weekly rewards
- You are entitled to get 10 BNT * 1.5 multiplier = 15 BNT
Two positions:
- You have deposited LINK to the pool twice 100 LINK and 50 LINK
- The 100 LINK position (“LINK1”) has x1.5 multiplier
- The 50 LINK position ((“LINK2”) has x1.25 multiplier
- The rewards distributed to the pool is 100 BNT
- Total LINK staked in the pool is 200
- LINK1 position is entitled to 100/200=50% of the BNT rewards
- LINK2 position be entitled to 50/200=25% of the BNT rewards
- LINK1 position is entitled to get 50 BNT * 1.5 multiplier = 75 BNT
- LINK2 position is entitled to get 25 BNT * 1.25 multiplier = 31.25 BNT
Multiplier penalty
The following actions will reset your multiplier for ALL staked positions back to x1
- Claim rewards from a pool without re-staking them to a whitelisted pool
- Withdraw some/all of a position prior to claiming rewards
- Transfer rewards from a pool to a different wallet
Calculations and formulas
Calculator and the model
Release plan:
As mentioned the proposed first round of token pools to receive BNT liquidity mining reward are as follows:
- Large-Caps: ETH, WBTC, USDT, USDC, DAI, LINK
- Mid-Caps: OCEAN and renBTC
Rationale:
- The large-cap tokens serve as common entry/exit of every trade on DeFi.
- The mid-caps have an active community and loyal token holders who would value the impermanent loss protection mechanism and single-asset exposure.
- OCEAN holders have experienced the harsh effect of impermanent loss which makes them ideal candidates for our protection solution.
- renBTC holders who wish to stake their renBTC and earn swap fees either must expose their holdings to impermanent loss on Uniswap or Balancer, or they can mitigate impermanent loss risk in a “mirror-asset” pool on Curve, but must split their holdings into separate reserve assets like WBTC.
Estimated performance:
The below estimates depend on the scenarios considered in the simulated model, and different scenarios can have different results.
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Large-Cap Tokens -
- Considering the current liquidity of $500K of the DAI pool on Bancor, the expected APY from LM rewards is in the range of ~350% on the TKN side and ~870% on the BNT side.
- Considering the current liquidity of $150K of the USDT pool, the expected APY from LM rewards is in the range of ~1000% on the TKN side and ~3000% on the BNT side.
- Once the pools reach $60m liquidity depth, the expected APY is ~20% on the TKN side and ~40% on the BNT side (before accounting for swap fees).
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Mid-Cap Tokens -
- Considering liquidity of a mid-cap pool on Bancor is around $100K, the expected APY from LM rewards is in the range of ~190% on the TKN side and ~445% on the BNT side.
- Once the pools reach $6m liquidity depth, the expected APY of ~20% on the TKN side and ~40% on the BNT side (before accounting for swap fees).
Anticipated inflation:
The proposed BNT Liquidity Mining rewards program can mint a maximum (worst case scenario) of 28m BNT over the planned duration of the program (72 weeks). This increase of BNT will represent a 40% inflation rate (based on the current supply of 70m).
Based on the incentive structure and multiplier, it is expected that part of the rewards will be staked back into the network and remain locked for a duration of the LM program.
As the distribution is over 72 weeks, the minting and release of these rewards to the market is expected to be slow and gradual.