We have observed the effect of vBNT burning under a variety of scenarios. This includes the past two months of the vBNT burn rate at an elevated rate (100% on v2.1), and while BNT distribution via BNT liquidity mining rewards or Liquidity Protection is disabled.
We still have not observed the effects of directly burning BNT. There has been significant discussion on this topic, most recently here. Until now, the discussion for a trial burn of BNT can be summarized as follows:
Opposition
By burning BNT directly we lose out on what is now ~600K BNT worth of buying pressure on the vBNT token
Burning vBNT at current vBNT/BNT rates helps lock up a greater amount of BNT in the protocol
Support
Those supporting burning BNT are mainly in favor because:
they want to observe the effect
they believe it could have a net positive effect on market sentiment and protocol recovery
Burning vBNT requires first trading the current BNT in the v3 Vortex vault for vBNT which will create a large arbitrage opportunity in the vBNT/BNT pool that will give free money to arbs (due to slippage on the vBNT/BNT pool)
Burning BNT requires little to no dev resources, since BNT collected in the V3 fee wallet can be withdrawn and burned by the DAO msig
Evaluating BNT Burn
Following the proposed BNT burn, the Bancor DAO and community researchers can observe the effect that BNT burning has on the protocol’s vault deficits.
While a new Bancor model is being worked on, running tokenomics experiments such as this one can provide the community with valuable insight that can aid in recovery efforts and protocol design. Which is why I believe we should finally put this to an on-chain vote.
FOR - Burn the current BNT balance (at the time of writing, ~600K BNT) in the V3 fee wallet
AGAINST - Do not burn the current BNT balance in the V3 fee wallet
Burning the 600k BNT which is currently sitting idle will likely have no effect as the bnt is simply sitting idle and is not being currently sold for vbnt. So as these tokens currently stand, providing they dont move, we can treat them as “burnt” for the time being until we figure out what exactly to do with them.
I would however, like to see the effects of the vortex not selling BNT for vBNT and simply burning the collected BNT directly ( I am assuming this is only from v2.1 as v3 is already collecting bnt and letting these tokens sit idle )
Either way thank you for bringing this up. I am eager to see the outcome of the direct burning of BNT instead of vBNT. Fingers crossed, this will help to stabilize / prop up the price of BNT faster than its counterpart
this is an interesting idea that could be implemented/modeled in the new Bancor design. Instead of relying on arbs to lock up BNT when the vBNT/BNT ratio is high, the protocol can have logic that “burns” BNT instead of swapping the BNT for vBNT. This would put an actual ceiling on the vBNT/BNT ratio rather than an assumed one given arb opportunities. Not sure the complexity of implementing that logic though.
@nhindman can you help me understand plz where the 600k BNT that is being burnt is from? The V3 fee wallet collects BNT from where? This isn’t the same as removing circulating BNT I take it.
More info on how this works can be found in the original v3 proposal BIP15 - excerpt below:
Bancor Vortex
The function of the Bancor Vortex remains unchanged in the new release; however, its specific behavior is modified to be more efficient. Rather than collecting a wide variety of token types, the Vortex on Bancor 3 will collect BNT exclusively; fees earned in TKN are swapped immediately for BNT. Therefore, triggering the Vortex results in a single swap of BNT for vBNT directly, rather than a myriad of swaps across numerous TKN pools for BNT as a first step. This simplified arrangement has consequences both for the effective value burned, and an improved gas efficiency overall.
Re changing the tokenomics so that BNT is bought and directly burned on each swap, this indeed could be interesting, and burning BNT directly from the fee wallet is a potential precursor to that adjustment.
V3 BNT vortex is currently “removed” from the market yet it is “expected” to be used to trade for vBNT.
the market reaction is for vBNT burning.
if we announce and burn the BNT, the market will react to this instead.
for this, i do not think the market already reacted to the vortex as we would like to evaluate.
i am for burning BNT from the v3 vortex and evaluate the response.
However, I’m wondering if will get people to buy and stake BNT.
How about we do two things:
Set all B3 vortex fees going forward to accumulate to BNT stakers - I’m estimating a 20x increase from 0.35% to ~ 7% yield.
Take the 650 K BNT in the B3 vortex, stake it in B3, then burn the bnBNT over 2 months to auto compound for BNT stakers (~1.3% of supply over 2 months ~ 7.8% annualised).
Then we get: 7% long terms income for BNT stakers with a 7.8% Bonus for 2 months = ~14.8% native income purely from fee income.
We have ~204 M BNT in circulation (including protocol owned), and ~45 M BNT staked, so we can burn 0.3% of the total supply, or generate 1.3% income (absolute) for BNT stakers.
Would that generate a stronger BNT open market buying pressure than burning the 650 K BNT?
Would you buy BNT if you knew 650 K was being burnt?
My guess would be that if there is a green light on the BNT burning experiment, we can validate this option. IF successful, there would be a vote to update v2 vortex in the same manner (i assume)
The issue I see with this is that the BNT collected from v3 is simply sitting stagnant. Burning this BNT is likely to be a non-event and carry out no positive nor negative effects.
I’m for this, a lot of people miss the point that vBNT is nothing without a strong BNT tokenomics. Burning vBNT should be always supplementary. The vBNT to BNT ratio is irrelevant when BNT goes to 0.
Since posting this, a couple more alternatives have been proposed beyond just burning BNT or burning vBNT.
@OverAnalyser has proposed distributing the accrued BNT to BNT stakers, and this driving demand for BNT. I am a bit concerned that this could be viewed as enriching BNT stakers at a time when TKN LPs are in the most “pain”, and could potentially backfire and further harm BNT market sentiment.
Another alternative that has been discussed is continuing to let the BNT accrue in the V3 fee wallet, where it is effectively out of circulating supply, and eventually having this BNT become available as some kind of Bancor DAO treasury. The DAO could, for example, use this BNT to do a token swap with another DAO, use it to fund DAO-issued grants, or for some other future utility that becomes clearer once Bancor’s overall roadmap materializes. Determining the feasibility of this final option (DAO treasury) requires additional legal research, which is currently underway, and will be shared once available.
So current proposed options are:
Option 1: Burn vBNT via Vortex (requiring market sale of BNT for vBNT)
Option 2: Burn BNT directly
Option 3: Stake the BNT and use bnBNT for LM (@overanalyser proposal)
Option 4: Continue accruing BNT and keep it locked in the V3 fee wallet for some future utility (eg, token swap, DAO treasury etc), pending further discussion and legal research
Some have also expressed the view that burning BNT or burning vBNT will have no material impact on market sentiment and therefore no meaningful effect on the deficit. In their view, we will be effectively wasting the accrued BNT fees, while in the case of burning BNT directly, also harming Bancor’s visibility in Coingecko/CMC due to reducing the BNT market-cap rank.
With these ongoing discussions in mind, I have revised the “expected Snapshot date” above to “TBD”. If, however, someone feels strongly that a yes/no vote on burning BNT directly should be brought to Snapshot now, they are free to push the Snapshot proposal at any time, and vBNT holders can decide the outcome.
Proposed next steps:
continue discussions on the above options
continue legal research on “Option 4” and report back with findings
Would a TKN holder see/feel much difference between a vBNT burn, a BNT burn or using the fee income to increase bnBNT income?
Increasing fee income is great, and we should do what we can to raise overall income.
However, for me, I think the best way to reduce the deficit is to increase BNT price. So returning swap fee income to BNT stakers would be my preference (Note, I would not call it LM, too many people associate LM with token inflation - using income is something different [much better and fully sustainable]).
My thoughts are still developing on this. At the moment I’m thinking:
Reduce B3 vortex on BNT to 0% to ~10x bnBNT yields - purely from swap income.
Reduce B3 on TKN pools to 50% so TKN yields 5x.
Keep v2.1 vortex at 100% and burn vBNT.
Transfer the 650 K BNT earned from swap fees since May to BNT stakers via auto compounding over a few months.
1 and 4 should increase bnBNT income to between 5 and 10% - a very good yield for the current market.
2. Would be intended to help TKN LP’s become comfortable with taking in bancor when the TKN is no longer in deficit.
3. Encourages LP’s to migrate to B3, and burns vBNT for long-term locking of BNT.
If we don’t want to use the 650 K for BNT staking income, then my preference would be to convert it to stable coins or ETH and hold it as a DAO treasury. This could then be used for IL protection on live pools, or (eventually) a compensation pool for people who withdrew without IL protection.
NOTE: I don’t see much point in holding a treasury reserve of BNT, as it is little difference compared to minting BNT when we need to spend it…
agreed with most of what you said above except for the quoted text.
If the BNT is sold for eth or stables or tkns then that will increase the deficit in the respective pools
I whole-heartedly agree with you that increasing the price of BNT is what we need to focus on, and this wont magically happen, nor will the vortex alone be enough for such sustained growth.
Bancor needs to rebuild its reputation and strengthen itself by organically increasing the demand for the BNT token. This can only be done if investors are given a greater reason to buy/hodl/stake the BNT token. As you mentioned earlier, sure, lets give the BNT stakers swap fees. This is not inflating the supply of BNT. I also think that we need to think of an additional layer on top of this to increase the desirability for the BNT tkn
As I mentioned in a previous post, say if staking a # of BNT is required to get the TKN lp ILP coverage for their stake. The amount of BNT needed would be a % from the total $ LP position size, and this value would be floating with the market conditions. I am in no means stuck on this idea, but there must be an idea, creative like this, that can boost the desirability for the BNT token.
Investors will buy BNT if they feel that the price will go up, or that they will earn $$ from staking it. TKN lp’s will buy the TKN if it gives them some advantage within the bancor system to either protect their funds, or increase the yield that they will generate ( similar to curve etc. )
off topic, but still related to things that can be done to improve bancor - @mbr said in a previous call that he was interested in bancor MEV’ing itself rather than some other arbitrageur in order to generate fees. While its beneficial for the protocol to generate fees, I think it would be better for the protocol to protect itself from MEV so that users of Bancor get the best prices. Quite frankly, I more often use other AMMs for trades because I get better quotes everywhere else. So rather than bancor trying to extract even more value from its users, I’d rather see Bancor give more competitive // === prices to that of uniswap, sushiswap, matcha + protect its users from MEV vs MEV its users.
Bancor was never a platform for regular users. Almost all volume is from aggregates and arbitrage.
Also want to point out that MEV arbitrage actually keeps your prices competitive - sandwiching / frontrunning works against a swapper.
It is not a trivial problem to monopolize this market on a protocol level (0 examples) and DEX aggregators are your best anti-MEV strategy already (CowSwap).
