System to begin phase out of vBNT

I want to share some of my thoughts here, with a view to establishing at least a minimal structure to this conversation, so that we have a scaffold for addressing the main talking points and eventually composing everything into a proposal, or series of proposals. For better or for worse, this requires some historical context, as vBNT has a complex past.

The Background on vBNT

  1. At present, vBNT is the de facto governance token of Bancor. This token was introduced with the original v2.1 proposal:
  1. The vBNT token was initially conceived as a means to ensure that decision makers are necessarily part of the system being governed. This served as a critical aspect to maintaining good-faith governance, as the mechanisms (whitelisting, rewards, etc.) available to the BancorDAO during v2.1 and v3 were implicitly abusable. Forcing DAO participants to “have skin in the game” was a considered precaution against deliberate subversion of DAO processes and other malicious attempts to poison the protocol.

  2. Importantly, vBNT was issued as a receipt of BNT contribution to these legacy protocols. In essence, it was always the case that BNT was the parent token from which all governance authority was derived; vBNT was only a convenient wrapper for staked BNT that could be separated from other contract processes.

  3. It became immediately clear that vBNT would become a liquid token in its own right, although this was never part of its intended use case. A vBNT/BNT liquidity pool was quickly established, liquidity was added, and the pair was actively traded long before the advent of the Vortex, or whitelisting status of vBNT. I was personally engaged in conversations with an individual known only as XaH4uK, who identified themselves as the sole liquidity provider to this pool.

  4. The existence of a vBNT/BNT trading pair was potentially but not necessarily problematic. At the time it was worth giving some serious attention, as it added a somewhat random element to the system that would exist entirely outside of the DAO’s purview; trading pairs with vBNT can exist in any composition, and on any protocol that supports it. For a fledgling DAO, this concerned me. New liquidity products were arriving every other day in 2020 and 2021, most of which were nefarious Uniswap V2 clones offering incentive mechanisms to provide tokens of any type. The attack vector was clear:

    • Create a malicious Uniswap V2 clone.
    • Offer 123456789% “APY” for vBNT and other governance tokens.
    • Transfer all tokens to the admin wallet.
    • Become a dictator on essentially every DAO for which you now hold voting majority.
  1. Take a minute to appreciate the existential nature of such a threat in the context of a DAO that is still getting acquainted with its role and responsibilities. The culture at the time was also to find literally any excuse to put tokens somewhere and receive other tokens. You may think my impressions of the state of affairs back then to be overly cynical - and you may be right. However, the idiom that it is not paranoia if someone is out to get you should ring with a profound credibility in light of the plethora of governance attacks we have witnessed in the years since.

  2. These deliberations were coincident with another topic of discussion at the time: how to better monetize the system. A BNT buy-and-burn mechanism was among the more popular talking points, and therein lay a potential synergy that eventually grew into the Bancor Vortex.

  1. It is important to note that using vBNT here hit multiple targets. In early 2021, discovering ways to bring more BNT into the protocol was a desperate priority. It also front-ran the perceived threat of a nefarious 3rd party utility for voting power. Moreover, it brought vBNT resources in-house, where the DAO could monitor and govern it, while also affording a new and interesting use case for the token.