Surplus + ALL Fees to be used towards repairing wbtc/eth pools first

When the next bull run begins, the fate of bancors deficit relies upon 2 pools. Eth & wBTC.

If either eth or wBTC have a parabolic rise, bancors deficit will balloon out of control, and given the bnt/eth, bnt/wbtc price history, this is THE. likely scenario. However, BNT will have a much more fair chance at keeping pace with 99% of every other altcoin pairing, especially if the eth and wBTC pools are completely repaired and shut down, while all fees generated from bancor and carbon are used towards buying and burning bnt. eth and wbtc are the 2 pools which are weighing down the price growth of BNT, therefor, we should find a way to repair these 2 pools first, and then remove the bnt/eth, bnt/wbtc trading pairs from bancor.

I am suggesting that all fees are used towards directly buying wbtc / eth, including 100% of the surplus. Keeping the purchased eth/wbtc in a separate wallet, and used towards those withdrawing from the pools, in order to make those users whole.

Depositors not in eth/wbtc will most likely disagree with this notion, however, if bancor can successfully remove the eth and wbtc pools, the BNT token will have a much greater chance at keeping pace with the rest of the market, or even outpacing the market. Also. If the eth/wbtc pools are removed, yet still exist on centralized exchanges, it will be much easier to increase the price of BNT as the order books there are thin.

Removing the wbtc and eth pools from bancor will create an easier environment for the BNT token to succeed and thrive. leaving the wbtc and eth pool create a heavy ceiling for the BNT token, and it’s also a likely scenario that these 2 ceilings will be rising faster than BNT, because BNT has NEVER been able to keep pace with either pool, therefor, its a losing battle, and I’m suggesting not to fight a battle in which you already know you’re going to lose.

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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.

Hey Imshermanentloss, thanks for the in depth reply. I was pretty hammered when I came up with this idea and I do see the flaws in it, now that my mind is clear and especially after reading your response.

can you think of any drawbacks if lets say

  1. shut down eth / wbtc pools ( will turn them back on later during a favorable BNT season // after carbon is making lots of $$ )
  2. everything else maintains current status quo

I do think that the price of bnt will be much easier to … direct… in one direction or another, without these 2 pools active. Also. If these 2 pools are on pause, then that means that the positions within it, will not worsen or get better.

Thinking from a rational perspective, I do not see how these positions in wbtc or eth can get better until carbon is in full steam, and also the price action charts back up this notion.

Again, the issue there comes down to differentiated treatment between LPs. It may make sense logically, since logic dictates that we should be clearing as much deficit as possible as fast as possible, but I doubt vBNT holders will vote for any plan that makes it easy for people to paint them as villains. The Foundation/Multisig made the decision to put all LPs in pain, so if some LPs are now seen to receive beneficial treatment, objections will likely arise.

There’s no case I see in which freezing those two pools is seen as just a net-neutral act; either BNT continues underperforming market and we get all other LPs thinking “hey, it’s unfair that their deficit percentage isn’t increasing!”, or in the case of BNT actually outperforming the market, we get ETH and WBTC LPs thinking “Hey, it’s unfair that our deficit percentage isn’t decreasing”. It basically put the DAO in a no-win situation, which will likely be seen as less palatable than just keeping all LPs in their current no-win situation. If BNT just moves exactly in line with the market then there’s no relative deficit percentage problem, but you’ve removed two of the biggest pools from trading, which means lower fees for deficit reduction (the Dune data isn’t really working right now, but I’m pretty sure that the Bancor-branded platforms are still generating more way volume/fees towards deficit reduction that Carbon is).

NB: The DAO has no problem instituting unfair treatment or double standards (e.g. v2.1 LPs losing 100% of fees vs v3 LPs losing 90%, v2.1 LPs never being provided any insight into their positions whilst being forced into v3 migration if they wanted to withdraw…), but this has traditionally been when one overall group (v3) was clearly identified as the flagship of the brand whilst the other (v2.1) was planned for deprecation. Now they’re both earmarked for sunsetting and Carbon is the favourite child, so it seems more difficult to anticipate “these specific LPs deserve better treatment within the same protocol” than “this new improved protocol’s LPs deserve better treatment that those in the ratty old protocol”.

Do I agree that those two pools represent a massive majority (73%) of the deficit? Yes. Do I believe that this imbalance is slowing the recovery on all other pools? Yes. Do I think protocol-owned funds should go towards directly addressing deficit on other pools to encourage more BNT supply reduction, and ease future deficit relief efforts, instead of artificially inflating Carbon Liquidity? Yes. Do I believe that the DAO (essentially Bancor contributors and a handful of die-hard Bancor brand loyalists) would ever countenance or allow that, even though it makes sense on several fronts? No.

the deficit percentage increasing - is the situation we find ourselves in today

and with this, the majority of the deficit increasing is due to market volatility, and most of the deficit coming from the wbtc and eth pools.

I can see your point, where if we close these 2 pools, bancor will earn less fees due to the fact that the protocol temporairily lost its 2 largest pools, however, we can also see that the 2 largest pools are expanding the deficit faster than the fees being earned.

I myself am a fairly large wbtc depositor, and I also acknowledge that in the current status quo, I can expect that months from now, my position will most likely worsen. not improve. and that bancors deficit will only expand. therefor temporarily shutting down these 2 pools, and allowing BNT to more easily move in the direction that we want it to, is an idea that I’d like some of the big brains here to take into consideration.

Ever since the big event that caused the deficit, I had always wondered why the team and foundation simply left bancor as is. To use an illustration, it’s as if someone was shot by a gun, and rather than send that person to a hospital, we simply decided on focusing our attention on reforming gun laws. Bancor was left in a state where it’s been left to bleed out. The fees earned and BNT burnt was less than the increase in deficit. And for what? how can simply letting this go on be justified? It was for the greater good of bancor and all of its depositors to lose more funds? and moving forward, its also for the good of depsoitors to continue to lose more funds?

of course the team doesn’t want this. no one does. but thats whats happening and is being ignored.

I am not smart enough to understand all of the implications of putting the 2 largest pools on pause, but I am smart enough to understand the implications of what will happen if we maintain the current status quo, and if BTC or ETH begin the bull rally, and this is my biggest fear.

I understand and agree with the majority of efforts today being used towards building carbon, but I cannot understand why nothing was done to bancor a year ago to stop the situation from worsening.

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I agree. After a year of this strategy the deficit is still increasing and our hopes seem to be on Carbon gaining huge traction. To me that’s a gamble not worth taking.

I’d go further than shutting just the ETH and WBTC pools and shut down every pool to lock in the current deficit before a bullrun occurs.

We have POL which could easily 10x in a bull market. In the meantime, Carbon would still be earning fees, and individual pools could be re-activated (could they?) if BNT performs favourably enough relative to that token.

hopefully it will be soon