Context:
I am operating under the assumption that if the deficit was standing at $1, the Bancor Foundation or some Bancor-affiliated entity would have paid that $1, recovering the lost reputation of the project.
So there does exist a number somewhere between 1 and 32,000,000, the current deficit, which if the deficit is lowered to, will create the perfect win-win opportunity for depositors to be made whole, and for Bancor to completely restore their reputation. I can’t know where that number stands, but what we can know for sure is that lowering the deficit brings us closer to it. The question is, how can the deficit be lowered…
The way I see it there are three major mechanisms:
- The desperation of depositors who give up all hope and take the cut (bad for reputation long-term).
- An increase in BNT value.
- The entire crypto market crashing down at the same pace, thus lowering the USD value of the deficit for all pools that are not stablecoin-based.
In my opinion, relying on #1 until the very end would cause irrecoverable reputational damage, and #3 is already on the way, and in fact we have a limited time to take advantage of it. So we need to focus on #2.
The issue with #2 is the absence of trust in the project, preventing any potential buyer from showing interest in BNT.
Meanwhile, at first glance, in order for the project and the BNT token to gain trust, all depositors need to be made whole first - a classic catch 22…
Unless we think a bit outside the box - perhaps we can break the catch 22 by improving confidence even before the funds to make all depositors whole are present.
How? By only partially recovering some of the lost funds for the users. Advertised as a “first step to making all depositors whole and proof that the Bancor team is on the way to a full recovery”.
Of course, there are a number of “horribly wrong” ways to go about it. Paying off 1/3 of the deficit, for example, would cost Bancor upwards of $10m and will not do much to recover reputation. So obviously this is not how it should work.
I believe that instead, there should be a limited number of wallets that get their funds fully recovered, while the rest are promised to be next in line. And it should be done in a way, in which the depositors who are left behind for the time being are not disappointed with the decision. In my opinion, there is one clear way to make this happen:
Return impermanent loss protection
I propose returning impermanent loss protection, except, instead of paying out in BNT, the team is covering the impermanent loss gap with date-stamped IOUs. For example, if a ENJ holder decides to withdraw their 10000 ENJ from the pool, in the month of December, they get 6000 ENJ and 4000 BNT-ENJ-Dec2022 tokens.
This way, depositors are offered a tradeoff - they can get more than half (at least for most pools) of their funds to use elsewhere as they wish, while also retaining a chance of getting the rest at a future date. In addition, the IOU tokens will be tradable on the open market, meaning that people who withdraw will usually get more in liquid funds than just their outstanding balance minus impermanent loss.
Many will be happy to oblige - thus withdrawing and reducing the outstanding deficit. Perhaps me included.
Sure, the sum of the deficit and the IOUs will remain the same as before, as those IOUs will need to be paid at a future date.
However, it does lower the amount of funds needed to make the first batch of liquidity providers whole. And if it wasn’t obvious, the first batch would be those who left their funds in the contracts. The second batch would be the holders of the most recent IOUs (which is why they had to be datestamped in the first place).
This creates a clear, understandable process that I believe nobody would disagree with.
As for the datestamps, I think creating new IOU tokens every month would provide a fine balance between:
a/ a low amount of overall tokens so that their appearance on the open market doesn’t confuse potential speculators
b/ a high enough separation that would make individual “batches” of holders to be repaid smaller, allowing for more frequent positive news around the project.
This will begin the process of restoring confidence in Bancor and the BNT token might become interesting to traders once more. I am convinced that both selling pressure will be lowered because of it, and buying pressure will be increased - even if subtly.
The combination of withdrawals reducing the first batch deficit, and restoring hope in BNT as a token, would tackle the deficit problem from two different angles. Until at one point, the deficit drops low enough that a full recovery for the most patient liquidity providers is possible (aka we have reached that magic number between 1 and 32m).
I believe that once that happens, it will trigger a cascade of positive events, leading to a full recovery much sooner than it would have happened if the team was to wait until all funds are recovered from v4 profits.
This not only means a quicker recovery of both user funds and project reputation, it also mitigates the risk of a particular coin outperforming BNT massively. I do believe that we are on a timer before something like ENJ, or LINK or some other coin starts gaining traction, and unless the team has positive news to bring to the community, such an event might spell Bancor’s demise as a whole. I strongly believe that we should act quickly in anticipation of such an event.
I am not sure if I managed to elaborate the idea in the most concise manner, so feel free to ask questions. It is not complicated, but I believe that it is a massive improvement over doing nothing, while simultaneously not hurting the project in any way. In addition, it does require minimal coding. I’m curious to hear what the community thinks about it, whether something similar has been discussed before, etc.