Holistic Solution That Factors All Stakeholders
After careful consideration of the state of both protocols and stakeholders’ interest, I believe the below solution takes into account everyone’s situation and is a positive interim step to moving the community towards a sole focus of revenue generating mechanisms. This potential solution solves for the following issues:
- Minimizes technical debt for protocol developers
- Honors the protocol’s obligation to fulfill the Upgradeability Term that exists for v2.1 LPs.
- Compensates every former/existing 2.1 LP who helped create the surplus w/ the swap fees they earned.
- Protects the $10M aggregate v2.1 surplus from price divergence and maximizes its capability to alleviate the problems of v3.
High Level Plan
- Alter the v2.1 BNT Minter to force a return value of 0 for ILP calculation.
- Reopen direct withdrawals for v2.1 pools w/ no ILP.
- Move the $10M surplus to a holding contract vault to protect its value and not be subject to v3 deficit.
Step 1: Alter v2.1 BNT Minter to Force Return Value of 0
One of the main reasons forced migration to v3 was implemented on 6/19/2022, was due to the v2.1 withdraw function incorporating the ILP calculation and minting BNT to LPs withdrawing. A simple solution to fixing this is changing the BNT Minter function in v2.1 to send a return value of 0. This would equate to no ILP and allow withdrawals to open with minimal technical resources required to implement.
Step 2: Open Direct Withdrawal for V2.1 LPs
After altering the BNT Minter to force return values of 0, allow V2.1 LPs to directly withdraw from their respective pools with no impermanent loss protection. Opening direct withdrawals is imperative to honor the Upgradeability terms of v2.1 LPs and give ample time for them to make a determination whether they want to withdraw w/ no ILP or migrate to v3 and participate in any future upside of future v3 revenue generation.
Step 3: Move $10M Surplus to a Dedicated Vault
Upon completion of reopening v2.1 pools for withdrawal, we begin migration of the $10M aggregate surplus into a holding contract (“vault”). The $10M figure is based on @yudi’s spreadsheet. This is significant capital to either alleviate the current deficits of v3, or as a capital injection into either the proposed DAI or Protection Fund models.
By moving the surplus to a vault we protect the capital from taking the deficit hit, and begin one step of the process for either the DAI or Protection Fund solutions, as both require a dedicated vault to exist. This effectively has no technical debt, as the vault would be created under either proposed solution upon passing in the DAO.
My own personal opinion, is that the $10M surplus combined with the Protection model is a very attractive solution. We are effectively re-implementing a sustainable form of ILP for all v3 participants. $10M of direct injection into the Protection Fund would start $50k daily distribution (0.5% a day), plus $10k in fees fees being added to the fund daily, at current volume, would provide the protocol almost a year to work on additional revenue generating features. This would be a significant boost to the morale of the community, and a significant step in the right direction to making v3, sustainable and profitable for all participants.
In summary, we can honor v2.1 LPs right to upgradeability term by reopening withdrawals w/ no ILP and create a $10M vault from the aggregate surplus to begin focus on deep diving either the DAI or Protection model, with the only technical debt being a minor change to the v2.1 BNT minter. Thank you for everyone’s consideration on this and I look forward to hearing feedback from the community.
cc: @yudi, @mbr, @lesigh, @ILRekt, @alphavalion, @Jindo, @ordinator