Proposal: Move v2.1 liquidity to v3

What
After the emergency measures, v2.1 LPs have been asked to migrate to v3 to withdraw their funds. A significant chunk of LPs hasn’t done this, possibly in order to avoid accepting the v3 socialised IL. We need to migrate the v2.1 surplus at the very least to v3 as soon as possible.

Why
There is a surplus of TKNs in many pools on v2.1, which is the protocol-generated fees. It rightfully belongs to the DAO. With v2.1 LPs not moving to v3, the DAO isn’t able to utilise these funds in the best way possible.

The deficit on v3, which reached $38M today from $29M almost a week back, is the most important KPI for the DAO currently and should be looked at to reduce through any and all possible measures.

The quickest way to do this is to move the surplus to v3 and reduce the deficit. This would give a short-term relief to not only the LPs but also the core team. It would buy us some time till we come up with our mid-term solutions: how to utilise the protocol fees to reduce deficit and more fee generation features.

How
This has been a controversial topic in the Telegram conversations.
I propose 2 ways to go about this:

  1. Force all v2.1 LPs to migrate to v3. We move all their funds and the surplus to v3.
    • Pros
      a. This would be much simpler and quicker to execute from an implementation/tech perspective
      b. The v3 deficit number could reduce a bit more since v2.1 LPs would probably be in lesser IL than v3 ones
    • Cons
      a. It would be unethical to make these LPs take the v3 IL. They’ve been providing liquidity in the protocol for a very long. While they have reaped great LM rewards, they shouldn’t be made to pay for that. It could make Bancor lose more trust than it already has.
  2. Give v2.1 LPs an option to withdraw at the IL levels based on time of deposit, just move the surplus
    • Pros
      a. More ethical, still reduces deficit greatly
    • Cons
      a. It will take more effort as it will be more complex to execute. The team already has much on their hands. We shouldn’t increase their workload and decrease the chances of actually reducing the deficit by delaying the fixes.
      b. Some v2.1 LPs could have a greater loss at v2.1 and would want an option to move to v3. This would mean increasing the deficit and also giving the LPs the best of both worlds.

Open to feedback, please suggest more approaches or pros/cons that you can think of.

PS: Not a bailout narrative - We’re not taking any cut from this surplus for a ‘treasury’ for the DAO as the foundation has mentioned previously it has enough funds to sustain development for years. So I’m assuming there’s a runaway of at least 3 years, and the DAO won’t have to support the core team in the near future.

8 Likes
  1. ) I highly agree with “killing” the v2.1 pools. I’m not sure if it is technically possible to force migrate v2.1 Liquidity to v3, maybe a core contributor can elaborate.
    2.) There should be an overall deficit in the v2.1 pools though, so you will see the total deficit increase, because the dashboard only shows v3 deficits at the moment. This should be done ASAP in my opinion, because v3 will show us much easier, how the real deficit is. Calculating v2.1 deficits is way more work and maybe inaccurate. Also this would allow the core contributors to focus on a single version, so it would greatly improve the workflow
1 Like

Agreed. Get them over

3 Likes

I personally think we should go with the first approach, i.e. move all v2.1 funds to v3, not just the surplus. The pros are quite major.
Regarding the unethical bit, I feel we’ve already hit rock bottom on trust. This is for the better of the protocol. If the other solutions being proposed work out, we’ll regain all the trust we need.

3 Likes

It really doesn’t matter if we move v2.1 over to v3, and here are a few reasons why.

The number one issue facing Bancor is that the protocol has lost its main selling point: IL protection.

There are other platforms with better yield, better track records, deeper liquidity, better fee generating structures. Bancor had ONE major thing that set it apart: IL protection.

There is no reason to force v2.1 to v3 in the name of “buying time”. It will be pouring water down a drain. If anything, it would accelerate liquidity flight. V3 LPs would seize upon the sudden reduction of the deficit and remove their assets. Until the protocol has a way to offer unique value to LPs and/or a practical way to provide IL protection, LPs will leave the protocol.

The only thing keeping LPs is a hostage mentality (if I leave now, I lose x%). It won’t be so hard to walk away if the % lost is lower. If those advocating for this proposal are being honest, they will admit that what they are truly looking for is less of a discount if they pull their assets from the platform. They aren’t going to stick around for the long play. There is no long play.

It’s over.

Maybe I’m one of the few care about this, but all we would be doing is hurting v2.1 to benefit ourselves. We must own our mistake of investing in a terrible, unsustainable scheme and move on. Don’t burden others with your bad investment decisions. Accept your haircut and move on.

2 Likes

I’ve brought this up before in another thread.

Moving over / highly incentivized v2.1 → v3 liquidity will help to reduce the overall % deficit in many pools, which will be a benefit to the broader Bancor DAO overall.

imo there’s only 2 fair ways to deal with the v2.1 → v3 migration:

  1. Move all v2.1 LP liquidity → v3
  2. Allow v2.1 LP to withdraw liquidity from v2.1 + allow LPs who were in v2.1, but migrated to v3 AFTER the Emergency ILP Pause announcement (which stated v2.1 → v3 is mandatory to withdraw going forward) to revert back to v2.1 and withdraw as v2.1 LPs. While I would personally prefer this decision, I understand the technical difficulties of implementing something like this.

Either way, it’s important to get some clarity on the finality of this decision. Several v2.1 LPs are staying in v2.1 in hopes that one day the team reverts back and let’s them withdraw from v2.1. Bringing clarity to this situation (e.g. #1 or #2 above) can help to resolve the liquidity stalemate.

3 Likes

I’ve been in V2.1 for over a year and just migrated to V3. If we would go for option 2 that would mean people who trusted Bancor and were encouraged to migrate get 100% pain. Is that really fair? V3 wasn’t even live for a month and we’re all in this together.

To me only option 1 makes sense. Everybody has to move. We all share the pain.

2 Likes

Move all of the liquidity from v2.1 to v3. If that is deemed too unethical then set the vortex burn rate to 100% for v2.1 pools (so LPers in v2.1 will earn no fees). Leave the only way to withdraw by migrating to v3 first.

Every bancor user should bear the brunt of what is currently going on, whether in v2.1 or v3, all users are equal and will be a part of the solution just as we are all enduring the hardships of these current events.

I would vote to force every user to get onto the same page and join v3

after this, we will have a much more clear picture with what the deficit is.

I personally saw my IL improve greatly when a number of wbtc moved from v2.1 to v3. My IL improved from roughly 65% down to 50%. If all of v2.1 were to port to v3, Im sure the deficit would shrink dramatically and the problem we face today will become something MUCH more manageable .

and if this is not possible, then those in v2.1 should NEVER be allowed to withdraw unless they port over to v3

2 Likes

@yudi Could you please have one of the researchers upload relevant data? Current surplus/deficit on v2.1 total and poolwise would be helpful

And also confirm that the 2nd approach would be too technically complex?

2 Likes

Sure thing, just asked, should be available soon.

3 Likes

There is a severe double standard here in the statement "There is a surplus of TKNs in many pools on v2.1, which is the protocol-generated fees. It rightfully belongs to the DAO. ".

In this logic, V2.1 depositors should rightfully be able to withdraw their complete deposit as well, instead of being forced into the socialized deficit of V3, as their deposits are just as much “rightfully theirs”, as the surplus is “rightfully the DAO’s”.

It is morally reprehensible to let the DAO’s interests way heavier than those of individual token depositors. The conclusion here should not just be weighed in “what is best for the protocol”, but also on “what is the right thing to do”, if you even want to start repairing the reputational damage the protocol has suffered.

If there is a choice between:

  • Reducing the deficit at the expense of individual tkn depositors

vs

  • Only slightly reducing the deficit (with the v3 surplus), but repairing some of the damage done to reputation of the platform and certain individual token holders.

The choice should naturally be the second as it still helps the protocol, without causing more damage to users. Any other action will just confirm the FUD of the protocol being more important than it’s users.

1 Like

@yudi between:
1: Moving all liquidity from 2.1 → 3
2: Moving just surpluses

What requires the least development time?

For me, whatever requires the least resources is probably the right path forward.

1 Like

Why should this be done. I Migrated to V3 because i wanted to see my possible withdrawal amount. I was years in 2.1. And now i should be punished?

It’s pretty tough to say since it depends on the details.
Moving the entire liquidity is probably simpler to implement cause it involves no calculations, but on the other hand it might involve a special case for handling migrations from that point on, to keep things more fair for v2.1 LPs.
Moving surplus only requires to calculate the surplus which is pretty easy as well but the next block there might be surplus again, so it’s another consideration.

What do you mean by a special case for v2.1 LPs?

Please correct me if I’m wrong on my understanding of the surplus - the way I understand it is:

When people migrate from 2.1 → 3, they leave any surplus from their position in the 2.1 pool.

If I understand correctly - the reason 2.1 LPs would be able to withdraw with no deficit is due to the surplus left by migrated positions, essentially at the expense of migrated positions.

To me, it seems like the fairest resolution would be to simply migrate all positions.

5 Likes

That doesn’t really make sense…

For them to leave a surplus, there would have to have been a surplus to start with. Afaiu, the full position was migrated, but simply went directly into deficit upon entry into the v3 pool because of the TKN to BNT ratio in v3, effectively decreasing the amount of tokens they could claim against their bnTKN. That doesn’t affect the amount of actual tokens moved from the v2.1 to v3 pool.

The surplus isn’t “created”, it already existed. The surplus never belonged to the tkn depositors in the first place and therefore wasn’t a part of their migrated position.

Based on the design of v2.1 the LP actually doesn’t have any claim on the surplus they helped create. The surplus is owned by the protocol, not the LPs who created it.

If every v2.1 LP were to migrate right now, they would only move their liquidity deposit (“protectedReserveAmount”) and the surplus would stay in v2.1 as protocol revenue.

To me this is really about honoring the terms v2.1 LPs agreed to participate in the protocol with. There is no consent for v3, hence their position staying in 2.1.

If the surplus was forcefully moved, the right thing to do is give the v2.1 LP the option to directly withdraw from v2.1 with impermanent loss specific to their positions, which is the core design they consented to in the first place.

2 Likes

I disagree - I don’t see why v2.1 LPs should receive special treatment & incur less of a loss than v3 LPs due to a protocol-owned surplus that was equally created by v3 LPs. I see it as extremely unfair to v3 LPs.

I totally understand that v2.1 LPs did not consent to v3, however, v3 LPs equally expected impermanent loss protection. With IL protection disabled, I think the fairest & most practical path forward is equality - migrating all positions.

I also understood that reenabling withdrawals from v2.1 would require development time to change the 2.1 contracts. This further tips the scales for me in favor of simply migrating all liquidity.

5 Likes

Yeah, I could be wrong on this - need clarification.

Regardless, I think the path forward is migrating all positions because it seems the fairest + requires the least amount of development time.

1 Like