Transitioning Bancor 3 to Legacy State

The below proposals will be split into different proposals on Snapshot, with the first part being a blocker for the second. The second part will be a different vote per pool.

The Problem

As we all know B3 is becoming legacy Software and thus active development has been stopped and Development efforts have been moved to Carbon.

Only the current problem we face is the enormous deficit we currently hold towards the LPs on B3 and constant growth of said deficit. Looking at below Dune Chart we can see that deficit has grown by almost 13% ~ from April 9th to today 3th of August, from 35.4% to 48.1%.

The vortex clearly isn’t doing enough to mitigate the rising deficit and Carbon isn’t ready yet to take on such a huge burden with their current 1.12 million ~ TVL and four figure fees. The current giant liquidity of BNT of course isn’t matching current demand so every action to buy BNT of the market gets immediately arbed with the sheer amount available.

Proposed Solution

We have a 4 – 5 million surplus that’s currently getting exchanged for ETH, which we can use to boost Carbon TVL via a simple rETH/wstETH strategy for example, and maybe allocate a part of it to buy BNT.

Above however isn’t enough to stop the leaking of value. Thus we propose a more drastic, but far better option for tackling the deficit.

The proposal is built on two parts:

First part is limiting TQ Drastically, so not limiting it to a small amount but essentially freezing the current pool state and moving almost all TKN off-curve essentially leaving only a small amount that’s exposed to IL.

For example, looking at the ETH pool, we can see that it’s currently 66.4% in deficit, freezing it right now would mean transferring most of the remaining 33.6% off curve and only leaving for example just 100k $ in eth remaining in the pool. Besides that most of that BNT trading liquidity will thus be burned with this move.

Currently, there Is 66,656,004 in BNT trading liquidity, an action like the above on all pools would amount to a burn with a minimum amount of 60 million + BNT that’s taken out of the supply.
With current supply numbers that would instantly reduce supply from 150 million to 90 million, making BNT a lot more scarce, and thus making the vortex burnings far more impactful.

A drawback of taking liquidity off curve is that deficit isn’t going to decrease with a BNT price appreciation. However judging from the current state of Carbon we aren’t ready for such price appreciation anyway (See the Dune stats I posted, can also look at it for yourself and judge).

Second part is basically a follow-up on the above and that is what to do with all that liquidity we have taken off-curve.

We have an entirely new fancy platform that doesn’t have the drawbacks of B3 with regard to bleeding value. Thus we will approach the LPs with a strategy they can individually vote for in regard to do with their funds. The ETH lps could for example choose the same strategy which we plan to pursue with the surplus, the funds and fees we make off this will be entirely reserved for either buying BNT or filling the TKN chests to reimburse lps.

Everyone who doesn’t want their funds deployed on Carbon either has to vote NO or not vote at all on the proposals. We want to emphasize that we will never use funds of the lps without consent.

The above will of course be a giant boost to Carbon’s TVL and fee production, thus allowing for more vortex burns and acceleration of partnerships and integrations like 1inch for example.

TL;DR of the timeline and above proposal:

  • Have the surplus convert to ETH - In Progress
  • Decide what strategy to chase with Surplus ETH (for example, 25% towards buying BNT with a carbon strategy, 75% in an rETH / wstETH Carbon strategy)
  • Have a snapshot vote to limit all the pools to 100k $ max TQ
  • Have a snapshot vote*** for first the ETH pool to decide if we deploy their funds we took off-curve in a similar carbon strategy like at point 2.
    • YES vote is moved to carbon
    • NO vote is to keep it in SFL and off-curve
    • NO-SHOW is the same as point 4b
  • Follow on with the other pools for similar strategies on Carbon like at point 4.

What are the benefits of the above:

  • Surplus will be around 4 – 5 million $ give or take, 75% is around 3 million – 4 million, roughly a 269% ~ increase in TVL
    • More fees to buy back BNT
    • More incentive for aggregators and the like to integrate us
    • Bigger numbers mean more attention for Carbon and people to start noticing us
  • 25% of the surplus to buy back BNT, Increases Carbon TVL, and fees, does the same as the vortex, and takes a whole bunch of BNT off the market, BNT will get burned after like the vortex
  • Limiting the pools, will cause a lot of BNT to be taken off the markets, reducing liquidity and making BNT far more scarce, with the numbers we’re aiming for this should account for roughly 60 million + BNT that gets burned.
    • Vortex buys will have more impact with less BNT around
    • Deficit won’t increase anymore with BNT underperforming the rest of the market, cause the pool states essentially get frozen.
  • Redirecting the funds that were in B3 to Carbon enormously increases TVL (granting the same benefits as discussed in the first point) and solves the problem of value leakage which the pools currently are suffering from. Strategy yield proceeds will go to solving the deficit, either in buying BNT of the open market, or keeping the TKN to add to the treasury and reimburse LP holders with

Please contribute and share what you think of the proposal below in the comments. Excuse the spelling or strange grammatical decisions, English isn’t my language.

***Snapshot vote for the allocation towards Carbon doesn’t require a supermajority, but will be done on an individual basis, so if someone with 10 eth for example votes for YES, we’ll use exactly his share for the Carbon strategy.

Tagging @alphavalion , as this proposal has a lot of touching points with your Sunsetting Proposal

Hey @AnimaDunk - thanks for sharing this.

I only briefly went over it so didn’t give it a whole lot of thought yet but there are a few potential issues I see with this:

  1. if the pools are very shallow, it means no volume and no vortex
  2. implementation wise, per v3 LP features on Carbon might be a pretty complex endeavor - I sense a huge amount of work/complexity/time here :sweat_smile:
    also, it doesn’t make much sense since most LPs on v3 aren’t vBNT holders, so that complexity would be used for only a handful of wallets - hardly worth it

Hey Yudi, thanks for the reply.
Regarding the shallow liquidity, we can deep-dive on how much exactly is needed, but the current situation is simply a terrible deal for lps. The vortex isn’t catching up to the sheer IL the pools are suffering every minute. The current vortex burns aren’t so big that it necessitates a deep liquidity imo. We can always look at adding more lp back when you guys are further in developing Carbon and vortex buys are increasing. Atm that’s not the case so all that risk on-chain is costing users millions.

Regarding the per v3 lp features, would it be difficult to make a snapshot of the bnTKN and give them voting weight on how much they own? Doesn’t Snapshot have that feature already? And maybe we could pursue other methods to achieve the same thing?

The only thing really needed is a snapshot of the bnTKN holders and for people with their bnTKN to be able to vote on how their lp funds should be handled while off-curve.

The above shouldn’t even need dev-work if the solution is already available.

The most important thing is to have the primordial pools (Stable, ETH, WBTC and maybe LINK) to start working on generating revenue.

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Copying this here so others can comment. Sylent already had some great discussion in TG they could bring over

Thank you for sending the proposal I have a few questions sorry if any of these are obvious or dumb, just trying to understand

First, if this freezes the deficit I’m all for it. Link has been creeping hard over the last few weeks. Would be nice to stop that.

Second if we don’t vote or can’t vote our link just sits there hoping for BNT price to go up?

Third someone asked above but what happens if a strategy is set up for say link/eth and link goes up against eth and never comes back down (as unlikely as that is)? What happens to the “deficit” link?

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Are we not already at that point? I’d like to have a math-based limit for each pool so that arbs can still happen, and we also may need to hike fees up as well

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Will let Anima reply directly and will edit this later to include my discussion from TG.

**Future Edits:

Answers to the questions:

First: Yes it would freeze it, not going up or down. ( but we can change this at any time if we have the perfect foundations for a good BNT run).

Second: It basically sits there and you should be able to either withdraw or wait till we manage to fix the deficit by either profiting heavily on our strategies and earning Tkn to fill the pool, or having bnt price appreciation and using it to backfill the pool via swapping or something like that.

Third: Basically the same thing that happens now in B3, although now it’s link / BNT you’re trading instead of link/eth. There is never a sure way of covering all risks, but one thing is sure and that is shown in the data we all can see. BNT isn’t going anywhere atm, and the other tokens have way more pep in them at the moment.

If you have more questions feel free to ask, @sylentz or I can answer them.

Bancorians do not know the current status of converting the surplus to ETH yet and I asked for an update in

Proposal to sell Bancor 3 token surpluses for ETH - DAO Archive (SUBMITTED) - Bancor Governance Forum

I think that this proposal should wait until:

  1. The surplus is converted to ETH
  2. A strategy has been voted and implemented on how to utilize the ETH in Carbon

this strategy is not bad if the DAO wants to immediately buy BNT from the markets for burning and leave another portion in Carbon generating fees that is then used for more BNT buyback and burning. Eventually all the surplus should be used for BNT buyback and burning but I think bootstrapping Carbon is important as it helps with boosting it stats and that is beneficial to all LPs.

Until the above is done, the DAO does not know how much positive impact on BNT the surplus will have and removing the liquidity prematurely will hurt us if the tide turns. I think if we find that the surplus doesn’t help then we can start exploring limiting trading liquidity on the pools with large liquidity for example pools with $1m or more.


The bigger the pool, the more volume/larger trades it can accommodate, and none of the pools are large enough to meet any trade on them. I’m assuming here but I’m pretty sure this is the case. I will let others comment on the specifics

$100k TVL is not enough for the fast lane to arb them? Or arbs will use deeper pools with lower price impact?

At some point the price discrepancy on the pool must hit a ratio that is too good not to arb, correct? And assume that Fast Lane+Flash loan will always win what is the down-side?

I mean that larger volume = more vortex profit.
Running the vortex on a very small pool will yield insignificant profit for the protocol.
The point isn’t only to arb but to arb/vortex with significant profit.

if the vortex/arb are generating less fees than increases in IL, then I also think that we need to have further discussions on shutting the pools down / placing them on pause.

Part of the solution that bancor should have implemented should have included means of stopping the situations from getting worse.

Of course, the situations could improve if BNT rallies or if the vortex/arb earns enough to generate significantly higher fees… but bancor/carbon isnt at this stage yet. So it makes sense to explore an on/off switch depending on market conditions & the state of carbon and fees being earned.

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Vortex profit has to outpace IL or it’s leaking value.

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The point of this proposal seems to be “hoping fees on arbs recovers the deficit didn’t work for a year, what else can we do now that Carbon is out?”

Do we feel that now with Carbon out that v3 will start to capture more volume? What is the counter-point to Lowering the Trading Limit? Or do we just need a math-based estimate for TL on each pool?

External discussion:
"Recommend looking at all swap sizes for the larger primary pools if any of those swaps on the new recommended TL experiences more than 5% in price impact then assume it will no longer happen"

Some data as of this current date:
Trading Enabled Pools: 35

Trading Limit on Enabled Pools: $24.5292M

ex object

calc of summary

Using 35 Open Pools and $100k TL Limit we can expect to remove: 50.6118M BNT Tokens from supply and supporting liquidity

bringing us just under 100M supply

Edit: There are 21 pools already under $100k TL for a total sum of $766,147 TL (1.84M BNT)

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nobody can tell but Carbon is still in a very early stage

@alphavalion there might be more pools that are in surplus now


I know that nobody saw the recent change in deficits coming.

But I do want to note that if this happened when trading liquidity was low, it would have less impact reducing the deficit.

We should keep this in mind especially in regard to the POL discussions.

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