Bancor project Ambassador update

Other Miscellaneous
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Hi all,

With Bancor3 about to launch, I thought I would give the coop an overview of the protocol and how it interacts with the coop. Note: I’m a $BNT holder and have been participating in their governance and snapshots for a few months.

What is Bancor v2.1?

Bancor is an AMM living on Ethererum L1. It has the unique feature that users can deposit single-sided liqudiity and will be protected from divergence loss (IL). This is done by the protocol mining $BNT as the other side of the pair and using a combination of LP fees due on the $BNT and socialised insurance across different pools.

Bancor IL protection only supports governance whitelisted tokens and combined with liquidity mining they have built market-dominating liquidity for some tokens:

Token Link BAT GRT Farm ENJ
Bancor AUM $217 M $11 M $3 M $3 M $17 M
0.5% price impact trade size $650 k $30 k $ 8k $8 K $45 K
Pool Fee 0.5% 0.5% 0.2% 0.2% 0.5%
Deepest AMM pool Uni v3 Uni v3 Uni v2 Uni v2 Uni v3
0.5% price impact trade size $196 K $13 K $2 K $0.8 K $11 K
Pool Fee 0.3% 0.3% 0.3% 0.3% 0.3%

$BNT is currently #128 on coingeco at $650 Mcap (less than $YFI, $SUSHI and $1INCH, but above $0x, $DyDX and $ENS).

The downside of Bancor v2.1 for our products.

  1. Our products rebalance via ETH, so any trade on Bancor would have to be 2 hops (and so 2 LP fee’s and price impact to consider)
  2. It’s not easy to specify receipt of a specific quantity of a token on v2.1. This screws with the logic within the automated Rebalance trades.

To date, we have not integrated Bancor liquidity in any products.

If Bancor is so Big in DeFi, why isn’t $BNT in DPI or GMI?

I can’t speak for the methodologists.

However, while $BNT has massive on-chain liquidity, it’s virtually all in Bancor pools and so inaccessible to sector product rebalances…(Uni v2 has $330 K liquidity ion the BNT:ETH pair)

What does the coop have listed on Bancor?

  • $INDEX is listed with a 0.2% LP fee. The current pool is small ($100 K AUM) so it only really attracts on-chain arbs (I’m in the pool and income has been 0.66% over 152 days ~ 1.5% single sided APY).

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What is Bancor3?

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Bancor3 is a complete rewrite of the code. It should solve a number fo issues with v2.1:

  • High gas costs
  • limited composability
  • Caps on pools for each whitelisted token.

Wen B3?

Soon (™)

Based on the recent Bancor community call: Telegram: Contact @bancortraders

  • 1st audit expected w/c 4th April
  • Capped main net Beta after that
  • $1M public bug bounty running in parallel
  • 2nd audit starting in parallel
  • If all goes well, full B3 launch may be w/c 22nd May

What new opportunities does Bancor3 hold for INDEXcoop?

  1. LP fees for $INDEX will increase to 0.5%, so more income for INDEX stakers.
  2. Issue of $bnINDEX liquidity tokens may allow LP’s to be included in INDEX snapshots (Uni /Sushi LP’s (???) are currently included in snapshots)
  3. Issue of $bnINDEX could allow the inclusion of tokens in DSM for contributors.
  4. Liquidity pod can direct $INDEX to bancor to have more passive IDNEX liquidity without allocating any ETH.
  5. Different smart contracts MAY allow our rebalances to use the Bancor liquidity and so lower the cost of rebalances/allow other tokens to be added to products.
  6. If we can rebalance sector products via B3, it also allows a route for low liquidity tokens to become eligible for inclusion (Whitelist, a single-sided deposit of underlying treasury token into Bancor, coop product uses Bancor liquidity for issuance / rebalance).
  7. Revised whitelisting (BIP-19 in draft) MAY allow some of our products (e.g. sector products) to be listed for single-sided deposits.

Note, one potential downside of Bancor is that they are looking at raising LP fees on some tokens, so rebalancing using Bancor may become more expensive…

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Hi All,

An update on what’s going on over at Bancor.

TLDR; Bancor is being stress tested at the moment, things are working, LP’s should be ok, but BNT holders are getting diluted significantly.

Bancor 3 went live in Late May with DAI, LINK, BNT and ETH, and opened up another 100 pools in the last week as LP’s migrated.

B3 is working and generating revenue for LP’s and the protocol as intended.

However, the BNT price has dropped significantly and this is causing problems. The drop is caused by a combination of three things:

  • BNT rewards from v2.1 were very rich, these are being claimed and sold.
  • Bancor offer IL protection, as LP’s withdraw, if the BNT price has dropped relative to the Token supplied, then LP received TKN and BNT (to the value of TKN x number deposited). As BNT drops, a higher IL (vs BNT) is generated so a higher number of BNT are issued (These are minted to cover IL).
  • Some short selling.

Bancor had lots of AUM which is now being withdrawn. As BNT is low, most are being given fresh BNT, which the LP generally sells for the TKN they deposited. If large positions withdraw and sell BNT, then BNT price drops further and the next withdraw is a little worse (for BNT).

The Net effect is LP’s are generally made whole, but BNT holders are diluted.

There are a number of whales that were LP’ing in Bancor, including Celsius. Celsius have removed many positions (some ETH positions in B3 below).

Date transaction bnETH redeemed ETH received % ETH BNT received BNT $
14 June 11:20 link 1 1999 1418 71% 835,000 $680,000
15 June 12:03 link 1999 1362 68% 1,000,000 $740,000
16 June 12:45 link 1999 1331 67% 1,097,000 $648,000

Note, BNT has a current circulating supply of ~280 M, so this is ~ 1% of supply minted to support one large LP. i.e. lots of tokens issued into a bear market :unamused:

Celsius have another ~14,000 ETH in the withdraw queue, so more IL issuance and dumping of BNT is expected over the next 7 days.

And there are other LP’s selling BNT rewards and or exiting LP positions, getting BNT for IL and selling…

So, BNT supply is going up for a few days, and likely BNT price going down.

About, the only good news is that Yields from LP fees are going up, so this should attract more LP AUM, which helps stabilise BNT price (BNT is minted to match LP addition, more liquidity allows BNT sales to be absorbed without dropping the price as much…).

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If you want to know more, I did a dig into some of the wallets selling and impact on the Bancor forum.

On a personal note, I have most of my INDEX in Bancor and I’m quite happy with the security of the contracts (not so much the INDEX price…), I also have a BNT position staked in Bancor which is dropping in price and getting diluted by IL issuance. However, both are locked for 7 days, so I’m in for the ride :upside_down_face:

What does it mean for us:
For INDEXcoop, very little at the moment, the only exposure we have is INDEX deposited by holders.
For DPI, None as there is no BNT in DPI. If it has been in DPI, then it would be diluted by IL issuance of BNT.
For INDEX LP’s in Bancor, More likely to receive BNT from IL when they exit the position, but there is always a market for BNT (the other pools). The only risk would be if all the other pools have no AUM.
For other INDEX holders, Minimal, The Bancor pool provides some liquidity depth, this is unchanged, and there are other deeper pools available.
For coop product liquidity, None at the moment as product tokens are not whitelisted on Bancor v2.1 or B3. I have been working towards getting some products (DPI, MVI, icETH) listed on B3 to allow our users to LP on Bancor. However, this is on pause while the current Bancor stress test is ongoing :roll_eyes:

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Last night Bancor paused IL protection on withdraws.

Basically, continued withdraws (currently in the 7 day exit queue) when the BNT price has dropped (vs the token being withdrawn (i.e. everything)) means more BNT is issued. As LP generally prefer their native token, they immediately sell the BNT pushing the price further.

So to weather the storm, Bancor has stopped IL loss.

(I think deposits are also paused)

This is not a good thing for Bancor’s core value proposition.

I don’t have a good handle on v2.1 withdraws (which are 24 hour delay so likely largely completed). However, it’s possible to look at B3 and assess the approximate IL on the vault.

bn TKN (~ customer deposit) vs TKN

bn TKN v3 vault balance approx IL in v3
ETH 35,000 20,400 42%
LINK 7,600,000 4,200,000 45%
wBTC 212 82 61%
DAI 15,600,000 14,100,000 10%
USDC 2,600,000 2,300,000 12%
INDEX 22,800 19,928 13%

B3 withdraws have a 7 day cooldown, so lots of people are locked in (including myself) for the next week. However, there is ~$75 M in the withdraw queue from the last 7 days [and about $25 M of that is Celsius ETH].

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Hey Overanalyser, appreciate the coverage!

just to confirm IC has no POL in Bancor right?

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Hi Callen, that is correct.

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Great, thanks for the reply :slight_smile:

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OK, I’m probably overdue an Update on Bancor.

The good news is that Bancor is not dead :roll_eyes:

However, they are still in trouble. Turning off the BNT printer for IL protection has stopped massive token supply inflation and price drops. However, they have a $38 M deficit and only $44 M of (none BNT) Tokens in the vault. (Note this is all v3, there are some funds in v2.1).

Stooping IL protection has stopped the TLV collapse.

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But the numbers are brutal:
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So, what else are they doing:

  • Swap fees are being adjusted to try and maximise fees collected.
  • The protocol take (“vortex”) has been increased to 100% on Bancor 2.1, and 90% on B3.

The vortex collects take a % of the swap fee and currently uses it to burn vBNT (effectively burning BNT).

So, LP yields on Bancor 2.1 are 0% and very low on B3:
image.

Note: the only exit route is to migrate to v3.1 which destroys your individual IL protection position and gives to the pooled value.

Effectively, many LP’s are trapped at a loss with minimal fee income (ETH is 0.04%).

If (like me) you are an LP for INDEX in bancor, the pool is currently in surplus, so it could make sense to get out [i.e. INDEX has underperformed BNT since the deposits were made :roll_eyes:].

At times I have seen a deficit on the INDEX pool, so withdraws could have been made at a loss (in INDEX terms).

At this time I would not recommend anyone LP’s INDEX (or any other token) on Bancor. Yields are low, and if the token outperforms BNT, then you may not get back all the tokens deposited.

Finally, None of the INDEX coop products are listed on Bancor at this time. INDEXcoop does not have any POL in Bancor.

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Thanks for the update OA.

Also, cool to see the Ambassador program still in motion!

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Thanks @mrvls_brkfst

I’m not sure the INDEXcoop ambassador programme is still operating. I just felt that as someone who has previously promoted bancor as a liquidity option I should keep people informed as to what’s going on.

The old Bancor economic model was a stop-gap protocol with lots of toke incentives. I think Bancor 3 is better, however, it did not cope when stressed by lots of redemptions with IL / historic rewards from v2.1.

By taking drastic action, they managed to prevent a total collapse. However, most of their LP’s TLV are held hostage by ~40% haircuts on exit. Now they have to tread a careful path to build BNT token price without looking TLV.

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OK, A quick update on whats happening at Bancor (mainly because I’ve gotten sucked into a rabbit hole of liquidity…)

INDEX coop has no integrations with Bancor, and No POl on Bancor. There is some $INDEX liquidity (~$20,000 in xy=k pool), but this is about to reduce…

Dev work on Bancor v2.1 and B3 has stopped and there appears to be a consensus that IL protection is unsustainable. There is ~~$40,000,000 of BNT liquidity pair with ~$40,000,000 of other token liquidity across Bancor v2.1 and B3. Virtually all liquidity pools are in deficit so LP’s have a choice of waiting, to taking a significant haircut to exit.

However, B3 is generating $8,000 per day in fees used to buy BNT, so there is still something happening.

Global parameters have been adjusted so > 90% of all swap fees goto buying and burning BNT in an effort to build the price so pools come out of deficit. As they have ~$80,000,000 of onchain liquidity this is a long process (and LP’s can be expected to exit as BNT price increases…).

Personally, I’m still LP’ing INDEX on B3, but as the pool is in surplus (~10%), and I have plenty of exposure to both INDEX and BNT price, I’m going to exit. I don’t see the point in risking getting screwed on the INDEX:BNT ratio if INDEX continues to pump…

Edit to say in 258 days that I’ve been LP’ing in B3, I’ve collected 12% additional INDEX compared to my stake (and lost ~ 50% of the $ value…). However, yields are currently sun 1.5% and a 10% INDEX pump would trap me in deficit.

Looking at the other pools, I struggle to find any that I would recommend LP’ing. (There a couple with very high surpluses which could be worth a try.

A DAO could deposit a governance token and consider it spent - if it moons vs BNT they cant withdraw, if it crashes vs BNT, then the bancor pool will provide buying support - potentially useful to a DOA, but not in individual LP.

The bancor Devs are focused on Carbon. With the aim of diverting all fees to reducing the deficit on B3 liquidity pools.

Rather than a liquidity pool, Carbon is more of a trading tool, it lets you set strategies to sell high and buy low on a reoccurring basis, or possibly arb the volatility of low liquidity correlated tokens.

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I’m still getting my head around carbon. I can see how it can be used to set sell or buy orders, and it can capture value from volatile sideways movement. But in a directional market, you will end up with the under performing token. e.g. if you trade ETH:DAI, and ETH moons, you will be sitting 100% DAI when it leaves the upper end of your sell range…

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