Proposal: Use protocol owned ETH to buy and burn BNT from the markets

[alphavalion]

Expected on Snapshot on November 5th, 2023

This proposal is split from the discussion that has happened in this thread

Consolidating recent proposals by @alphavalion

Bootstrap Carbon with POL from Bancor 3 Context: This proposal is a continued discussion of the proposals created by alphavalion [here, and here]. In brief, there are two key aspects that should be consolidated: Winding down of Bancor V3 and cementing the lossless state of tokens in surplus The Bancor V3 contracts allow the DAO to determine the trading liquidity value of any pool. If the trading liquidity is set to zero, that pool can no longer trade. For pools with tokens currently in su…

and Bancorians should read that post to have an understanding about this proposal

TL;DR

• Protocol owned ETH to be used to continue the strategy of buying and burning BNT

Summary:

As part of proposal

Proposal to sell Bancor 3 token surpluses for ETH

Expected on Snapshot on July 16th, 2023 This proposal is split from the discussion that has happened in this thread and Bancorians should read that post to have an understanding about this proposal TL;DR Pools on Bancor 3 that have a surplus and are disabled to have the surplus converted to ETH Summary This is fairly simple and straight forward that will convert token surplus using a Public Function that trades each TKN for ETH on another exchange, based on any decentralized oracle N…

Bancor 3 token surpluses were converted to ETH. The contract now has about 1800 ETH which Bancorians must decide how to utilize

https://etherscan.io/tokenholdings?a=0xD06146D292F9651C1D7cf54A3162791DFc2bEf46

Historically the Bancor DAO has opted to buy and burn BNT as part of its approach to fix the deficit. Buying and burning BNT affects all LPs EQUALLY and does not pick any favorites or provide preferential treatment to anyone. This method benefits BNT holders and TKN holders the same and has led to over 50+ pools being closed since my initial proposal to start sunsetting Bancor 3. This can all be tracked in the proposal that I created which has a record of all pools that the Bancor DAO has voted to close

Proposal to start sunsetting Bancor V3

By now, it should be clear to the entire community that ILP is never coming back and no BNT holder will ever vote for reenabling such a feature ever again. Since the release of Carbon, it is quite clear that this is the future of Bancor for now until more products are released (yes, I think this is just the beginning). To that extent, this proposal is seeking to start sunsetting V3. Via https://analytics.bancor.network I was able to pull a CSV file of all the current V3 data. From that CSV I fi…

Since then there have been other proposals to continue boosting BNT buying and burning. One of these proposals recently passed which would make v2.1 buy and burn BNT exclusively which has always bought vBNT in the past

Proposal for the Bancor v2.1 vortex to use 100% of fees to burn BNT

Expected on Snapshot on October 1, 2023 This proposal is split from the discussion that has happened in this thread and Bancorians should read that post to have an understanding about this proposal TL;DR The Bancor v2.1 vortex to use 100% of fees to burn BNT The Bancor v2.1 vortex will not burn vBNT any longer Summary The reduction in BNT supply is the most important number for all Bancor v2.1 and Bancor 3 LPs. This affects the pool deficits as burned BNT is bought from the markets firs…

Later on I also proposed that v3 should used 100% of its fees for buying and burning BNT. Before this proposal passed only 90% of fees in v3 were utilized for buying BNT

Proposal for Bancor 3 to use 100% of fees for BNT market buy back

Expected on Snapshot on October 8, 2023 This proposal is split from the discussion that has happened in this thread and Bancorians should read that post to have an understanding about this proposal TL;DR 100% of fees in Bancor 3 to be used for BNT market buy Summary Bancorians and LPs staked in Bancor 3 get small yield benefit from 10% of fees accumulating in their LP tokens. Instead of 90% of fees in Bancor 3 to be used for buying BNT from the market this proposal will move this to 100%…

This proposal is looking to continue with the previous approach that the Bancor DAO has taken towards deficit reduction by continuing with buying and burning BNT.

How will this be accomplished?

I am proposing the following using the similar approach that was recently used for converting protocol owned tokens to ETH and some modifications to prevent front running.

This proposal is to go on snapshot for voting on November 5, 2023. If it passes, the first initial BNT buy order to be put on chain will happen on November 13, 2023.

Buying of BNT should happen in tranches to prevent front running and be spread out over time using the following schedule every week:

Year 2023:

Week 46 Monday 13 November: 32 ETH to be used for buying BNT

Week 47 Monday 20 November: 32 ETH to be used for buying BNT

Week 48 Monday 27 November: 32 ETH to be used for buying BNT

Week 49 Monday 4 December: 32 ETH to be used for buying BNT

Week 50 Monday 11 December: 32 ETH to be used for buying BNT

Week 51 Monday 18 December: 32 ETH to be used for buying BNT

Week 52 Monday 25 December: 32 ETH to be used for buying BNT

Year 2024:

Continue buying BNT every week using 32 ETH

Year 2025:

Continue buying BNT every week using 32 ETH

To buy BNT with ETH the Bancor DAO must determine the prices in ETH for BNT:

• Get price from Coingecko
• Multiply price by 2 to get initial BNT buy price in ETH
• Contract offers to buy BNT token at initial buy price in ETH
• The price of BNT drops as defined by an exponential decay formula with a 5 day half life.
• Anyone can buy the BNT with ETH at any time.

These parameters can be adjusted by the DAO at any point in time.

Note:

• There is no more min return as this is no longer traded on a DEX.
• ETH is sold for BNT only onchain. There is no UI for this (as there is no mechanism to slowly and programmatically decrease prices in Carbon).
• The contract will have a function to see the expected return price.
• The takers are expected to be arb bots or traders interested in buying tokens at a discount.

For

Use protocol owned ETH to buy and burn BNT from the markets

Against

Take no action

[Joop]

Thanks for this @alphavalion.

What made you decide to go for 16ETH a week?

With current price of BNT and ETH that would be around 45k BNT a week. Would it make more sense to aim buying 50k BNT a week no matter the price of BNT/ETH?

Also why spread over 2 years and not go for upcoming months and 2024? This way we could go for around 100k burn a week.

[foxsteven]

Hi @alphavalion

I agree with the general idea you have outlined.

As I mentioned on another thread in governance yesterday, I’m working on the same idea.

There are a couple small things I will suggest to change based on the implementation of the POL contract.

For example, we might need to change the amount of ETH used each time and/or the frequency of putting them for sale.

But I am generally in agreement that this does decrease the deficit and does not play favorites.

I will update suggested changes shortly.

Steven

[teamAsaf]

@alphavalion,

i would like to re-introduce the option to better utilize this protocol owned ETH in supporting Carbon.
instead of selling ETH for BNT, we should consider doing the following:

1. sell ETH for USDC
2. create a carbon strategy (protocol owned) between USDC/USDT
3. set the spread at 0.001% which will accumulate more value as trading interacts with the strategy
4. protocol fee is set to 0.001% for this pair. this fee is collected by carbon and is already part of the carbon vortex.

why should we do this?

1. carbon is now connected to few major aggregators
2. carbon design allows for all this liquidity to be concentrated around a very tight price and spread
3. stable to stable strategy requires less (if any) management
4. due to the nature of carbon, this can serve an an ongoing fee generator for the protocol from here on

short term solutions are quick to show results, but i tend to prefer a long term plan that can self sustain itself over time and keep feeding more fees and visibility to carbon.

[0xkeyrock.eth]

we do prefer the idea from @teamAsaf. It’s more productive and focused on supporting Carbon

[Jindo]

the fees generated from this will take too long to produce meaningful fruits. We do not need to bootstrap carbon, we need to repair the deficit asap prior to the market running away from us during the bull market. Also. If we place the POL funds in stables, then it is also highly likely, that within the next year or so, the dollar $$ value gains from eth/ btc etc. increasing in value will greatly outperform the fees generated from the stable strategy. my 2 cents

the greatest risk we currently face is not repairing the deficit prior to the bull market run, and every effort that we take should be directed towards the fastest approach at closing the gap. I do not feel that time is on our side, as you can see from the btc/bnt chart or the eth/bnt chart. It is more likely that the trend will continue, downwards to the right, and a btc bull rally will only amplify this. Therefor a stable strategy isn’t something we can afford atm, although I do like the idea, we just don’t have time for it.

[Joop]

Did you do the math on how much we can earn with this and what would be the possible impact on the deficit? Because before supporting this option I would love to know. Fees earned after 6 months with Carbon are less than $5k.

And could it be fruitful to support implementing both options, but stop the buyback of BNT 1 year earlier and use these funds for the USDC/USDT strategy?

[foxsteven]

Okay, here are my suggested changes that make this is bit more workable and uses elements we already have to reduce dev time.

Modified POL Contract
(note: the original POL contract is outlined here)

• Create a public function anyone can call that will put 100 ETH up for sale.
  • 100 ETH is a DAO controlled parameter
• The initial sell price should be set at two times the BNT/ETH rate on CG.
  • This is a DAO controlled parameter
  • At the time of writing, the rate is about 1 ETH to 3,000 BNT
• Contract offers to sell ETH at initial sell price
  • For example, there are 100 ETH and initial sell per ETH is 6,000 BNT
  • Any user can send 600,000 BNT to acquire the ETH
  • The price of ETH drops as defined by an exponential decay formula with a 10 day half life.
  • Anyone can buy the ETH with BNT at any time.
  • These parameters can be adjusted by the DAO
• Once a trade ends and there are less than 10 ETH available for sale, the contract is topped up to 100 ETH.
  • The new initial sell price will be the price of the last ETH sold x 2

@alphavalion - please let me know if you agree and are happy to incorporate my suggestions.

[alphavalion]

My main concern with buying BNT in large quantities is always related to front running. With ETH at $1700 this means around $30k worth of BNT buying every week until we run out of ETH.

We have to be careful with anyone wanting to outright do an 1800 ETH purchase in a single amount as that will allow anyone to front run the Bancor DAO and dump on Bancorians. The longer the buy and burn is spread out the better it is to prevent anyone from front running the DAO.

[foxsteven]

@alphavalion

My main concern with buying BNT in large quantities is always related to front running

This is exactly why I am suggesting to use the modified POL contract as opposed to B3.

Precisely to prevent front running (the contract is the maker, not the taker)

[alphavalion]

It does not prevent front running and unless I am wrong in my reasoning this is how front running can happen with LARGE quantities of buying at the same time.

TKN is worth $1 now
Someone buys TKN after buyback vote passes and TKN is $2 now

Reverse auction starts at 2x the current price which is about $4. Price decreases until auction price meets the current market price or below. Someone buys BNT from other liquidity sources to provide BNT to the auction. BNT goes up on external markets as it is bought. Original buyer dumps on market and makes profit from Bancorians who bought TKN at inflated $$

The Bancor DAO should aim for buying BNT with ETH such that less than 1% in slippage is cause from such a purchase

I am willing to modify the 16 ETH buy to 32 ETH a week

The Bancor DAO should aim for the least amount of value loss to Jaredfromsubway and that happens with small buys spread out over long periods of time.

[foxsteven]

@alphavalion

buying

I think there is a slight misunderstanding here.

If we used B3 - then yes, I agree with your point on Jaredfromsubway

But we are using the modified POL contract, in doing so, we are makers, not takers that can be front run by jared.

[alphavalion]

I don’t think this matters at all as almost ALL onchain BNT liquidity is on Bancor and this means that the BNT is going to come from our pools anyway. This is what 1inch has to offer when buying 100 ETH worth of BNT

There is no other onchain liquidity source

[teamAsaf]

POL contract makes a certain amount available at a moving price.
for this, if the initial amount is 100 ETH, anyone can decide to take anything from 1 wei to the full amount if the price is right for them

not sure if we should care about anything outside this scope at this stage aside of knowing the POL would receive the amount of BNT in exchange for the ETH it was holding.

[ImshermanentLoss]

No, the POL was earned off the backs of LPs providing liquidity, trying to use it to subsidise Carbon-- in a strategy which earns molecular-level fees (the point of fees on Carbon being deficit reduction) by design–is doing nothing to aid significant deficit reduction, which should be the only goal of any proposals the DAO rubberstamps.

Trying to funnel the largest resource for deficit reduction into a 0.001% fee strategy, no matter how often it executes, just sounds like putting out a fire by by sprinkling individual grains of sand into it one by one, rather than smothering it with a sandbag.

If Carbon accrues TVL and generates fees, it should be from the foundation actually paying for marketing to attract users and TVL, and DeFi users actually wanting to use it, not from a supposedly “decentralised” organisation suddenly controlling more than 75% of all liquidity on the platform.

[ImshermanentLoss]

The problem is that the longer the buy and burn is spread out over, the less impact it will ever have, directly contravening the whole point of POL usage. The longer it is deployed over, the less upward movement and pressure, the fewer pools enter surplus, the fewer pools are automatically closed by the amazing arb bot, the less associated BNT is burned, the less impact any future BNT buys will have.

At this stage, telling LPs to wait another 2 years of resource deployment and pinning hopes on weekly buy/burns of $30k BNT is actively hostile to TKN LPs, especially with a BTC halvening coming up within 6 months.

[Jindo]

I think at this point we need to schedule a community call regarding this topic. We arent all on the same page on many issues here, and even when we debate as a community, it’s still good to hear Mark and big brains comment as we go through each points one by one

so we need to outline every aspect of what the conversation needs to accomplish, schedule a date, and get as much of the community to participate as possible so that, together, we can all nitpick in real time at each others opinions

Placing all POL into ETH was already a costly mistake, and this decision was made by few… and was an error which costs us an opportunity to make additional hundreds of thousands of $$. Lets not make another mistake here

[umstah]

I think most people are coalescing around Steven’ idea…I think Mark may also have some feedback as well.

[alphavalion]

@ImshermanentLoss

No, the POL was earned off the backs of LPs providing liquidity

The only reason why the Bancor protocol ended up with large token surpluses is because the tokens that BNT was paired with underperformed against BNT. This essentially meant that BNT leaked into the markets and was most likely sold off for other tokens. All LPs that were in surplused pools withdrew with 100% of their initial deposits and whatever tokens were leftover belongs to the protocol. The Bancor DAO can choose to use these tokens in the best possible way for the advantage of the protocol and ALL LPs.

If the Bancor DAO votes to utilize these tokens for Carbon and to generate fees that will go towards deficit reduction then so be it. Every single person in earth can buy BNT or vBNT and participate in the Bancor DAO which is a decentralized autonomous organization.

[alphavalion]

@ImshermanentLoss

At this stage, telling LPs to wait another 2 years of resource deployment and pinning hopes on weekly buy/burns of $30k BNT is actively hostile to TKN LPs, especially with a BTC halvening coming up within 6 months.

All token LPs like myself have the ability to withdraw from v3 and v2.1 at any point in time. Since day 1 on June 19, 2022 I decided to not withdraw in deficit from the protocol because I believe that recovery was going to happen and was later on able to withdrew some token positions in full. Being able to withdraw from the protocol has been the case since day 1 when the BNT printer was turned off and impermanent loss was disabled.

LPs have the option to withdraw if they think that BNT is going to go to zero or if they have lost trust in the Bancor team or the recovery process. I remind everyone that there were MANY saying that Bancor was a dead project and were later on all proven wrong when the innovation that is Carbon was released against all odds. I have nothing but faith in the Bancor DAO and fellow Bancorians doing the right thing for the Bancor protocol and ALL LPs.

My goal is not to pump the price of BNT so that jaredfromsubway can benefit at a loss to the Bancor DAO but to gradually keep the tide moving in the correct direction which has been occurring for the past months as MANY pools have been closed due to the ongoing efforts of BNT buying and burning.