Bancor / REN collaboration?

General
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Hi,

I am a long-term REN holder, but only recently beginning to get involved in the DAO community’s processes. I represent myself, an individual, with an interest in REN and Bancor community’s.

I have come here looking for comments, assistance and advice for a proposal I would like to make to the Bancor community to extend their current REN/BNT Liquidity Provider incentive program.

The Bancor Network consists of a decentralised network of smart contracts (liquidity pools) allowing peer-to-contract trades in a single transaction with no counterparty. With the introduction of v2.1, Bancor has provided Liquidity Providers (LP) protection against Impermanent Loss (IL), occuring when market volatilty causes pricing to steer too far away from the staked price. This makes it far safer and viable for token holders to stake their value on Bancor’s network.

In November 2020, Bancor began a rewards program which will last for a period of 72-weeks. The rewards program further incentivizes LP’s. REN protocol was selected as one of the initial tokens with their REN/BNT Pool. The reward programs need to be renewed by governance.

As as result of this added protection and incentive programs, swap volumes on Bancor have increased substantially and Bancor are wanting to build on this increase by collaboration with token community’s. As an example, please see the collaboration they are currently doing with OCEAN protocol: A Wager From the OCEAN LPs - Bancor Governance Forum

Bancor have a supportive community, helping and guiding both new and experienced users on to their network. I feel both REN and Bancor communities can benefit collaborating together. There is already interest from existing REN token holders at Bancor to extend the rewards program. With this message I am hoping to open discussion between the REN team / community and Bancor for this extension, and possibly future mutually beneficial projects.

I have written a draft proposal I wanted to present to the Bancor community, however it really lacks the substance needed for a proper argument (see draft here: REN/BNT_Extension_Proposal - Google Docs). Proper Market Analysis and how added Liquidity can provide benefits to both Bancor and REN stakeholders would be useful to provide in the proposal.

Community members from Bancor seem keen to provide more information and make these collaborations happen.

Please let me know your thoughts and if you have any interest from your side to participate in this.

Thank you.
Mario Valetti

4 Likes
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Thanks for taking the lead on all this, Mario.

In the interests of full disclosure, I have over 100k REN in Bancor’s REN/BNT liquidity pool - I provide this information to make clear that I have the option to spin up darknodes with the REN I currently have sitting in the pool. I believe many REN liquidity providers on Bancor are in a similar boat…

I’ve been following the discussions on the Bancor Governance site and feel that we face a bit of an uphill battle when it comes to justifying the current liquidity mining rewards for the REN/BNT pool. I fully accept that volume through the pool, and hence swap fees generated, have not been stellar lately. I can therefore understand why we seem to be being gently pushed towards making an “OCEAN”-style pledge on a community-wide basis to try and improve volume in order to earn back liquidity mining rewards at some stage in the future (rather than having the rewards extended immediately).

In my view, however, the position of REN liquidity providers differs from those providing OCEAN liquidity - REN has a solid native “staking” programme (in the form of the RenVM darknodes) providing an APY of ~10%, while OCEAN does not seem to do so. If the REN/BNT pool loses liqiudity mining rewards, I expect that many liquidity providers with over 100k REN will remove their liquidity and spin up darknodes - I’m not sure that there existed a similar financial incentive to remove OCEAN from the OCEAN / BNT pool when its liquidity mining rewards were not extended.

Consequently, I see the first key benefit for Bancor in extending the liquidity mining rewards as being the retention of the existing liquidity in the REN / BNT pool. TVL is one of Bancor’s key metric in its efforts to compare itself to Uniswap, Sushiswap, etc., so it makes sense to protect the existing $30m currently in the REN / BNT pool if there is a concern that it will seep away.

The second benefit is the current lack of a native “staking” programme for individuals with less than 100k REN. In my view, Bancor’s REN / BNT pool (with liquidity mining rewards) represents the only option of merit for putting <100k REN to work (particularly if one wishes to avoid impermanent loss).

I emphasise the word “current” above because we are all aware of the ongoing efforts to develop a REN pooling mechanism which would allow individuals with less than 100k REN to participate and take a pro rata share in a RenVM darknode (and its accompanying passive income). I expect this mechanism to be wildly popular once it launches - but if the REN / BNT pool retains its liquidity mining rewards, using Bancor remains a potentially more attractive opportunity for those with <100k REN.

If we want to focus on drumming up more liquidity for the REN / BNT pool, it’s the latter individuals (i.e., with fewer than 100k REN) that I think we should be targetting at present. We get questions every day in the REN telegram threads querying whether there is any point in holding fewer than 100k REN - the answer that we as a community should be providing every time is “Bancor”. Driving these individuals towards Bancor (and convincing them to lock up their tokens for ~100 days) has the advantage of increasing REN scarcity while also avoiding the dilution of darknode fees that the pooling mechanism might end up bringing.

Right - it’s long past my bedtime and I am knackered, so I’ll sign off for now. Will check back, though!

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Thank you for taking the time to reply.

It has been very interesting for me to see these discussions and to get a better understanding of both REN and Bancor’s protocols and community’s.

It has also really been great to have learned about the work both projects are doing and the efforts under way to faciliate access to smaller holders.

I have seen good arguments from both community’s regarding benefits and concerns for an extension of the current reward scheme on Bancor.

Regarding this particular extension, as mentioned in my original post, right now I am not confident enough on my own to produce a proposal with enough detail / statistics that would give some surety of the propsal being accepted. If members from the REN community would like to reach out and help with this, I’d be happy to accept and work together.

As things stand, I think a little more patience is needed from holders such as myself.

Either way, I am glad to have taken some time to interact with the community’s for the first time.

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So interestingly the REN pool on Bancor has the most liquidity across all DEXes, and lower fees than Uniswap, so objectively it would make sense if traders trade through Bancor for the best price, but it doesn’t have as a much volume as some those other protocols do.

Aggregators do route through Bancor since it provides the least slippage and lowest cost, but many users don’t seem to be using aggregators yet, so in a way simply educating around using aggregators is a good approach, another is to simply promote to users that hey you’ll get a better price buying or selling REN on Bancor

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Thank Max. I am looking very forward to seeing how REN and Bancor develop in the future.

I appreciate all the input everyone gave.

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It will be interesting to see what happens to the depth of liquidity in the REN / BNT pool once the deadline for the liquidity mining rewards expires in roughly two days’ time. Will those who have more than 100k REN in the pool decide to spin up a darknode in order to come closest to the APY previously available on Bancor? Or will they keep their REN in the pool, thereby maintaining flexibility to trade out in the event that the REN price rockets again (assuming, of course, that they’ve had their REN in the pool for longer than 100 days, and thus have gained full protection from impermanent loss)?

Whatever happens, I strongly suspect that the depth of liquidity in the pool will fall. As per Max’s comment, this will have the effect of reducing the aggregator trading volume funnelled through the pool (and creating a negative feedback loop as the APY from the transaction fees decreases). I suspect our best chance of increasing depth is through persuading those holding less than 100k REN to provide liquidity on Bancor, but we cannot rely on altruism when there may be more rational economic options elsewhere…

Max - did anything interesting come out of your meeting with Kasper?

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It’s a simple numbers game, the rewards to the liquidity providers have to be justified by the volume. If the Bancor pools have the least slippage and the lowest fees, then it would be rational for it to have more volume through it, but it doesn’t at the moment relative to other pools, so traders including in Ren community need to become more aware of the REN pool on Bancor or just use aggregators like 1inch!

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Thought I’d flag on here that a proposal to reestablish the liquidity mining rewards for the REN/BNT pool is currently under discussion on the Bancor Governance forum - see Proposal: Re-activate LM Rewards on the REN pool - LEVEL 1 (DRAFTING) - Bancor Governance Forum.

All being well, we should see the proposal moved to Snapshot for voting on 3rd May!

Those with vBNT, please make sure to stake your vBNT for voting before this date and time to ensure that you are able to participate in the Snapshot vote!

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Before I do liquidity mining I check the risk with https://www.impermanent-loss-calculator.net