I’ve been thinking about how we transition Bancor3 from the current state to where we want to be. Hopefully, I can put this into a coherent post for others to discuss
At the moment the majority of TKN LP’s in bancor 3 are trapped by the individual pool deficits and receive low yield from trading fees. The protocol is focused on maximizing fee income to burning vBNT / BNT to generate a positive pressure on BNT price and so reduce and eventually remove the deficit. This is being done by votrexing all Bancor 2.1 fees and 90% of B3 fees. The alunch of Carbon will also generate more fee income directed to BNT price.
This is all good, and a proper focus for the protocol at this time.
Where do we want Bancor3?
In the future we want to have large AUM in Bancor 3 generating lots of trade volume and fees for LP’s. Then we can build other features onto this to further generate income for Bancor protocol and BNT holders. However, for most of these uses, we need large AUM in B3. (Note I think Carbon AUM will be held separately so does not contribute to B3 AUM).
So, I’ve been thinking about how we get from current to future.
I think the short answer is that we need two things:
- BNT price to go up as arbitrage will pull TKN into the omnipool.
- Token LP’s to deposit more TKN into Bancor3.
#1 is being worked on.
#2 is more complicated.
I’ve recently posted about DAI here. My conncertn is that when BNT passes ~ $0.53 the DAI pool will be in surplus, earning ~0.3% APY and the majority of LP’s will remove DAI as they can get >1% in Maker, AAVE or Compound. Yields will increase as AUM drops, but loss of AUM impacts trade volumes.
For me, in order for most LP’s to deposit more TKN into Bancor3 they need 3 thinks:
- confidence in the Smart contact
- confidence they can withdraw all their token in the future
- yield in TKN that compensates for their opportunity cost
The good news is we have robust smart contracts.
Confidence in full TKN withdraws has been shattered by the (entirely correct) pause in IL protection.
Yields are poor due (in part) to the 90% Vortex.
Note, I think I’m in agreement with @cryptokitty in focusing on needing AUM to work with.
|TKN||7 day APY|
Building confidence and TKN AUM
I don’t think that we are approaching the time where we need to start experimenting with some pools with the aim to:
- Build confidence
- Build TKN AUM
- Build TKN LP income.
and that we should do this while continuing the direct the majority of the total fees to the vortex…
Note, that this may require some smart contract changes to allow individual pools to have different parameters. At the moment I’m assuming anything I want is possible . Reality may mean we need to modify plans or divert Dev time.
I’ve already posted about DAI,, to me this is a defensive strategy to defend DAI AUM, and create a playbook for USDC and USDT as BNT price increases and those pools migrate to a surplus.
What about the other TKN’s that maybe more correlated with ETH / BTC / BNT / crypto?
I think we need to start by doing two things for selected TKN’s:
- Restore IL protection
- Increase LP income to become more competitive.
Restoring IL protection is a big move, it returns Bancor to to one of our key value propositions. However, it also risks opening the gate to significant BNT minting (and likely reawakens some of the Bancor detractors…)
So where do we start?
My starting point was to download the Bancor3 analytics and looking at the different pools. The first filter was the surplus. If we restore ILP to tokens already in surplus, there is a small risk that IL protection will be needed.
I’ve take all TKN with more than 50% surplus in this table. It may be more prudent to take 200%, but 50% only adds 4 more to the screen.
My second screen would be to sort by LP TKN AUM and remove those tokens with less than $20,000. e.g. If there is a 100% surplus, but only $10 k LP AUM, then a $40 K deposit will reduce the surplus to 17%.
|TKN||LP TKN $||Surplus $||Total $||% Surplus|
|LPL||$15,824||$14,926||$30,751||94%||< $20 k|
|RNB||$6,758||$12,032||$18,790||178%||< $20 k|
|SATA||$2,742||$5,783||$8,525||211%||< $20 k|
|SHEESHA||$0||$6,808||$6,808||1638807%||< $20 k|
Then I would look at the trading volume, and fees:
|TKN||LP TKN $||Surplus $||Total $||% Surplus||Fee||7 day ave LP fee||7 day volume||1 day volume|
From this it’s obvious that DAPP is different, zero trade volume, but high yield (from Protocol liquidity incentives). As such I would remove it from consideration.
That leaves a shortlist of 7 tokens. At the point the Bancor DAO could decide to offer IL protection to all, or some based on further criteria:
- Relationships with the TKN DAO
- Is a project dead? (after all the TKN has under performed BNT since it was introduced…).
- Offchain awareness (e.g. whats happening to REN following FTT…)
- How we compare with other on chain liquidity and volume.
- How much risk do we want from this operation, fewer pools / higher surplus reduces our exposure to Minting BNT (note we can also modify the BNT trading limit to preent a sudden TKN deposuit and price increase resulting an a deficit).
Changes we can make:
I would say that once we have identified the pools to start on we could:
- Activate IL protection.
- Modify the BNT trading limit (current TKN $ value including surplus???)
- Change the pool fee to increase volume and / or income.
- Change the vortex to increase LP income for a given pool income.
- Growth in bnTKN showing an overall gain in TKN deposits for each pool.
- Potentially increased LP income (depending on how we set the fee and vortex).
- Positive sentiment from the crypto community for survival and recovering .
So, some questions:
- Do we think the time is right to start reintroducing ILP for some pools?
- What criteria should we select TKN’s?
- Can we modify all the parameters we would like to (or are they global)?