Bancor Update — Week of July 25, 2022
In the past week, two key initiatives emerged in the Bancor DAO:
- Enable deposits on-chain: a handful of DAOs have requested deposits to be re-enabled on Bancor V3 in order to build on-chain liquidity for their tokens using the protocol’s single-sided staking and external liquidity protection mechanisms.
- Liquidity optimizations: Bancor DAO is deciding how to direct liquidity in the network to optimize fees, starting with strategic pools like USDT.
Other updates discussed in this post include:
- Aggregator integrations: supporting more tokens in the bancor.network trading interface.
- vBNT burning: V3 Vortex burner increased to 90%; burning hits all-time-high in July.
- Protocol analytics: live community dashboard and pushed Bancor V3 simulator.
Enabling Deposits On-Chain
A number of DAOs approved for Bancor whitelist status are requesting activation of their Bancor V3 pools. Yet because deposits are currently disabled on the protocol, the pools cannot be created or funded.
A new discussion on Bancor governance proposes that deposits on the protocol be re-enabled exclusively on-chain via smart contract (and not in the bancor.network interface) under the assumption that:
- Onboarding new tokens and new liquidity to the protocol will help drive fees that fuel the network’s ongoing recovery.
- Users who deposit directly via the smart contracts are likely to be experienced DeFi users or teams that understand the risks involved.
DAOs seeking to build new liquidity for their tokens on Bancor include: PHTR, PDI, IDLE, CROWN, DBL, ACRE. CROWN, DBL, ACRE have also indicated their intention to fund external liquidity protection programs.
Active interest from DAOs in building liquidity on Bancor V3 is largely driven by demand for two Bancor features, despite the BNT distribution mechanism remaining disabled:
- Single-sided staking: DAOs can provide liquidity with only their protocol’s token, instead of needing to pair or sell tokens for ETH or another asset. LP stakes are exposed to the risk of vault deficits affecting the value of their stake and earnings.
- External Liquidity Protection: DAOs can deposit their protocol’s token in an external contract which is used to compensate LPs, in the protocol’s token, for impermanent loss/deficit incurred on the LP’s stake.
Earlier this month the community passed a proposal that allows the protocol to direct BNT liquidity to grow strategic pools on the network via an external trigger. A new proposal now seeks to utilize this functionality starting with the USDT pool by moving ~$1.7m of USDT that is currently “off-curve” into active trading where it can generate more fees for the protocol. Similar proposals seek to grow liquidity on the PHTR and MONA pools.
Recall that Bancor pools allow the Bancor DAO to move liquidity “on-curve” and “off-curve”. On-curve means the tokens are actively being used for trading on the pool’s Bonding Curve and generating trading fees, while also being subject to deficit risk. Off-curve means the tokens are not being used for trading, are not subject to IL or deficit risk, and can either sit idle or be deployed in other fee-generating strategies, such as native lending or external staking strategies once live. The “superfluid” nature of Bancor V3 pools effectively turns Bancor into a multi-faceted yield-generating protocol where both LPs and the protocol can earn fees from more than just trading.
In the context of the current recovery efforts, discussions in governance are exploring what role on-curve and off-curve strategies should play in reducing vault deficits and restoring token reserves on the network. The current USDT proposal, for example, argues that tokens with higher deficits should have more of their liquidity on-curve (i.e., higher “trading liquidity”), since positive changes in the BNT price can have a greater impact on deficit reduction. “As a rule of thumb, shrinking the trading liquidity makes the most sense when the deficit is small or zero, or when the TKN vault balance is in surplus,” the proposal says. A separate proposal suggests moving trading fees off-curve once they hit a certain level.
The USDT, PHTR and MONA proposals are expected to appear on Snapshot this Sunday, July 31 2022. If passed, the impact on each pool’s surplus can be observed in real time using the new protocol analytics dashboard.
The integration of third-party trade aggregators (such as 0x and Airswap) into the bancor.network trading interface is currently being explored and spec’d out.
The integrations would allow the bancor.network trading interface to enable trades in significantly more tokens than it does today at competitive rates, with trades being processed via external market makers and the Bancor protocol taking a percentage fee that can be sent to the Bancor Vortex. The integrations are relatively low effort in terms of dev resources/contract work. Additional fee-generating features are in the research phase, and prior to these features being implemented, a combination of relatively low-effort features are expected to help alleviate deficits on the protocol. Stay tuned for more details.
To bolster token reserves on the protocol, the DAO implemented an increase in the rate of BNT buybacks and vBNT burning.
As of July 23rd, 90% of fees on Bancor V3 are being used to buy BNT, while 100% of fees on Bancor V2.1 are being used to buy BNT and burn vBNT. These forces help restore token reserves across the protocol.
At the time of writing, the protocol is now approaching nearly 4M vBNT burned, with vBNT burning hitting all-time highs this month:
A new protocol analytics dashboard is now live, allowing the community to track network health in near real-time. The dashboard is currently under active development.
- A roadmap for the next features on the dashboard can be found here
- Feedback/suggestions/corrections can be submitted via this form
On July 27, we open-sourced (under the MIT License) the Bancor V3 Simulator, a state-of-the-art research tool which aims to assist the design, testing, and validation of Bancor V3 tokenomics. Although a detailed technical description of the model is beyond the scope of this announcement, a number of resources are available on the new web page https://simulator.bancor.network. Educational materials on how to do so will be published in the near future In general, all state transition functions and accompanying data structures described in the product specification “BIP15: Proposing Bancor 3” are the core system level operations of the new codebase. We will begin releasing simulation-based research studies and reports to assist the DAO and the wider Bancor community wherever opportunity and time permits, including — fee and liquidity adjustment proposal analysis, supplemental materials for recovery planning, new feature design test results, automated artificial intelligence recommendation services, among many others.
Other Governance Proposals:
Numerous governance proposals focused on protocol recovery are being discussed in the Bancor DAO Discourse.
- Proposal: only DAO can receive vortex rewards → Did not reach quorums
Level 1 Proposals Under Review:
- Proposal: 14 day Trial Period of Burning BNT instead of VBNT
- Proposal: Limit on-curve liquidity to max(520 x 7 day fees, 100k BNT)
- Proposal: Grow trading liquidity on $PHTR v3 pool to its max (~$454K) via external trigger
- Proposal: Repatriate PDI funds from external IL protection
- Proposal: Enable Deposits Exclusively On-chain
- Proposal: Grow trading liquidity on $MONA v3 pool to its max (~$286K) via external trigger
- Proposal: Grow trading liquidity on $USDT v3 pool to its max (~3.4m) via external trigger
- Proposal: Increase Trading Fee in steps on the LPL pool from 1% to 5%
- Proposal: Enable deposits for CROWN, increase trading liquidity
- Feedback Request: Potential Direction for Recovery
- Product Heuristics: Understanding and Comparing Proposed Changes to Protocol Behavior
- Proposal: Move v2.1 liquidity to v3
- High-Level Progress Report
- Current Code Under Development + Status Progress Bar — Page on Gov
- Feedback Request: Bancor V3 Vortex — Burn The Collected BNT or Wait
- Discussion: Stop Burning vBNT — burn BNT
- Proposal: Limit the trading liquidity of the Link Pool and start a strategy to optimize our liquidity
- Increasing demand for BNT to aid deficit and recovery efforts
- Adding features to the BNT token
- Implement trading pause feature on TKN pools
- Turn the Deficit into tokenized — Vested ILP, claimable based on Time and Protocol Health
- Building a Bancor DAO Treasury
App (Track on Github: https://github.com/bancorprotocol/webapp-v3/issues)
- Update the infrastructure to reduce dependency on the backend API and make it more standalone (WIP)
- Various UI fixes and text changes to improve clarity
- Make use of the network fees now included in the APIs to display more accurate fees
- More infrastructure cleanups
- Added the ability for the DAO to trigger trading liquidity reduction
- PoolCollection — optimize/cleanup liquidity update events
- BancorNetwork — fixed tradeBySourceAmount return value
- AutoCompoundingRewards — added sanity check/cap for pool token supply burn
- Network fee is now configurable by the DAO
- Minor fixes/cleanups based on ChainSecurity audit, Certora Formal Verification report and OpenZeppelin AutoCompounding rewards audit
- Paraswap (WIP)
- Historical APIs (WIP)
- Added network fees to the APIs