TL;DR: It makes some sense in a bubble, but any proposal arguing for “favour TKN X over TKN Y” just opens up a bunch of arguments for why “favour TKN Y over TKN X” makes more sense; including that focusing on ETH and WBTC could actually slow down overall deficit repair because focusing on other pools would encourage faster BNT supply reduction.
I understand the motivation, and I understand the logic, but I suspect you’re right about depositors outside of those pools likely disagreeing. Bancor essentially made all LPs crabs in a bucket, so just on a purely emotional level, I think favourable treatment or anything approximating “guarantee the recovery of other pools without guaranteeing my own” is gonna be a hard sell. But I’ve got some reservations from a logical/practical perspective as well.
There’s a few issues I see on an executional level:
a) If the WBTC/ETH kept aside are distributed on a first-come-first serve basis, then you just get a load of salty WBTC/ETH LPs who see they lost their change to drop from a 60%+ deficit to 0% because 3 whales withdrew and swallowed it all up, meaning they have to wait until the protocol finds another $16m-$18m to plug those two pools.
b) If the funds are distributed on a pro-rata level (So if you own 1% of the ETH pool, you can withdraw now with a bonus worth 1% of special extra ETH wallet), then 2 biggest pools by deficit value = 2 longest waiting times for fund collection to fix things.
c) How do you distribute it to those two? Do they each get 50% of the funds, or does ETH get 80% of them because its deficit is about 4x bigger? Well that would slow the recovery of WBTC, but history suggests BTC could be first to move in a bull run…so maybe you should give it all to WBTC, to get them off the books and burn BNT quicker? Well, that would slow the recovery of ETH, which is the biggest deficit dollar-wise, so maybe they should get 95% to help them clear it faster…
d) if those two pools are cleared, then what next? Revert back to BNT buy/burn for every other pool, or say “okay, next biggest deficit value, it’s your turn to get all the love now”
At the moment, according to Dune analytics, ETH+WBTC deficit is worth around $21.4m, out of $29.3m total; so assuming a best-case scenario of surplus worth $5m, putting it all into ETH+WBTC would cover 23% of their cumulative deficit value. Meanwhile, it would cover over 62% of the cumulative deficit on all other pools. Going for all the other pools is like 2.5x as cost-effective. I’ve got no idea or insight into number of individual LPs across pools, but in terms of number of pools, that’s a strong argument.
If anyone asks me “Hey, would you prefer to marginally improve the circumstances of 2/50+ pools in deficit, or greatly improve the circumstances of 50+(minus 2) pools in deficit?”, I know which one I’m gonna pick.
As an ENJ LP, I could just as easily say that “ENJ deficit percentage is on a par with ETH and WBTC [literally sandwiched between them as I write this], but worst-case total of $3m from selling off surplus tokens could fully clear that deficit right now, plus the USDC and ICHI pools to spread the love*, fully rescuing at least 3 sets of LPs and burning the associated BNT from supply, making future BNT buy/burns more effective. Saving 3 sets of LPs is better than partially improving 2 sets of LPs! Spending everything on ETH/WBTC would take way longer to make LPs whole, so way longer for them to withdraw and reduce BNT supply and actually make future recovery easier!”.
That logic works too, and as a bonus it’s based on the situation as it stands right now, rather than as we speculate it may be in the future (even if historical precedent does suggest BTC and ETH move first in bullishness, it’s still speculation until it actually happens). A possible additional issue is that (as implied above), if ETH and WBTC LPs know that they are being specifically favoured by the protocol’s mechanics until their deficits are fully cleared, it may well disincentivise them from withdrawing until their deficits are fully cleared, or at least keep them more comfortable waiting things out at a higher haircut.
Whereas TKN LPs might go from 50% to 30% and decide “screw it, I’ve been in deficit over a year, that’s good enough”, diverting all ongoing recovery efforts to any pools (ETH and WBTC in this case) may make the LPs more comfortable saying “Eh, I’ve gone from 50% to 30%, might as well keep waiting until it’s 10%/5%/fully cleared”.
Yes, that is absolutely cruel logic, but that’s the busted design we’re forced to work with. Remember; deficit dollar value has gone down over the last year, but deficit percentage has gone up; a major driver of reducing deficit value hasn’t been BNT outperformance, it’s been LPs getting fed up, or desperate, biting the bullet and taking big haircuts.
Unfortunately, the fact that there are other TKN out there like ENJ, UNI, MATIC, QNT, that have percentages matching (or exceeding) ETH and WBTC shows that Ether and Bitcoin aren’t the only assets BNT has historically failed to keep pace with. Or, in the scenario of ETH and WBTC mooning, they could suck the liquidity out of alts, thus making it easier to clear the deficits in alt pools.
I absolutely hate the fact that fixing the deficit at an equal rate for all pools relies on boosting the token that caused this mess in the first place, but like I said before; that’s the busted design we’re bound by. Anything that slows the rate of BNT reduction slows the rate of all future deficit reduction, because it reduces the upward price impact of any future BNT buys. And any argument against fixing at an equal rate is essentially telling specific LPs to eat even more sh*t than they already have. I’d speculate that “there’s more whales vs mom n’ pop LPs in the biggest pools, so saving the smaller pools first should be a priority”, but despite all the logic outlined above, I wouldn’t expect a majority of DAO participants to vote for a plan that prioritises specific LPs/pools even if it’s the majority of pools, because it’s honestly morally dubious to say “all these people did the same thing, but I’ll treat these specific ones differently”.
*Just an example using some mental maths on the low end $3m valuation, could just as easily use the $5m estimate and say “you could instantly save ENJ, USDT, USDC, MATIC, and ICHI LPs to clear 5 big pools” or “you could save LINK and ENJ LPs as two of the longest-standing supporters of the protocol” or any other number of combinations of tokens that could have their deficits totally eliminated, rather than waiting and waiting while ETH and WBTC are favoured but have their deficits chipped away piecemeal.