Voting instructions

To support the proposed protocol upgrade, and the features detailed herein, vote FOR

To oppose the proposed protocol upgrade, and the features detailed herein, vote AGAINST

Bancor 3 Product Specifications

The following document is organized into three sections:

1. Summary of Features. This section summarizes the major features of the new release, with a focus on what the features are, with little or no explanation of how they work.
2. Abridged Description of Bancor 3. This section is a condensed version of the remaining document sections. Minimal detail is provided, intended to serve the purpose of a fast-reference guide, rather than an instructional purpose.
3. Comprehensive Description of Bancor 3. This section contains an in-depth explanation for all aspects of the Bancor 3 system at a high-level. In combination with the soon-to-be-published smart contract code, these sections can be studied to attain a thorough working knowledge of the theory and behavior of the Bancor 3 system.

Concise Summary of Features

Impermanent (“Divergence ”) Loss Protection

Liquidity provided on Bancor 3 is immediately protected from impermanent loss, including all fee revenue accrued thereon. To enable immediate protection, withdrawals are subject to an exit fee, and a cooldown period, both of which are adjustable by the BancorDAO. At launch, these values are 0.25%, and 7 days, respectively.

Single-Side Pool Tokens

Liquidity stakes on Bancor 3 are represented by single-side pool tokens. These pool tokens represent the fully protected valuation of the user’s stake, including all value accrued on the position since the stake was established. These pool tokens are fungible, composable ERC20 tokens.

Omnipool

Users are no longer required to make a choice as to which specific pool they wish to contribute their BNT liquidity to, as it is deposited into a single network pool. All trades will be routed via the BNT omnipool. BNT stakes generate single-side pool tokens, in addition to vBNT – the governance token of the BancorDAO.

Infinity Pools

Bancor v3 supports unlimited liquidity provision for all assets in its network. There are two major components in every pool; the trading liquidity, which is used to support exchange, and the superfluid component, which can be used for essentially any purpose. The superfluid component will be of paramount importance in upcoming phases of the Bancor 3 phased rollout. The fate of the provided liquidity is determined by the network settings, which are established via the governance process.

Bootstrapping

Following a successful whitelisting proposal, the network will immediately begin accepting TKN stakes to its superfluid component. Trading pools are initialized and bootstrapped by the DAO msig signers, after sufficient liquidity has accumulated. At this time, the superfluid component is partitioned, such that the minimum amount of TKN liquidity is available for trading. Thereafter, the pool depth is allowed to double in size with each new staking action, independent of the size of the stake.

Automatic Shutdown

The logic contained within the functions of Bancor 3 assumes the price quoted by each of its pools is reliable. As pools become illiquid, this assumption is no longer valid. Therefore, to prevent abuse, pools with fewer than 1,000 BNT (adjustable by the DAO) tokens in their reserve following a liquidity add/remove event are automatically dismantled. During a shutdown, all TKN trading liquidity is returned to the superfluid component, and all BNT trading liquidity is removed and burned by the protocol.

Governance

Bancor 3 is under the exclusive control of BancorDAO. The existing governance policies and processes are inherited by the new release, and vBNT continues to serve as the voting token. All contracts, including vaults, are upgradeable, and governed by the DAO alone.

Rewards Programs

Staking incentives are supported by Bancor 3 in two formats; auto-compounding, and standard. Unique to Bancor 3, the auto-compounding rewards are a “gasless” solution that does not require the user to take any additional actions, and is a true single-sided distribution that is without recourse to an intermediate swap step. The auto-compounding mechanism requires the type of reward token and staked token to be the same; in situations where the reward and stake have different identities, the standard rewards format can be used instead. The standard rewards contract is derived from the industry standard established by Synthetix and requires users to manually claim rewards in the familiar way. These rewards programs are open to all projects that wish to use them, for example, to incentivize liquidity for their own assets.

Advanced Withdrawal Logic

Bancor 3 utilizes an improved set of operations to increase the likelihood that users withdrawing from the protocol will receive the full value of their stake including impermanent loss compensation entirely in TKN; the new algorithm attempts to avoid reimbursing TKN liquidity providers in BNT. The logic is symmetrical, and also allows the protocol to better manage its liabilities, resulting in a more financially efficient method of providing impermanent loss insurance.

External Impermanent Loss Protection

To assist the BancorDAO with its risk management, and support whitelisting new tokens, external teams can commit to providing their own token as part of the impermanent loss coverage for their users. The external coverage dampens the potential risks to the protocol, and therefore makes whitelisting potentially volatile tokens more attractive for the DAO. Moreover, the external coverage provides greater assurance to TKN stakers that the value of their withdrawal will be realized exclusively in the TKN they provided.

Bancor Vortex

The function of the Bancor Vortex remains unchanged in the new release; however, its specific behavior is modified to be more efficient. Rather than collecting a wide variety of token types, the Vortex on Bancor 3 will collect BNT exclusively; fees earned in TKN are swapped immediately for BNT. Therefore, triggering the Vortex results in a single swap of BNT for vBNT directly, rather than a myriad of swaps across numerous TKN pools for BNT as a first step. This simplified arrangement has consequences both for the effective value burned, and an improved gas efficiency overall.

Migration

The transition from v2.1 to Bancor 3 is specifically supported, and can be performed via a “one click” process. Users with many unique stakes on a single pool will benefit from batch transfers of these positions. Gas costs are dependent on the number of unique pools a user has staked to. With the full deployment of Bancor 3 contracts, the rewards programs on v2.1 will be stopped; it no longer makes sense to incentivise liquidity there after Bancor 3 is available. An alternative rewards program will be created on Bancor 3, and serves to further incentivise users to migrate.