Bancor

This proposal is expected to appear on Snapshot for voting on [date=2022-07-31 time=15:00:00 timezone=“UTC”]. Make sure to stake your vBNT for voting before this date and time to participate in the DAO decision.

TL;DR

1. A recent proposal passed that let us grow the trading liquidity on pools via an external trigger.
2. This proposal is seeking to grow the trading liquidity on the $USDT pool to its max (~$3.4m)

The Bancor DAO recently approved a proposal:

https://gov.bancor.network/t/proposal-allow-the-bancor-protocol-to-grow-tkn-trading-liquidity-via-an-external-trigger/3762

That would allow us to grow the TKN trading liquidity on pools via an external trigger. Feedback from the community suggested that information be provided about which specific pools are going to be grown and by how much trading liquidity. This proposal is seeking to grow the trading liquidity on the $USDT pool to its max which is $3.4m (~$1.7m $USDT + ~$1.7m $BNT) as of this time of writing 7/19/2022.

The $USDT liquidity paired with $BNT in the V3 pool at the moment is ~38,285 $USDT tokens (as of time of writing 7/19/2022). There are currently ~1,724,414 $USDT tokens available for trading in the master vault.

At this stage, keeping the stable pools in Bancor small is counter productive to recovery efforts. They are gateway tokens for other assets listed on Bancor and the $USDT pool in particular sees a lot of action. This pool has already suffered damage due to having a deficit of ~40% and by removing liquidity from being on curve, we would be segmenting this IL permanently without it being able to recover in the future. An argument can be made that for this reason, this pool should be allowed to grow. Other tokens in similar situations should each individually be reviewed and analyzed.

It makes little sense to move tokens off-curve while their deficit is high. Consider the following simplified example:

A pool is constructed with $USDT and $BNT, 1000 tokens either side (i.e. both tokens have equivalent value). Then, the value of BNT drops sharply by 50%, leaving 707.1067814 $USDT inside the pool, and a deficit of 29.28%. If the $BNT price recovers (i.e. 2×), the pool’s $USDT deficit recovers with it, back to 1000 tokens and a deficit of 0%.

Now consider shrinking the pool by 50% after the sharp decline, moving 353.5533907 $USDT off-curve. During the same 2× price increase as mentioned above, the pool recovers to a depth of 500 $USDT; combined with the off-curve portion, the total $USDT is now 853.5533907, and a 14.64% deficit remains.

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. Being that $USDT does not currently satisfy these considerations, and that it is a critical trading pair, there is little to argue in support of keeping the pool in its illiquid state.

Since the beginning of the year volume data for this pools shows the following (v2.1 data):

AVG: $387,934.87

MAX: $2,492,114.90

MIN: $18,123.37

With the current liquidity on curve and with how liquidity in Bancor grows (always doubles from the current available trading liquidity on curve) then this means that the current TKN trading liquidity will grow in the following order:

1. 38,285 → current
2. 76,570 → first trigger to double the pool size
3. 153,140 → second trigger to double the pool size again
4. 306,280 → third
5. 612,560 → fourth
6. 1,225,120 → fifth
7. 1,724,414 → sixth

For: Approve growing trading liquidity on the $USDT pool to its max

Against: Do no grow trading liquidity on the $USDT pool