UPDATED: BIP 14 Stablepools LM rewards reduction and extension:

TL;DR

  1. The LM rewards on stablecoin pools (DAI, USDC, USDT) are extended from 9th of March until the 6th April (another 4 weeks), and can continue being extended by the DAO.
  2. The LM rewards structure on the stablecoin pools is proposed to be changed. The rewards emissions are halved, from 100k to 50k BNT per week
  3. The distribution of the rewards remains the same (70% to the BNT side, 30% to TKN side)
  4. The change is being made in anticipation of a new stable pool design.

Discussion

Due to Bancor V2.1 single asset exposure and IL protection, and because the stable pools do not appreciate with the rest of the market, the current APY on the TKN side of the stable pools is unsustainably high.

  1. The 3 stablecoin pools currently have around 15M stable assets each locked on the TKN side, which is entitled to 60,000 BNTs a month each (if 2x multiplier applied), providing around 100% APY on TKN and BNT side.
  2. The emissions change would reduce APY to around 40-50% on TKN and around 40-50% on BNT side (all else held equal).
  3. The above APY is still among the most profitable, risk-minimised staking yield for stable assets in DeFi.
  4. The reason for the change is stablecoin pools incur a higher than normal impermanent loss cost on the network due to the inherent divergence between the price of USD and BNT.
  5. The change is being made in anticipation of a new stable pool design that is uncapped (doesn’t require co-investment limits) and vastly minimizes IL cost to the network.
  6. Until the new solution is live, we anticipate the reduction of rewards will not cause significant outflow of capital and will decrease the emission of BNT tokens by 1.2M BNT, monthly.
  7. These tokens can be re-allocated to other pools in the ecosystem that currently require incentives, including new DeFi tokens voted into liquidity mining & existing high-volume rewards pools like YFI, SNX, REN, ROOK, GRT, etc.

Liquidity mining halving and rewards re-distribution:

  • Proposing halving LM rewards on stable pools.
  • Instead of 100,000 BNTs per week, 50,000 BNTs per week will be distributed to each pool (2x more if considering multiplier logic)
  • The new rewards structure will commence from 9th of March, at the conclusion of the current program, and will continue to 6th April (formal 4 week extension).

Pools considered for 30 days extension and rewards halving:

  • DAI
  • USDC
  • USDT

The Alternative is Not Economically Sound

The alternative approach would be to increase the investment caps on stable tokens; however:

  • Stablecoin pools are, at present, the single greatest cost to the protocol in terms of IL expenses. Increasing the caps would only exacerbate the problem.
  • Bancor is currently working on a stablecoin dedicated solution that will significantly decrease the IL, and allow limitless single-assets deposits of stable tokens, therefore increasing the caps is at ends with the vision for sustainable stablecoin liquidity.
  • Decreasing the emissions gradually over time poses high gas costs to the network in terms of contract upgrades.

Summary

  • Bancor should not lose the momentum and cut out the LM rewards on stablecoins.
  • Considering the change in the rewards redistribution, the APY should still be maintained on a highly competitive level.
  • The new solution for stable tokens is around the corner. Therefore, the maintenance of stablecoin liquidity incentives is a temporary problem.
8 Likes

I whole heartedly disagree with this proposal. Reducing the overall amount of rewards payable to the bnt side will force current LP’s out of the stable pools and into more profitable pools thus reducing the overall liquidity of all stable pools. There will be no incentive to stake bnt in the stable pools. Stable pool rewards should be extended as they are and remain as such until new solution is implemented.

4 Likes

I was reading the comments on the previous proposal that is now updated. Hard to give an opinion without a model (spreadsheet or similar) to see the potential effects (otherwise, we can argue a lot and speculate on what those effects would be).

I am onboard on reducing the IL cost for the platform, reducing inflation and reducing APY for the stablecoin side but still keeping it attractive enough for the LPs to stay until the new dedicated solution for stablecoins is launched.

Some people åre clearly worried about the APY for the BNT side though and as mentioned, without a model we can only speculate. I believe it needs to stays competitive with the rest of the pools.

If this proposal is a good compromise and achieves the desired effect, while keeping everybody happy, I would support it.

1 Like

BNT side is not a problem, when BNT is withdrawn, procotol co-invest and make the space back.

2 Likes

That seems to show a lack of consideration for current LP’s. I think it best to leave as is until new features can be implemented and extend just as you would other large caps.

5 Likes

Hey everyone,

I’m dropping my 2 cents on this topic because I am strictly staked in these 3 stable pairs and the changes to LM rewards directly affects me. I’ve been thinking a lot about this, and I just want to be clear that I am a long-term LP for Bancor, and will continue to be so regardless of any changes.

First of all, I feel that we may be getting ahead of ourselves by proposing a 40-60% slash in LM rewards. I do, however, empathize with the fact that stable pairs is the greatest IL cost to the protocol. These cuts may be detrimental to LPs short-term, especially when we do not have a definitive timeline or analysis of the re-design of these pools, or what any of that entails. As stated by other members, there is no way to make an informed decision without stats or additional information.

That being said, I feel there are several more strategic ideas that could be implemented, here’s some of my ideas:

  1. A 14-day extension on stable pairs be voted in to buy us some time on a more long-term proposal.

  2. Long-term proposal idea (contingent, of course, upon the re-design release):

We propose a 16-week “step-down” in LM rewards on stable pairs of around 15% every 4 weeks, with the BNT side ALWAYS having a more lucrative split (ie: 70/30). This would allow people to scale IN and OUT of their stable coin LP positions without a major rug-pull on their rewards. The 16-week extension also gives LPs more time to make informed decisions on what they want to do (whether to re-stake in other pools, etc.)

Please let me know what you all think. Thanks.

-Mike Owen

8 Likes

I’m personally not in favor of this proposal. I spun up some fairly large positions using Vortex in the stablepools to help deepen liquidity in pools that I thought would most benefit Bancor in terms of getting traction, so of course it now sucks for me to be in a position where my BNT will now be earning the least yield by a wide margin under this proposed structure.

If this passes I’ll have to move all of my BNT out of the stablepools and into deep-liquidity pools like LINK and BTC which have over $100MM of liquidity and still offer 85%+ APY on BNT. 40% APY on stables is not competitive given the relative illiquidity compared to other protocols (Bancor is very punitive on withdrawals), so I wouldn’t expect this to attract a lot of new liquidity. We’re on the verge of seeing TVL exponentially grow with Vortex and I feel like this will destroy the momentum we had going.

My personal interests aside, my biggest fear is that this would cause a shock to the stablepools and ruin the protocol’s chance to cement itself as a leader (especially with L2 just around the corner).

I’d even be very much be in favor of a step-down approach like @MikeOwen mentioned. The difference in inflation between a 50% immediate halving and a 15% drop every 4 weeks can’t be that large from a dollar perspective, and I think it introduces a massive risk of capital flight that could be very costly.

5 Likes

I like the idea of having incremental drops as proposed above (15% every 4 weeks), If possible to go that route could we have it dropping in real time over those two weeks so it doesn’t feel so abrupt? I believe it would feel better for the LPs to have a slow reduction vs sudden cliffs. Have it drop by roughly 0.534% daily over the course of the 4 weeks and have the cycle continue until we have the new alternatives.

4 Likes

I personally believe it best to keep rewards structured as they are for stables. This model has proven successful thus far. With a solution already in the works, it would only be insulting to the current LP’s who have been here from the start, working to grow the network, to implement such a drastic change. No need for a band aid if there’s already a solution.

3 Likes

Although not ideal. I support this proposal.

Stable pools are necessary, however, they carry a burden to Bancor from IL protection stand point.Maybe one day the trading fees will be large enough to compensate for the insurance somehow.

Please have a clearer roadmap for these stablepools. If we are phasing them out, at least state that somewhere so people can plan accordingly. A 10 days notice on a potential 50% slash on 3 pools is not very ideal.

3 Likes

I think an immediate 50% slash on a pool is actually a very bad idea because LPs have no incentive to stay. There’s no economic sense in retaining your stake to preserve your multiplier if the rewards get cut by 50%. If this proposal passes, it would be advantageous for every BNT staker to claim their rewards and redetermine where their capital is best allocated (instead of giving them an obvious decision to leave it within Bancor). Likewise, ~40% APY for stablecoins won’t attract anywhere near the same level of attention given that other DeFi alternatives are more liquid (less punitive for moving money around), but with the recent launch of Vortex we should be trying to bootstrap as much liquidity as possible here.

I still think BNT is on the verge of a serious TVL breakout if momentum keeps up, but I think an immediate 50% reduction would be a massive showstopper, especially because the incentives to keep liquidity in the pool vanish with a reduction of this size. A gradual reduction in rewards would be an effective way to curtail inflation without economically incentivizing LPs to leave.

I’m all for long-term sustainability but I’m very concerned about the short-term consequences of this. Economically I think there are huge risks with such an immediate and massive reduction, and from a brand/loyalty perspective I have to think there would be big drawbacks here as well.

5 Likes

You’re going to end up with much more demand on the stable TKN side like it is currently (due to an imbalance of risk to capital), but at least its an improvement from the standpoint that it reduces BNT inflation. I’ll support this as a step in the right direction.

1 Like

I agree with you that BNT needs a higher target APY than stable coin in order to balance demand. I can’t really understand why some can’t understand this.

1 Like

Bancor does not have unlimited budget for LM. Total 28m BNT for 72 weeks of LM if I remember correctly.

A reduction in these 3 pools will free up about 150k BNT per week. Which can in theory be use on other newer pools with better return. It’s not just about TVL, but about TVL that actually give Bancor a positive cash flow … eventually.

A 50% slash in 1 go is definitely brutal. Hopefully future proposal will have a smoother curve.

3 Likes

I think we risk losing liquidity in these pools if we do a drastic cut in rewards overnight. Perhaps dropping it by 15% every 4 weeks seems like a better option and appears to be more palatable for most individuals. It would take roughly ~3 months with a 15% reduction to reach the levels that are proposed here (50% cut overnight) and the new solution for stable tokens should be ready by then if not sooner.

4 Likes

Or maybe a middle ground is to reduce 3.75% per week. Starts the process of reducing the rewards without needing to wait another month for the reduction, and more of a smooth drop.

3 Likes

Anyone who staked in those pools in last 99 days gets screwed and has to stay in stable pool or suffer IL.
I think us bringing awareness to this topic is very crucial, but making massive changes like 50% slashes is gonna tick off those who are recently new to Bancor, and those who are sitting on the sidelines might get scared off.

I personally think keeping things status quo is the right call for at least 60 days. As much as that might not feel from an inflation or financial perspective, like the right thing, I think its imperative to keep BNT holders happy. Yes we eat 1.5m in inflation, but those are the rules that were created before a majority of holders came into the ecosystem.

2 Likes

Remember, at present LM is dropping to 0; the DAO has no obligation to renew LM on any pool after the 12 week cycle is completed.

The proposed cut still makes the Bancor pools among the most lucrative yield farming options for stables anywhere in DeFi. There is really no need to offer 100% APY on these assets.

There is a lot of discussion above that notes the liquidity in these pools could shrink - this is a blessing in disguise. From an economics perspective, the deeper these pools get, the greater our liability. For context, during the seminal discussions about changing the LM structure on the stablecoin pools, many of our analysts suggested that removing these pools entirely from the Bancor Network might be the most fiscally responsible strategy. They could be right.

Of course, we know that the stablecoins are likely to remain an important offering, and so the counter arguments to dropping them from the network are equally strong. As Michal has alluded to, we have been actively researching an entirely new stablecoin solution that is far more sustainable than what we are currently contending with.

If I may, I would like to offer an illustration that can help to calrify the motivations here. At present, the LM on the Bancor stablecoin pools is about 3× higher than even the most questionable yield farming opportunities in DeFi. We could cut the LM rewards by 70% and still be the best option - which begs the question, if these stablecoin LPs are incentivized to remove their liquidity at a 50% reduction, where are they going instead?

Another issue that has been voiced is that recent deposits are subject to impermanent loss if they want to withdraw before the 100 day vesting period. Unfortunatelty, their decision is upon them. The data page quite explicitly shows how long is left on the LM period, and our documentation is crystal clear that the DAO has no obligation to renew after each, or any cycle. The stablecoin pools have already been extended once, and by any measure they have had a pretty good run. We are offering to continue that run, but with LM incentives reflecting the damage they are causing to the system.

Of course, this is a community decision; however I would like to bring attention to the developing double standard. By and large, the omission of OCEAN and renBTC from the LM program is almost universally supported. It should be appreciated that the stable coin pools are inflicting more than 10× the damage of renBTC and OCEAN combined. They are involved in very few two-leg swaps, and are ultimately dead weight (for now). Incentivising these pools, on either side, is to incentivise the worst performers on the network.

There is a light at the end of the tunnel. I recognize the importance of stable tokens in DeFi, and personally, I would not entertain the thought of removing them for a second (despite the numbers quite clearly indicating this is what we should do). My main research right now is to fix the stablecoin situation permanently, and I am convinced that extending the LM on them as-is is about the worst possible way to go about it.

Just something to think about.

4 Likes

Good point and I took that for granted. I assume I’m not alone though. I would say that education of our user base is important, and I would argue that many users aren’t exactly familiar with how APY works and such. I think it’s reasonable to assume Bancor is a sophisticated product that savvy individuals can easily maneuver and use to their extended benefit, but we also cater to less savvy users, and I don’t want those users to get burned. Especially not now, when things are expensive to move around and Bancor just went though a massive growth spurt. I think preventing a “chicken little” event where " the sky is falling" and users withdraw their BNT, triggering their own IL gas fees is crucial.

My mentality is that I just want every BNT holder is equally compensated, regardless of which pool they choose to participate in, level of financial education, stack size etc.

1 Like

Absolutely. And I think we have found a pretty reasonable middle ground with this edited proposal; not as exciting as before - but still the most competitive in the ecosystem.

It is an interesting point. Recall that the stables already have 10× higher rewards than most pools. So we aren’t actually hurting it, so much as removing its privileges. After the cut, it’s rewards will still be 5× higher than ROOK or UNI, for example.

2 Likes