Proposal: only DAO can receive vortex rewards

This proposal is expected to appear on Snapshot for voting on 2022-08-14T15:00:00Z. Make sure to stake your vBNT for voting before this date and time to participate in the DAO decision.

TLDR:

  • External function that triggers vortex and awards rewards to caller will be restricted to the DAO as the recipient
  • DAO will receive all vortex rewards
  • vortex cannot be zero due to gas etc. so this keeps more funds in the system by moving them to the DAO
  • In the future additional mechanisms may be needed if we observe front running etc.

In the spirit of mitigating the Bancor protocol leaking value.

The DAO currently has 0 BNT or any other assets in its treasury.

The vortex currently sets aside a reward to whoever initiates it.

The DAO can vote to restrict access to the vortex initiation function to itself.

This would assign all vortex rewards to the DAO treasury instead of anons.

This would increase funding for the DAO without decreasing protocol revenue.

Between each vortex initiation BNT is set aside off-curve, so it is effectively burned temporarily. There is no danger to the protocol functionality or tokenomics if the vortex is initiated more or less frequently due to the new access restrictions and active management.

In the future the DAO MAY choose NOT to initiate the vortex for some time if the vBNT price is unfavourable due to temporary market conditions. The lower the vBNT/BNT price when the vortex is initiated, the better the vortex is for long term protocol health.

Read more about the Bancor Vortex Burner:

The reason we “can’t” just ditch the vortex reward altogether and have 100% go towards the burn is that then someone has to call the function at a loss because of gas. If we remove the rewards altogether we have to find a reason someone would be willing to pay the gas cost to initiate the vortex, or an alternative source of funds to cover the gas.

We don’t have alternative funding sources to pay gas, and there doesn’t seem to be any reason for someone to altruistically call the vortex.

By definition nobody would normally initiate the vortex unless they made a profit, so in this case we may as well capture that profit for the DAO, as it was never going to go to the vortex anyway and is wasted on anons.

For a non-scientific-and-highly-variable-due-to-market-conditions-idea of the scale of this revenue:

  • Currently we see the vortex run every few hours so maybe 3-4 times a day
  • When anon calls the vortex they make about $20-30 after gas
  • If the DAO only calls the vortex 1 time per week (they have no competition) they can ignore the gas cost of all but 1 invocation
  • Gas costs about $100 so total reward of the vortex is about $100-150

So maybe we can expect somewhere around 25 invocations for $2-3k per week DAO revenue

NOTE that technically all we need to do is set the DAO as a recipient so we MAY leave the vortex world-callable if that results in a better implementation at the smart contract level.

FOR: Vortex will only be able to be receivable by the DAO

AGAINST: Nothing changes

6 Likes

Adding here that there is a discussion about the creation of a Bancor DAO treasury at

1 Like

Agree with capturing any loose BNT from any external entity. Bringing it back into a DAO Fund/Treasury seems like ideal storage. Looking forward to any legal or technical issues that may come up, but seems like we have most if not all technical issues covered at this point.
Authorizing the DAO MSIG to take automated actions may need a new BIP or Addendum to the “BIP21: DAO Multisig Intervention Policy
Establishing a schedule that the automation will run might have to be considered for any timing exploits due to a known trigger. But any entity monitoring for burns currently should be aware of timing of burns already.

2 Likes

Pretty good idea. My only concern is detailing how the vortex will be triggered and how gas costs will be kept under control. It would be an issue if the weekly schedule lands at a time of extreme gas cost draining more of the treasury than preferred.

The other concern is that the price slippage may be too high if the schedule is once a week.

3-4 times a day seems to be profitable today. Perhaps setting the schedule to once a day if the profit > gas cost?

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it’s profitable barely, maybe 15% of the reward is profit and the rest is gas, i think the current schedule is very frequent due to competition rather than slippage

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Agreed. But you don’t want to get to a point where the slippage is so high that arbs are the ones taking the collected fees. Since it runs 3-4 times a day, once a day feels like the profit should at least be 45ish%, right, while hopefully keeping slippage low.

1 Like

seems very easy to tweak if we agree to do it

3 Likes

Very interesting am I’m glad you posted this @thedavidmeister

I have one question and one comment.

Question:

If the burn is less frequent, does that open a front running/arb value loss?

Comments:

I also mentioned on the treasury proposal that @tfns linked to.

The issue on treasury and the reason DAOs tend to have some of trustee model is actually the tax implications. If the treasury converts ETH to DAI for exmaple, who pays taxes on it? If nobody does, that’s not really a great position either.

As the model we like for the DAO treasury approaches, I’ll be happy to lead the effort on the compliant structure.

yes the burn can be gamed so we should use that sweet EDEN integration we paid for :sweat_smile:

front running definitely something to consider

where i live companies only pay tax on profit when it is removed from the company, and there are no capital gains taxes

if we need a legal entity, maybe that legal entity should be somewhere that does not charge tax on converting ETH to DAI in the first place

2 Likes

Makes sense, I’ll start looking into some options.

i’m not a lawyer but specific examples i’ve heard of that could be investigated more thoroughly:

  • slovenia
    • everything onchain has no tax/reporting requirements
    • 10% flat tax when funds exit blockchain (they won’t)
    • right next door to switzerland
  • estonia
    • tax is paid when funds exit an entity not when they enter
    • maybe the e-residency system is somehow helpful
  • georgia
    • tax is paid when funds exit entities not when they enter
    • territorial tax system, only things that happen physically in the country are taxable
    • certain entities have no residency requirements (i.e. can be managed internationally)
    • no capital gains tax, crypto trades need to be reported but there’s no tax
1 Like

Interesting proposal and I like it very much since an outsider is no longer keeping any BNT due to triggering the vortex. This brings it internally to the protocol and prevents leaking any BNT to outside entities. Note that the vortex fee is either 2% or 100 BNT (whichever one is lowest) per the recent proposal:

that was passed.

In B3, the vortex trigger is supposed to be an outside initiator or a keeper job. If the DAO can fund the keeper job using the fees that it gains from triggering the vortex then it should be a self-supporting system. I am assuming that we can set this on a schedule to run based on some frequency which we deem to be OK. Note that the bancor 3 vortex is not yet ready but I just wanted to throw this out there as it was part of the vortex b3 implementation.

5 Likes

Hi, I am moving this to the community chatroom until it is in proposal form

(TL;DR at the top, FOR against at the bottom etc.)

@thedavidmeister - would you like this on Snapshot Sunday?

If yes, please add to the top of the porposal.

Just to be clear, you mean anything paid to the person who triggers would go to the DAO.

In this case, you mean the reward would go to some contract that would later be the treasury?

Why not allow anyone to trigger it but send the rewards to a dedicated vault?

2 Likes

I agree, this makes a lot of sense - the more frequent this is triggered the less of an issue front running it.

1 Like

Thanks for the proposal.

I have previously spoken about the idea of a Bancor Keepers product - where the Vortex, including the other operations that may fall under its influence in the future, will be the privilege of BNT holders alone to initiate.

The keepers idea, and your proposal, seem to share the same philosophy.

3 Likes

@yudi i thought about this, and using the same reasoning as @mbr stated for pausing deposits, there may exist bots that will continue vortexing and not receiving rewards

if we rollback the transaction unless the sender is also the approved recipient then maybe those bots will get the hint faster

also i agree that technically all we need to do is set the recipient so I actually don’t mind either way what the implementation is

1 Like

similar philosophy yes, with the additional context that the DAO is broke and has a lot of work to try to fund