Proposal: Whitelist BBS with External IL Protection

Proposal: Whitelist BBS with External IL Protection

TL;DR

  • BBS is a new project/token I’ve been working on for a while (“a decentralized reddit”).
  • I am asking for the Bancor community to consider BBS for whitelist status.
  • All BBS liquidity incentives from our end will be exclusive to Bancor.
  • BBS tokens from the initial supply will be allocated for the specific purpose of covering its own impermanent loss. This contract will be called the “Impermanent Loss Pool (ILP)”.
  • When a BBS token liquidity removal experiences IL during unstaking, instead of the Bancor protocol shouldering the liability, BBS tokens from the ILP would be used to compensate the liquidity provider.
  • Only when the ILP is depleted (in the distant future), the standard Bancor IL insurance would kick-in for BBS token positions.
  • BBS will open-source this external IL protection solution for the benefit of any project wishing to integrate with Bancor, opening a generic solution to whitelisting that may help to on-board new projects.

Token Contract: Will be updated before this proposal gets pushed to Snapshot

Project link: https://www.bbsnetwork.io/

Project

BBS is a new project and a token that I’ve been working on over the last year, while working with Yudi and the team on the Bancor v2.1 design, which continues to propel the Bancor Network into new realms of innovation around liquidity provision for the growing token economy.

BBS can be described as a “Decentralized Reddit where each post is a revenue-generating NFT”.

Like many new projects in the space, BBS will be offering staking rewards and liquidity mining. However, in the same spirit of innovation and thanks to our deep experience in how liquidity unfolds in modern AMMs, we wish to suggest a better model, together with the Bancor community.

The main issue, with today’s liquidity mining programs, as I see it, is that a new project is asking its devout early supporters-- the token holders – to bet against the success of the project in the near term (as reflected by the token price). The reason is that if the token’s price rises dramatically, all the mining rewards and collected fees would not suffice to cover the accrued impermanent loss - an issue that is dear to our hearts at Bancor and in DeFi at large.

Understandably, the Bancor Network is in no rush to provide impermanent loss insurance to a brand new project, as the token’s price volatility could be drastic - a heavy cost for the protocol to absorb. However, I believe there is a solution for this and that the Bancor Network could be the first to adopt it, as it has been the first to steward many industry leading innovations to date.

The idea is that BBS would allocate a percentage of their token supply for an “Impermanent Loss Pool (ILP)” - meaning that every time BBS is unstaked from Bancor, and impermanent loss insurance is due to the LP - the insurance amount will be taken from the ILP and not from Bancor. The Bancor Community would need to whitelist the BBS token and maintain a limit on the BBS pool that is a percentage of the BBS fully diluted supply - for example, 5%. This allows the Bancor Community to benefit from attracting new tokens to the network, while allowing LPs to benefit from Bancor’s novel impermanent loss protection, without raising costs on the network.

At some point in the future, as LPs enter and exit the BBS pool, the ILP could be depleted; however, by that point in time the BBS project may be significantly more mature, allowing it to reasonably vie for regular impermanent loss protection from the Bancor Community, just like other tokens currently listed on Bancor that have been whitelisted for this advanced feature. In this way, incentives are more correctly aligned among the various stakeholders throughout their life cycles, asking projects to bear the cost of protecting their most avid supporters at first, and then possibly shifting this risk to the network once the potential value of doing so is more clear.

The advantage for a project like BBS is that it would be able to offer, for the first time in DeFi, early holders to lock their tokens for liquidity mining, without risking their long positions on the project they are trying to support. This configuration has the additional benefit of making it rather simple to allow the new token project LPs to use their locked positions to participate in the governance of their new network - something that is more complicated in the existing network design.

The advantage to the Bancor Network of testing such an innovation is that, if effective, it could quickly become a new token launch best practice. Attracting the wave of new token projects to list and stake with Bancor will establish a network effect that will benefit all, existing token holders, LPs and new project stakeholders alike. This is the essence of the decentralized liquidity network design that kicked off, and continues to propel Bancor, and the greater token economy forward.

Token Security

The BBS token contract is a standard ERC20 token from the OpenZeppelin library)

The token will soon be launched and we will seek Etherscan verification before pushing this proposal to snapshot.

Tokenomics

BBS token is used as the native currency of the BBS network, flowing between BBSs, NFT Owners, Operators and Developers. BBS tokens enable the holder to participate in network governance via voting.

  • Advertisers can use BBS tokens to buy ad space on different BBSs.
  • BBS can be used to purchase posts all across the network
  • Royalties from revenues are paid to developers, operators and BBS owners in BBS tokens.
  • BBS holders can vote on governance proposals concerning:
    • Beneficiaries of newly issued BBS as well as BBS burning policies
    • Network upgrades and project funding
    • BBS interoperability standards and integrations - enabling all BBSs to function as a single network
  • BBS holders can choose to lock their tokens for up to multiple years in order to:
    • Boost their DAO voting power (given their commitment to hold BBS tokens for the long term)
    • Earn fees from trades on the BBS-BNT liquidity pool (with no impermanent loss)
    • Earn staking rewards, also boosted by longer lockup periods

Community and Communication

Homepage: https://bbsnetwork.io

Live Product: https://bbs.market

Twitter: @BBSnetworkIO

Telegram: @BBSnet

Benefits to Bancor

As noted above, there are many benefits to Bancor:

  1. We will open source the contract that allows 3rd party IL insurance
  2. We will open source the front end UI allowing users to do this
  3. We plan to have Bancor as the main destination for our users to LP and swap.
  4. Expand Bancor’s ability to enable to LPs to stake with no IL
10 Likes

Very cool idea and it would great for the community to support this proposal so that we can trial this out. I think if external IL protection is successful, then the the value proposition of Bancor (in addition to single sided staking and IL protection) will further distinguish us from competitors and make our DEX the most attractive for LPs and new projects looking to launch their governance tokens.

I have some questions from my end on how this would work:

  1. Am I correct in assuming that there is no co-investment from the protocol for the BNT side? I guess this would mean no single sided staking? Or can external IL protection be adapted to work with co-investment from the protocol as well?
  2. If there is no co-investment, then if you are an LP in the BBS-BNT pool, that means that you would have to contribute liquidity 50-50. Is the idea behind external IL protection that the TKN supply set aside for IL coverage will cover IL experience on the TKN side only and the protocol would cover the BNT side (if any IL is experience there as well)?

Unrelated, but when Bancor community BBS :slight_smile: ?

6 Likes

do it glenn! I’ll join

5 Likes

Actually, there is co-investment up to the limit specified for the pool - however, there is a smaller risk from a dramatic and permanent price drop, and a bigger risk to the protocol from IL resulting from the increase in BBS price. The ILP covers the protocol from that latter scenario.

This means that this solution does provide single side staking for the BBS holders, which is a big advantage for any project - however, the Bancor DAO should only enable such listings for projects that the risk of a permanent drop in price is low.

5 Likes

I really like this idea, as it paves the way for a more general mechanism for Bancor to support new projects.

For clarity, I want to reiterate some of the points made above.

  1. The BBS project is providing its own tokens, which can be used to cover the IL for its own liquidity providers.
  2. This alleviates a huge amount of potential liability for the Bancor Protocol, as new tokens are generally the most volatile, as they enter their initial price discovery phase.
  3. So long as the DAO manages the size of the pool to within a reasonable margin, the funds provided by BBS can protect the pool against IL for a long enough time period that the IL risk is reduced to background before the protocol becomes responsible for it.
  4. This could be a general solution for supporting new projects on Bancor, and helps to resolve some of the current conflict between wanting to increase Bancor’s offering, while maintaining a reasonable risk profile.

Here’s hoping this is the first of many.

7 Likes

Very interesting idea, need more of these. Will support and observe!

4 Likes

Thanks, Eyal. One more question, it sounds like the tokens being allocated are to cover IL protection. Will there also be a portion of tokens that get allocated for staking rewards in addition to protecting IL? If so, will BBS also be incentivizing the BNT side of the pool or just the TKN side? If it is both, what percentage gets allocated to each side (e.g. BNT LM campaigns are typically split 70%-30% with 70% going to the BNT side and 30% to the TKN side)?

4 Likes

Hi Glenn.

  1. Yes, there would also be a substantial portion of the tokens that get allocated for staking rewards.
  2. Currently there is no plan to incentivise BNT stakers on the BBS pool. In general, i think there is a growing understanding that the BNT staking side could be a good signal from the BNT holders regarding which pools are expected to produce the most yield. When BNT holders are incentivized to stake on one pool rather than the other, it can disturb that signal while not adding a huge benefit to the project to the Bancor Protocol.
4 Likes

Hi Eyal - interesting proposal.

My question would be related to the risk of insuring BBS IL losses with BBS. The chance that an early stage project significantly drops in value or goes to zero is non-trivial. Does this open up the possibility that a death spiral could ensue with IL protection getting paid out in tokens that are rapidly dropping in value requiring BBS to inflate their supply to pay out still more IL protection. I’d be curious if external IL protection would be paid out on the same 100 day vesting schedule thereby mitigating this concern. I also wonder why this wouldn’t just be better to do as an Origin pool with ETH side protected by the Bancor protocol and BBS IL protection provided by your treasury. Interested in hearing your thoughts.

5 Likes

There is actually no risk with regards to IL insurance if the price of BBS drops (relative to BNT). In that scenario, the protocol would probably own more BBS than it needs to pay back the depositors.

If the project token price drops, then the risk is that the minted BNTs would exit the pool, however, the initial low valuation of the token means that the risk should not be substantial.

7 Likes

Excited for this proposal very unique idea.

6 Likes

This is a terrific idea! One definitely worth testing out, and BBS seems to be an ideal candidate to do so.

5 Likes

Hi @Eyal ! I just caught up on this thread- it sounds like exciting stuff is coming for Bancor.

throwing this out there (may not be possible or a bad idea)- but since this tech will be open sourced, instead of BNT or TKN acting as the ILP party, could we use BitDAO’s token swap instrument as a way to bootstrap projects (by providing ILP for x amt. of time), similarly to how BBS will? Something like this seems in line with their mission according to this article:

These assets, it noted, “can be used to provide liquidity to partners, and bootstrap new protocols such as decentralized exchanges, lending and synthetics protocols.”

2 Likes

Hey @Eyal, just checking in to see what was going on with this project. It’s really exciting!

1 Like

Thanks! We are moving fast toward the token sale and keep improving the product. Please feel free to join MetaBBS where we publish all important updates as well as FAQ etc. You’ll also earn for your contribution to the conversation!

3 Likes

Already done! Will poke around and say hello. :grin:

1 Like