What is the severability of this arrangement? If promises, or just plain results, do not justify the partnership, can we sever this relationship? I would like a clearer definition of the risks. Good faith statements about 18 months, $700M in cashflows, and 31.5K transactions are fine, but what are the actual risks to Bancor? If this only makes the protocol a few thousand a month, is that enough to bother with? OTOH, if it is not trouble and ultra-low risk, a few thousand is a few thousand more than we had before.
One advantage of doing this now, is the relative lack of volatility in Bancor trading and revenues. This will make it easier to see if the estimated “30-40%” increase in trading is truly from this added feature. I am a little skeptical of this claim, but would be happy to be wrong.
At any rate, this proposal seems to be a good experiment. I would like to think that Bancor could continue to flesh out offerings in this manner, using composablitiy from other protocols, to become a site with diverse DEFI offerings (like options and futures, liquid staking, or a host of other services.) This may be a step in the right direction. Strategic partnering, while managing risk, could be a sound path to the future.
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Numiasma, thank you for the thoughtful response.
Severability - the relationship is subject to the same rules and restrictions as other DAO initiatives. If the DAO proposes to terminate the relationship, and that vote passes with a quorum present, then a wind-down of the front-end would occur. In essence, a vote to end the arrangement, would simply be a vote to shutdown the Bancor P2P frontend.
In this case, users attempting to access the BancorP2P front-end will be guided to https://app.unfederalreserve.com/ where they could continue to monitor, supply and borrow from their accounts. This scenario would cease the licensing portion of the agreement, but because consumer’s funds are at stake, we could not shut down their access to their money altogether.
Interestingly enough, the smart contracts can never die … so in the event EVERY frontend were to shutdown (and this is true of all Compound forks) users can actually directly work with the smart contract directly with the help of someone who understands how to make contract calls with the proper fields completed.
Below is a summary table of some of the risks and our mitigation strategies to address.
| Risk Category |
Specific Risk |
Mitigation Strategy |
| Technology Risk |
A failure of the BancorP2P platform to accept wallet connects, supplied assets, borrows, and/or reflect true and accurate information regarding interest rates, amounts, prices, etc. |
Residual Token, Inc.'s smart contract core and front-end has undergone multiple security audits and QA testing rounds. We will continue periodic review and testing, and address customer issues as they arise. |
| Reputation Risk |
A BancorP2P issue (real or perceived) causes people to associate that failure with the broader Bancor platform. |
We are all in this together. An issue related to a specific user’s experience affects the entire product line and will be addressed immediately. We have undergone crisis management training, and due to the volatility of 2021/2022 have experience handling FUD (real or percieved) across multiple channels. Transparency is the key to folks having confidence in the product. Residual Token will also support Bancor’s larger publicity strategy in the event of a disruption that affects both platforms. |
| Financial Risk |
Cascading liquidations due to massive market price corrections |
We cannot control borrowers over-exposing themselves relative to the riskiness of their collateral. Liquidations are a healthy and natural part of any P2P platform. (I think of the analogy of the little bird that cleans alligator teeth). We use a Chainlink pricing oracle to avoid pricing spikes of any of the listed tokens accidently booting borrowers off the platform. This is the best anyone in the industry can do right now to prevent sporadic liquidations. Cascading liquidations might affect collateral price and impact individual borrowers, but would not pose a risk to either company. |
| Political Risk |
Custody rules change or regulatory rules around custody change. |
Compound is self-custodial. The DAO, our company, etc. have no control over the user’s assets at any time. As a technology enabler, we are faciliating people transacting with one another and do not see any current pipeline legislation here or abroad that would impact our ability to operate the BancorP2P in a regulatory compliant manner. |
| Legal Risk |
Suppliers or borrowers disagree with the terms and conditions of the loans after they have entered into these agreements and choose to litigate. |
We have invested tens of thousands of dollars in legal fees designing and implementing the first P2P lending and borrowing agreement that accounts for the nuances of self-custody, changing lenders, changing borrowers, collateral and interest rates. We are extremely proud of this document that NO OTHER COMPOUND FORK employs to protect the other users, sponsors, affiliates and agents of both of our projects. (Note: we have three law firms - a general counsel (outsourced), consumer lending counsel, patent and trademark counsel) |
Let’s see how that displays! I can come back and edit if necessary. I hope this addresses your concerns around the risk, and we agree that this is a good experiment. Moving forward is not without risk from our end; namely, given some of the current Bancor systematic and unsystematic risk, we do not have a great handle on adoption. We have an educated guess, but largely think this is a good partnership to pursue. We know the leaders, the community great and the mission of Bancor is sound.
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Some information on how Pool-to-Peer works vs Celsius and other centralized lenders…
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