Utilize Remaining ENJ Tokens for Enjin Blockchain Governance and Staking

Community Chatroom (DISCUSSION)
1

TL:Dr

The ENJ/BNT liquidity pool has faced a significant setback, retaining only 40% of the original ENJ deposits. However, by utilizing just 1.36% of Enjin’s upcoming staking incentive, we have a promising chance to recover our losses.

General

Due to unforeseen circumstances, our ENJ/BNT liquidity pool has suffered a significant deficit. The pool currently holds only about 40% of the original ENJ deposited. While this situation is regrettable, we have an opportunity to pivot and leverage our remaining ENJ tokens in a way that could potentially recover some, if not all, of our initial investments.

Opportunity:

Enjin is launching a staking incentive program that allows ENJ holders to participate in the Enjin Blockchain governance and oversee validator nodes. By joining nomination pools and bonding our ENJ, we can earn governance rewards. For early participants in these nomination pools, up to 250,000,000 ENJ will be available as early governance rewards. This incentive is only available until 15 January 2024.

NOTE: Starting day of the incentive programm is the 13th December.

Proposal:

Participation in Governance:
Utilize the remaining ENJ tokens in our pool to participate in the Enjin Blockchain governance rewards.

Bonding in Nomination Pools
By bonding our remaining ENJ in nomination pools, we can oversee validator nodes and earn governance rewards. This is especially lucrative for early participants, as mentioned in the incentive program.

Risk Management
It’s important to acknowledge that bonding ENJ in nomination pools comes with risks, such as having ENJ slashed in case of validator nonperformance. However, given our current situation, the potential rewards far outweigh the risks. Moreover, by actively participating in governance, we can have a say in nominating competent validators, reducing the risk of nonperformance.

Potential Rewards
The early governance rewards offer a significant opportunity to recover some of our losses from the liquidity pool deficit. By acting quickly, we can maximize our share of the 250,000,000 ENJ rewards.

Calculations:

Today 06.09.2023 250 M. ENJ are roughly equal to 67 M. USD.

The deficit (surplusUSD) = -$791,152
Total incentive amount = 250,000,000 ENJ

To close the deficit, approximately 1.36% of the total incentive (in USD value) would be needed.

Benefits:

Recovery of Losses:
While the exact amount of governance rewards is uncertain, participating gives us a chance to recover some of our losses from the pool deficit.

While the deficit in our ENJ/BNT pool was an unfortunate setback, we now have a unique opportunity to pivot and potentially recover our losses. By participating in the Enjin Blockchain governance and staking, we can leverage our remaining ENJ tokens for future rewards and growth.

We urge all members of the DAO to consider this proposal and recognize the potential benefits it brings to our community.

3 Likes
2

I am ENJ LP, so I love the idea of working towards a solution outside the confines of the Bancor and Carbon platforms, which have only worsened our position since ILP failure well over a year ago. However, there’s a few questions worth asking, both to help me understand the mechanics of this proposal a bit more, and to clue in any non-ENJ LPs in the Bancor DAO about the systems at play in this proposal.

My understanding is that those 250,000,000 ENJ rewards for early participants will be native ENJ tokens on Enjin’s new bespoke Layer-1 Enjin blockchain, rather than the current ERC-20 ENJ tokens on the Ethereum blockchain, which is what all current LPs on Bancor have. If I understand correctly, this new blockchain will also have a higher overall ENJ supply because Efinity holders on Polkadot can convert their tokens to new ENJ, so it might be worth factoring in supply dilution when it comes to calculating what percentage of the rewards we’d need to make up the current shortfall in staking value.

Since it seems like participation will rely on first migrating ERC-20 ENJ to new Enjinchain ENJ, how can we ensure that
a) this part of the process is done correctly and
b) that every LP retains their correct “share” of the overall ENJ pool on Bancor? I’m not sure mechanically how this would work if our ENJ is taken off the Bancor platform

Definitely something worth discussing, since dollarwise ENJ has the second highest deficit of any (non-stablecoin) TOKEN* after LINK–but with more than double the deficit percentage (58% vs 27% at the time of writing, ENJ LPs are actually way worse off, and likely in less of a position to withdraw (and thus burn associated BNT) anytime soon compared with LINK LPs. ENJ LPs are at the very top of the list of specific pools whose improvement will benefit Bancor as a whole.

*yes, wBTC is technically a token rather than a coin, but let’s be real, its specific purpose is acting as a peg to a coin

1 Like
3

Migration Process:
For the migration of ENJ tokens to the Enjin Blockchain, holders of ERC-20 ENJ tokens can utilize dApps, for this transition. Specifics on the process will be clarified as the dApp, through which the protocol will operate, unveils.

Understanding Your Share:
The smart contract inherently recognizes the proportional contribution of each wallet. This ensures transparency and accuracy when determining individual stakes in the pool. As a result, fund allocation to a contributor’s address based on their share can be executed seamlessly at any point.

Reintegration Thoughts:
Post-migration, the ENJ tokens, having transitioned from their ERC-20 form to native tokens on the Enjin Blockchain, can’t be reverted and redeposited into the initial pool. This migration implies an exit of liquidity from the original pool. Addressing this, a potential course of action is to channel the ENJ tokens and any staking rewards into stablecoins or Ethereum. Given the known deficit in ENJ, we can determine the equivalent value in stablecoins or Ethereum that’s required to restore liquidity. Once this threshold is achieved, the collected stablecoins or Ethereum could be converted back to ENJ for distribution among liquidity providers.

Closing Thought:
The dilution, while a noteworthy consideration, is ultimately a theoretical number that cannot be concretely accounted for. However, emphasizing the small percentage (1.36%) of the Enjin staking incentive required to mitigate the deficit illustrates that the proposed solution isn’t overly demanding. The objective remains to ensure liquidity providers are compensated fairly while also maintaining the liquidity of platforms like Bancor/Carbon.

2 Likes
4

Due to the time-limited nature of the early staking rewards, it would be really useful to get some insight and input from people Bancor-side on this.

It’s an interesting and proactive idea that could spark pathways for other tokens to supplement Bancor’s recovery efforts through their own mechanisms, like earning yield to compensate lost TKN simultaneously with Bancor’s BNT appreciation tactics. It could potentially help one of the largest pools in deficit by both dollar and percentage value, as well as being one of the very first projects to have supported Bancor. Given all the above, it sucks to see this proposal just being silently ignored by Bancor.

5

If there’s any reticence towards implementing this from Bancor because they fear they could lose our funds, I would posit that
a) the migration and staking does not appear to be the most complex process, and given the history of collaboration with Enjin since Bancor’s inception (one of the very first projects to support Bancor, lest we forget), connections between the two companies should place it well within the capabilities of one of the most accomplished and visionary teams in the space
b) as things stand, Bancor has already lost the majority of ENJ LPs’ funds; in the 15 months since ILP failure I don’t believe that ENJ LPs have ever had the opportunity to withdraw more than 50%. It’s historically been the most indebted non-stable altcoin percentage-wise, accounting for those with more than $1m worth of deposits. Having the majority (and sometimes a supramajority) of your funds held hostage just doesn’t make withdrawal a viable option for most, which means that–especially since LPs effectively earn zero yield due to sacrificing their fees–ENJ LPs are currently in a situation where in practical terms, they have none of their funds.

6

Implementing what exactly?

I’m keeping up with the conversation in the public chats and here.

But at the moment, this is more of an idea than a proposal. Some questions that need to be considered and included in the proposal:

  1. How do we get the TKN across to the chain and back in a decentralised fashion?
  2. How do ENJ stakers in B3 opt into this?
  3. How long are they opting to do this for?
  4. What if they want to withdraw?
  5. What if there are other unforeseen complications?
  6. How does this impact LPs that do not opt in?

Without knowing this, its impossible to estimate the dev time required.

Also, we should keep in mind most of this code would not be able to be used again (as opposed to building more features for Carbon or the arb bot).

3 Likes
7

  1. Migration of TKN across chains: My suggestion is to utilize existing dApp API solutions and/or work closely with the Enjin team, given bancors historical collaboration, to ensure a seamless and secure transition.

  2. Opt-in for ENJ stakers: I believe in giving the choice to our LPs. An opt-in mechanism can be implemented where ENJ LPs can voluntarily decide to participate in the staking incentive. This can be done through a UI prompt or a separate dApp interface. I believe it is a matter of allowing a withdrawal to a separate wallet which is set up for the migration.The migration has to happen anyways. The sooner the better!

  3. Duration of Participation: The early staking rewards from Enjin are time-limited until 15 January 2024. So this will be the exact duration of the engagement.

  4. Withdrawal Mechanism: No withdrawal is allowed for early exits. We must define the phase after the staking.

  5. Handling Unforeseen Complications: The crypto landscape is always evolving, and we are prepared to adapt. Regular communication between the DAO, the participating LPs, and potentially the Enjin team will be crucial to navigate any unexpected challenges.

  6. Impact on Non-participating LPs: Non-participating LPs will remain unaffected as their stakes will not be migrated. Their position in the original pool remains intact.

  7. Dev Time Estimation: While I understand that creating solutions tailored to this situation might not be reusable for other projects, the potential benefits for ENJ LPs and the Bancor ecosystem as a whole might justify the investment. By addressing one of the largest pool deficits, we’re not just solving a short-term problem but potentially strengthening long-term trust and collaboration within our community.

  8. Phase after Staking: I would like to have your help here in understanding the potential solutions since a migrated ENJ token to the Enjin Matrixchain can not reenter the pool but must also still be able to participate in some or the other fashion since it is a possibility the deficit is not yet closed. So some sort of hop in hop out would be of interest. I could also think of participating in closing the deficit in another pool for example the ETH pool. Here we would need to keep track of the position on the fullfillment of the position since we are not measured in ENJ Token anymore. Any creative ideas?

1 Like
8

Staking the ENJ tokens will require disabling trading on the pool - partial staking means that every token that was staked isn’t used for trading and thus the deficit is permanent for those specific tokens.
If an LP would like to keep the deficit permanent today, the simple option is to withdraw their liquidity.
So I don’t quite understand the difference between adding this staking mechanism or having an LP that withdraws and stakes their ENJ tokens themselves.

6 Likes
9

Your comment seems to be misplaced and it’s clear why. The response feels like a blow to me.

Just for clarity, ENJ is in the process of migrating away from Ethereum. Based on your opinion, it appears you would rather let the entire investment diminish instead of transitioning it to their native blockchain, allowing its value to drop to nothing.

I want to emphasize that my discussion is clear, but your response suggests you haven’t comprehended my words. To simplify, I’m suggesting the following steps: remove ENJ from the pool, transfer to the native chain, stake it, and then reintegrate ENJ back into the deficit-clearing mechanism. It is evident that nobody wishes to exit if they haven’t done so already. We desire compensation and resolution.

1 Like
10

No I do understand your suggestion but I still don’t understand the value to LPs.
Once the tokens are removed from the protocol and then staked, the only value going forward to LPs is the value generated by staking the ENJ on the ENJ native chain.
LPs can do the exact same thing today and generate the exact same % for their stake.
So what would be the difference from LPs perspective?

2 Likes
11

Maybe its useful to see if I can summarize what the aim here is:

If I understand correctly, you would like to take the remaining ENJ (whatever is left after deducting the deficit and excluding those LP holdings that do not wish to migrate) and create a mechanism to migrate those tokens over to the new Matrixchain, while having a form of “receipt” of the vacated ENJ tokens out of the LP pool. From there, the aim is to collect on the potential rewards of the new chain, and develop a bridge of sorts to also participate in any deficit recovery in the ENJ LP pool on Bancor, since it sounds like the new ENJ chain is one-way.

Is this a correct and fair summary @Guggolo?

2 Likes
13

Yes this is correct.

14

I think I see where all the heartburn comes from, and this will likely be a frustrating and unsatisfying answer:

What we all hold as liquidity providers is a claim on the share of our respective pool tokens, which is the receipt that used to represent a 1:1 (plus earned fees) in normal times, but now represents a fluctuating fraction vs the claim token due to the deficit.

In that sense, what Banor has gone through very closely resembles a bankruptcy proceeding, but in the very unique sense the bad debt can be paid off merely by BNT outperforming on a relative basis to each pool (returning to a 1:1 claim). All other bankruptcy proceedings involve liquidating remaining assets, clawbacks, etc. and then after all legal fees the remaining assets are returned to claimants, virtually always as a fraction of the original (very much like a snapshot of the deficit). For instance, Blockfi, Celsius and the like are returning around 35% in most cases.

So currently what we all hold is that receipt that you desire to create.

Thing is, to make the moves to removing your remaining ENJ from the pool, necessarily one would turn in the “receipt” to do so. It turns an unrealized loss into a realized one. That’s key here because we all are subject to fluctuating unrealized losses, until BNT outperforms the respective tokens, in which case only then you can claim your full amount.

In the proposal, whether that’s you individually or those who voluntarily do the same (claim their post-deficit ENJ) and move them to the new ENJ chain to stake, its mechanically the same vs. making some contract to collectively have those volunteers do that action. That’s what @yudi meant, in part, by not understanding the benefit to an LP. It’s the same as if you just individually choose to withdrawal. This is especially true due to the reported one-way nature of the new ENJ chain.

As long as you have the bnENJ tokens, the door to a claim to the full deficit resolution stays open, while the door to staking your remaining ENJ tokens is closed. If you claim your tokens by turning in the bnENJ tokens, the door to a personal deficit resolution closes, but the staking door opens.

So then, the choice in how you close your own personal deficit is between staying in the protocol as an unrealized loss until BNT outperforms, or realizing your losses by sacrificing your bnENJ (receipt) and attempting to make back your lost deficit value by staking on the new chain. Technically it can’t be both ways because the bnENJ is exchanged and destroyed in the process to claim the ENJ tokens.

That’s where the pushback you’ve seen in the various channels comes from, by requesting another “receipt” to be made for those who realize their losses to go to the new ENJ chain is asking to create a risk-free claim on any deficit resolution.

Why do I say risk-free?

Because if you realize your losses, thereby turning in your “receipt”, there’s no mechanism by which you could participate in the deficit getting worse. We who are still in the pool are subject to the risk of the deficit getting way worse, while you’ve realized your losses and have left with actual tokens, with all of us still holding only claims on our tokens, albeit a fluctuating fraction of them.

So that’s the underlying consternation from many participants here in the proposal, as it resembles previous proposals from 2022 that asked for a way to remove their remaining tokens, and have a way to be made whole somehow on the back end. You can search “IOU” in governance for examples.

Going back to the bankruptcy analogy here because its crucial, that option is just simply not available. It’s the unfortunate reality in any bankruptcy proceeding, or any shitty situation, which this clearly is.

The upside is that we are in the unique position, relative to bankruptcy, in that nothing is in stone unless you choose it to be, meaning its up to the individual liquidity provider to choose to realize their losses (as many did) or stay in the protocol and hope the hard work by everyone results in BNT outperforming their respective pools.

The future in that sense is full of risk, where deficits can get worse, or like you highlighted, other potential risks introduced by the ENJ team. Its up to you to use your best judgment on the situation.

With all that said, I hope I’ve made it more clear as to why the proposal isn’t tenable for most. I’m sure this isn’t what you wanted to hear, but my aim was to present things in the best way I could, without judging anyone’s personal position.

3 Likes
15

Ok so no chance is what i hear. Thanks for your time to write your answer!

1 Like