System to begin phase out of vBNT

Community Chatroom (DISCUSSION)
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To clarify: vBNT sent to Burn Contract > BNT (loose) returned to user. This would forfeit any bnBNT and allow it to remain PoL with the DAO free to manage the entire BNT side of Omni-pool.

This would increase the supply of BNT initially but with Carbon fees and a 100% focused burn on BNT directly I don’t see this as net inflationary for long.

Trading Limits could/would be dropped as well which would indirectly burn BNT as well. We can work the math on that as well and time concurrent Gov Votes to drop say “Surplus v3 Pools” to 9,000 BNT trading limit, burning large amounts of BNT and effectively halting the pool in surplus allowing LPers to exit without a haircut.

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Personally I think it’s the worst possible time to do any of that - right when Carbon is about to launch. Would be better anytime during the past year and any time few weeks post launch.
And there’s no dev that could actually do that right now anyway, it would just risk Carbon launch.

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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.
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vBNT in the new paradigm

The reasons for vBNT to exist have slowly eroded over the development of the project:

  1. Since V3, liquidity levels inside the protocol have been controllable by a DAO vote, and TKN capacity is unlimited by virtue of the separation between on- and off-curve token balances. Therefore, finding BNT reservoirs to open space has not been an issue since the release of the V3 update. By extension, creating a BNT sink while preserving liquidity levels is largely an irrelevant consideration.

  2. With Carbon aiming to be the flagship offering of Bancor, and the ratification of the emergency actions taken in June of last year, abuse of governance for whitelisting status and rewards are similarly irrelevant.

  3. Therefore, the safeguards and precautions surrounding the requirements for staked BNT (aka “skin in the game”) can be relaxed without exposing governance procedures to the threats it once faced. Of course, there will always be a need for short lock-up periods to participate in governance - for reasons I choose not to elaborate on here. The good news is that the existing process will service this need equally well with BNT as the governance token.

  4. The burning of BNT directly, rather than indirectly via vBNT, is not just tenable - but in many ways simpler to implement, document, and communicate. The deprecated draft of the Carbon proposal sought to make burning BNT standard across all three protocols - and was one of the instigating influences behind the creation of the present thread.

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To paraphrase @sylentz:

"If we dont 100% require any token besides BNT, [then maybe we shouldn’t have any tokens besides BNT]. " (private correspondence).

This represents my view, precisely.

Rather than continue to dominate this message board, I choose to end my posts here temporarily. There are, of course, some challenges ahead - retiring a token like vBNT is a difficult task. But before we get lost in the specifics, I think the points I have raised here, and those raised by @sylentz, @yudi, @AnimaDunk and @Hodlchamp, should be given the necessary time to invite dissenting opinion. We have the rare luxury of being afforded as much time as we want to arrive at a reasonable, and well-informed proposal (or proposals). There is no need to rush this - and we have much larger fish to fry in the meantime.

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Thank you for this context and appreciate all the input in this thread. I hadn’t fully thought of vBNT as that v2.1 Liquid Staking Derivative (LSD) but it’s a good concept to use to make the argument that since v3 (and especially with Carbon coming now) we no longer “need” a BNT LSD in the form of vBNT. IMO bnBNT serves that purpose and could be used in a much simpler fashion as it is essentially “up only”. We never saw vBNT or bnBNT being used a collateral on external platforms so the usefulness has been hard to quantify.

Let’s not forget there was a vote that was overturned and was an attempt at Gov manipulation…

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Great summary and agree with all points. I’m glad to have your thoughts and more context added to the discussion.

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I approve this message.

Agreed and am welcome to further opinions in support and dissent.

I have not stated a Time for Snapshot as I knew this would be longer term discussion but believe the simple points made at the start are sufficient to be the talking points for this topic. Before moving to Level 2 I fully anticipate multiple Gov votes being required and certain order of requirements and would like to capture that here.

Carbon launch is top priority. I’d like to have the structure well defined and ready to go as soon as Carbon is on its feet. I will be continuing to refine and take input before moving to Level 2.

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A sigh of relief to hear the word Simplify by making locked BNT governance rights rather than staked BNT to stake vBNT. However, I’m now scratching my question mark asking where is bnBNT? I don’t recall acquiring or receiving any when I staked BNT (v2.1) and received vBNT. Now my BNT is in v3. Should community members like me have bnBNT somewhere and require it for redemptions?

EDIT: OK I do have bnBNT & bnTKN tokens. I must have received them when I transferred liquidity from v2.1 to v3 but hadn’t noticed at the time. :slight_smile:

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So what happens to Holders who just simply own vBNT and no bnBNT?
Like users who bought vBNT before the v3 bnBNT token was added?
Edit: seems like this is mentioned above that bnBnt is not needed for the redemption.

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Correct, in the interest of a quick transition all vBNT is redeemed at the set ratio and bnBNT can be assumed PoL.

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I am moving this to the community discussion board. Please refer to the about level 1 guidelines.

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I understand many were harmed in the June 2022 meltdown. Please keep on topic so we can have focused discussion on how to address issues since then.

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I would like to make my position immediately clear: with the exception of Yudi (and those who echo his sentiment), every single post replying to this thread is extremely temporally inappropriate.

Right now is not the time to be talking about this. And it certainly isn’t the time to start asking the devs to hard pivot (again) into a total restructuring of a perfectly functional (albeit unintuitive) system.

After reading this thread, in its entirety, and taking quite a bit of time to create this post, let me state the obvious: Carbon, at the time of writing, has just finished its launch. The BancorDAO has been in a state of total agony for over a year as TKN and BNT lps try to march forward under the nigh-unbearable burden that was the removal of IL protection. Now, after nearly a year of development, we finally have the V3&V2 Vortex set to 90% and 100%, we have JUST finished the Bancor fastlane arb smart contract, and Carbon is fully online to buyback and burn BNT in order to fix the deficit.

Before I go on, I just want to say that I really, really appreciate this post and the effort that went into it, but now is not the time to be pushing this proposal forward.

vBNT as a governance token is functioning properly and, unlike many veTKN, there doesn’t even seem to be a general threat against the governance of Bancor. Such a system - a stable, functional one - should not be changed during a time when so many other variables have just been introduced.

With this in mind, here are some thoughts and questions that I had while reading this proposal.

  1. How will this change effect Bancor V2.1 and Bancor 3 over the next 2 years?
  • With the removal of ILP, Bancor 2.1 and Bancor 3 will need to undergo restructuring in terms of the way liquidity provision occurs in order to stay competitive; as deficits are alleviated a very natural thing would be for LPs to withdraw as the APR provided on these pools (with 90%+ going to the vortex) is not appealing enough to risk the pools re-entering deficit. Talks of sunsetting the protocol in its current form (once the deficit is fixed) have already begun (albeit, these talks are also extremely premature). To even attempt to predict the full ramifications of such a change, at this time, is - at best - foolhardy.
  1. Does this make BNT a security? Exactly, what effect does removing vBNT from the governance process have in terms of regulation?
  • While it may not be immediately obvious that such a thing could be a problem, I won’t waste your time by giving examples of how such a thing could be bad. And “bad” here is obviously an understatement.
  1. How will such a change effect governance when Carbon (and the relevant arb smart contracts if any) are deployed on other blockchains, sidechains, and layer 2s?
  • Approximately 15 minutes prior to the launch of Carbon, someone in the telegram chat asked “when will this be on arbitrum?” And while I’m not sure when (or if) such action will be taken, it isn’t clear what effect this will have on the governance of future deployments.
  1. What effect will Carbon have on BNT and vBNT?
  • Currently this question can only be answered speculatively and theoretically. Carbon has not been live long enough, at the time of writing, to do any kind of buyback. Without even preliminary data there is no way to know.
  1. As MBR stated “BNT burning via a Carbon-specific Vortex contract is something we can handle in isolation.”
  • I think this single sentence is enough to call for this proposal to be broken up into smaller proposals. As an example for what these proposals could look like:

BIP 30 Implement a BNT burning via a Carbon-specific vortex. (MBR)
BIP 31 Change the Bancor 2.1 vortex to only collect and burn BNT. (Sylentz)
BIP 32 Pause Swapping on the vBNT/BNT v3 Vortex (and v2.1 if it still exists). (Sylentz)
BIP 33 Shutdown the Staking of BNT into V2.1 and V3 (Sylentz)

  • These 4 theoretical proposals all work toward your preferred outcome (the total removal of vBNT as infrastructure) but only BIP33 would actually change the status quo for what it means to be a holder/staker/voter in the bancorDAO. BIP 30, 31, and 32 all can be implemented, observed, and iterated on without the need for a massive restructuring.

These are all very important because markets need to be stable to thrive. Each one of these proposals should be voted on in isolation with at least 6 weeks for the DAO to observe the effects and decide to move forward with any additional change.

To try and do all of those things AT THE SAME TIME just as Carbon has finally launched is a mistake.

I think there is only one logical thing to do with this proposal: table it for 6 weeks - in my world it would be more like 3 months, but 6 weeks should be enough time for Carbon to function in such a capacity that its benefits are seen somewhere in the system.

I think the best time to resume this discussion would be when new deposits start to level out.

Call to action: separate this proposal into its component pieces and move forward with discussion on each item in isolation.

If the problem is that ‘vBNT is needlessly complicated and confusing’ then we should be extremely diligent in assuring that the removal of such a feature is not even more needlessly complicated and confusing. If the size of @mbr 's posts are any indication of the complexity of these systemic changes, we should then focus on delineating this process into small, specific, and concrete proposals which benefit Bancor, Carbon, and BNT.

If any part of this proposal would be - in isolation - beneficial then it should be passed so that at each stage of the process there is as little change as possible to the system.

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I personally agree with this.

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if everyone with vbnt is able to withdraw to BNT at a 1:1 ratio, then what was the point of spending protocol earned funds on burning vBNT? if everyone with vBNT gets back 100%, then isn’t 100% of all the funds spent on burning vBNT a complete waste? sorry if I’m understanding things wrong here

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If we’re removing vBNT from the system entirely there was never any point in burning vBNT. The ratio is to incentivize v3 LPers and vBNT leveragers to exchange and be done with the token in a timely manner. Then we can 100% focus protocol/fees on BNT directly

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sorry not sure if I follow you there. I understand that this whole idea is to remove vBNT and help those who have staked their vBNT to help make them whole again.

…

but the whole idea behind bancors vortex in the past was to buy vBNT and burn vBNT in order to TRAP those who are in that pool… and remove their BNT from circulation. So if these people are made whole again… then 100% of ALL of the $$ spent on buying and burning vBNT would have a NULL effect and would have been a complete waste of $$.

I used my vBNT for governance… this is its intended use… not for lp’ing…and I also feel that vBNT lp’ers should have never been given ILP since Day 1. This was a flaw in bancors logic.

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Jindo - I think you are confused. The vBNT that has been burnt would not / could not be reintroduced into the system. You’d need to own (unburnt) vBNT in order to redeem it - unburnt vBNT has obviously not had its associated BNT “locked” into the protocol. There was never any intention that vBNT LPers would be “trapped” in the vBNT pool, either - the surplus / deficit aspect of v3 was not a deliberate design choice.

Coming back on a point Zeno has made that there is no imminent risk to governance - is that strictly true? If: (i) vBNT is no longer being burnt as part of the protocol mechanism; (ii) we continue to exist without an organic source of bnBNT; (iii) it becomes clear that there is no intention to enable those with excess vBNT to redeem back to BNT; and (iv) there being increasingly less “governance” linked to Carbon (e.g., no need to approve pools, etc.), are we not likely to see vBNT trend lower in price, creating a governance exploit vector?

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Sorry I’m a little slow here and I’m struggling with the first point. Let’s put the entire governance part aside and strictly deal with the vbnt part.

The vortex for a long period of time has been burning vbnt In order to remove bnt from circulation

I understand already that the vbnt which has already been burnt will not come back into existence. That is clear. But the vbnt that has been burnt doesn’t matter. The burnt vbnt locks away bnt from being withdrawn back into circulation. That was the whole point of burning vbnt.

When the vortex bought vbnt from the pool in order to burn it from… who sold the vbnt? Lp’ers from that pool. Therefor there should be a deficit in the vbnt pool,and those in deficit are the ones who are “trapped” or at a loss.

I’m saying that if this is the case, there should be not 1:1 trade for vbnt - bnt as this will nullify the effects of the vbnt bring burnt.

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