PSP-IPΔ3: Bancor Allocation Addendum

This proposal is tentative, meaning I’d like to receive feedback from the community before putting it up to a vote. All opinions welcome, thanks !

Simple Summary

This Proposal Seeks a 500,000 PSP Deposit into the Bancor Liquidity Pool to help us grow our liquidity depth and help us further diversify our liquidity sources.

The Proposal does not cost the protocol anything as all liquidity would be fully protocol owned (say it with me “POL”). (Impermanent Loss Protected, Single Sided Deposit AKA no ETH needed)

The Liquidity deposited in Bancor will also accrue risk free fees creating another revenue stream for the protocol.

Context

In PSP-IP2 We discussed for the need to grow the Liquidity of PSP across many DEXs (Sushi for PSP-IP2) , this could be likened to an addendum to help us fill the goals outlined by Brice in the discussion and in our defined Key Performance Indicator:

This Proposal seeks to fulfill 5% of the liquidity goal for sushi in PSP-IP2 at no cost to the protocol right off the bat and in fact would generate a return for the treasury long-term. For those unfamiliar Bancor currently has two main advantages that are of great use to us as a DAO in particular (V3 Should prove even more beneficial for us):

  1. Single-Sided Staking: Since deposits on Bancor are purely single sided this means the treasury can greatly increase it’s liquidity depth without having to provide a counter asset like ETH.
  2. Impermanent Loss Protection: Other AMMs are hard to garner liquidity naturally due to the great cost LPers incur through impermanent loss (when price diverges LPers lose out profits to the Market and Arbitragers). For this reason Liquidity Mining is a must for a DEX like Sushi or UNI but Bancor doubles as an insurance company completely negating this risk by arbitraging it’s own token as well as paying out any extra loses in it’s native token back to LPers.

Typically for Space to be opened single sided in a Bancor Pool there has to be equal amounts of BNT on the other side staked single-sidedly but this can also be achieved via a BancorDAO Co-Investment. Luckily yours truly already went ahead and passed such a proposal not too long ago (details here: Proposal: Whitelist ParaSwap (PSP) + 100K BNT Co-Invest - DAO Archive (SUBMITTED) - Bancor Governance Forum). The Bancor Proposal opened up enough space for 800,000 PSP at current market prices to be staked single sided but due to our own inflationary single-sided rewards being incredibly high the pool has not had enough liquidity to grow naturally. A 500,000 PSP Deposit should allow for the pool to begin reaping more fees from aggregators like us while still allowing for room for more community LPers to join.

Governance should also monitor the volume of transactions processed by the pool to measure its effective contribution to PSP’s overall liquidity.

Goals

This proposal will establish a sustained and significant liquidity source for the PSP token on main-net.

Bancor was chosen for it’s Impermanent Loss Protection and Single-Sided Staking (outlined in the Context Section)

Means

  • 500,000 PSP from the Ecosystem Reserve used to provide liquidity on Bancor fully controlled by the DAO.
  • Supplied to Bancor’s PSP Single-Sided Staking Pool.

Rationale

As was stated previously the current goal for ParaSwap is to grow it’s liquidity on DEXs to support token holders.

This Proposal fulfills 5% of the liquidity goal of Sushi without the need for inflation.

This Proposal costs the protocol nothing, in fact it is a new revenue stream.

10 Likes

Thanks for the post Tenzent, I fully support this and will put up some BNT to help bootstrap when live <3

2 Likes

Thank @Tenzent for trailblazing the work with Bancor since start!

POL is indeed a concept the community seems keen to explore. Overall I think this could be quite a timely and low-investment path to begin exploring POL on PSP. Having the IL protection on Bancor also greatly facilitates the decision. It will also secure another source of liquidity for PSP.

While discussing POL so far most community members were picturing ohm-style bonding. While it’s probably the “endgame”, I like the idea of exploring POL with another method, potentially safer (from a protocol asset management perspective) and that can be quickly started with minimal costs since the pool is already supplied in BNT.

Overall the current proposed proposal is already quite good, the main thing lacking is the implementation details but you truly could not have guessed them.

It’s the first proposal that implies having the DAO taking an action in DeFi. I’m not sure exactly how that would be like: for instance, maybe we want to plan ahead and anticipate further DeFi management required and set up a specific infrastructure for this purpose? On this question, I’ll have to play the sync with Mounir & update you ASAP, next CC latest card again, I hope that’s not disappointing.

So for the next steps, aside from the implementation details, I’ll let again @disiaque.eth input on the format but it seems like a clean start already. On my end, I’ll like to see some metrics/objectives in the rationale section, probably volume here since TVL is granted if the proposal passes.

Also, schedule-wise I wondered if it might not be best to wait for Bancor V3 to avoid a migration considering it has already been announced? Do you have any insights/ETA on the release?

Looking forward to shaping and trying this one out; thanks for your involvement again @Tenzent !

3 Likes

Has my support as a member of Bancor community

2 Likes

@Tenzent is one of our amazing contributors at the Bancor DAO. Happy to see this conversation being spearheaded by him.

Migration will be a one-click process from V2.1 to V3. The pool has already been bootstrapped and has space for 801,397 PSP to be staked single-sided.

1 Like

Thanks for the details, so we could have the proposal vote with a couple of options regarding the budget: one minimal one to try out the idea (500k PSP) or a bigger one to account for the available capability + potential future one (say 1.5M PSP).

I’ll come back ASAP with additional info regarding how this would be implemented so we can move forward in specifying this to submit it to the community’s vote.

3 Likes

Sounds good, happy to support with whichever option you prefer!

Heya @Tenzent, I had the time to chat with Mounir and can provide additional information on the technical side of the proposal. So here are essentially the main missing pieces to have a full-fledged proposal compliant with our tentative PSP-IP framework.

I’ll let you discuss with @disiaque.eth to review the whole proposal and take this to a vote.

8. Forward-thinking considerations

  1. The PSP Bancor pool can currently support an 800K PSP deposit single-sided, so it should be one of the voting options. A budget over this amount can be allocated, to account for potential further single-sided BNT deposits.
    :arrow_right: Recommended voting options: A/ Allocate 800k PSP, B/ Allocate 1.5M PSP, C/Do nothing

  2. The initial budget will be committed for 3months (when deposited on Bancor up to the space available) to benefit from IL protection. Once the initial commitment period clears, it can be adjusted by further DAO votes.

  3. BancorV3 is coming and should provide additional benefits: a migration tool will be provided.

9. Implementation Overview

  1. The ParaSwap DAO multisig will supply liquidity on the PSP Bancor pool, up to the amount decided by the community and within the limits of the space available for single-sided deposits (800k PSP at times of writing).
    If necessary, the deposit will be split into several smaller operations.

  2. When BancorV3 goes live, the migration will be conducted as soon as safe and possible.

  3. The team/community will work together to figure the best options to enable easy tracking of the DAO’s treasury assets and their performance.

1 Like

This all sounds perfect to me, I would recommend just a small adjustment to lower option A to 700K just to leave some space for comm members should volume pick up and or staking rewards lower on paraswap natively. the B option could be tentative on a BancorDAO vote which i’m sure we could pass easily.

A. Allocate 700K PSP
B. Allocate 1.5M PSP, Fill 800K and wait on a BancorDAO Vote for an increased BNT Co-Investment.
C. Do Nothing

Looks ready to go I can go ahead and put it up if all looks good with @disiaque.eth

2 Likes

Hey @Tenzent

You will find below a corrected version of your proposal, I hope it meets your expectations! If you agree with it, you can propose it directly on Snapshot: feel free to correct the last typos or unfortunate formulations too.

Once again, thank you for your work (and your patience!), it was a pleasure to read these exchanges ! :blush:


1. Proposal number & name

PSP-IPΔ3: Adding Bancor liquidity pool

2. Keywords

PSP liquidity incentives

3. Simple summary

The PSP-IPΔ3 seeks a PSP deposit into the Bancor Liquidity Pool to help grow the protocol liquidity depth and help further diversify the liquidity sources. The proposal does not cost the protocol anything as all liquidity would be fully protocol owned (= “POL”). The liquidity deposited in Bancor will also accrue risk free fees creating another revenue stream for the protocol.

4. Context

In PSP-IPΔ2, PSP governance discussed the need to create a more sustainable and more balanced liquidity source through SushiSwap. In this perspective, the Key Performance Indicator (= KPI) was fixed with an ojective of 10M PSP + ETH equivalent supplied, two months after the launch of the program. This proposal be likened to an addendum to help achieve this goal.

5. Goals

The PSP-IPΔ3 seeks to fulfill 5% of the liquidity goal for SushiSwap in PSP-IPΔ2 at no cost to the protocol right off the bat and would generate a return for the treasury long-term. The Bancor protocole currently has two main advantages that are of great use for DAOs:

  1. Single-Sided Staking. Since deposits on Bancor are purely single sided this means the treasury can greatly increase it’s liquidity depth without having to provide a counter asset like ETH.
  2. Impermanent Loss Protection. Other AMMs are hard to garner liquidity naturally due to the great cost liquidity providers incur through impermanent loss (when price diverges liquidit providers lose out profits to the Market and Arbitragers). For this reason Liquidity Mining (= LM) is a must for DEX like SushiSwap or UniSwap, but Bancor doubles as an insurance company completely negating this risk by arbitraging it’s own token as well as paying out any extra loses in it’s native token back to liquidity providers.

Typically for space to be opened single sided in a Bancor Pool there has to be equal amounts of BNT on the other side staked single-sidedly but this can also be achieved via a BancorDAO co-investment. Such a proposal has already passed and details can be read here :

This Bancor proposal opened up enough space for 800 000 PSP at current market prices to be staked single sided but due to our own inflationary single-sided rewards being incredibly high the pool has not had enough liquidity to grow naturally. A deposit should allow for the pool to begin reaping more fees from aggregators while still allowing for room for more community liquidity providers to join.

6. Means

The financial means associated with this proposal are the main issue. Several parameters are to be considered :

  • The PSP Bancor pool can currently support an 800 000 PSP deposit single-sided.
  • A budget over this amount can be allocated, to account for potential further single-sided BNT deposits.
  • A budget below this amount can be allocated, to leave some space for community members should volume pick up and/or staking rewards lower on Paraswap natively.

7. Metrics

  • PSP governance should monitor the volume of transactions processed by the pool to measure its effective contribution to PSP’s overall liquidity.

8. Forward-thinking considerations

  • The initial budget will be committed for three months (when deposited on Bancor up to the space available) to benefit from impermanent loss protection. Once the initial commitment period clears, it can be adjusted by further DAO votes.
  • BancorV3 is coming and should provide additional benefits: a migration tool will be provided.

9. Implementation overview

  • The ParaSwap DAO multisig will supply liquidity on the PSP Bancor pool, up to the amount decided by the community and within the limits of the space available for single-sided deposits. If necessary, the deposit will be split into several smaller operations.
  • When BancorV3 goes live, the migration will be conducted as soon as safe and possible.
  • The team/community will work together to figure the best options to enable easy tracking of the DAO’s treasury assets and their performance.

10. Voting options

  • “Allocate 1.5M PSP, fill 800 000 PSP and wait on a BancorDAO vote for an increased BNT co-investment.”
  • “Allocate 700 000 PSP, fill 700 000 PSP”
  • “Do nothing”
  • “Abstain”
3 Likes

Looks good to me ! Thank you, I will post it on snapshot rn.

1 Like

Hello everyone !

Just a follow up, looks like the vote has virtually passed with the 1.5M Option - half pending an augment from the BancorDAO. I went ahead and put that through in Bancor Governance, should be decided and up this time next week. I assume it will pass with flying colors but your support and input is always appreciated!

Here’s the link to the relevant Bancor governance thread: Proposal: Increase Trading Liquidity on PSP-BNT Pool to 200K BNT - LEVEL 1 (DRAFTING) - Bancor Governance Forum

2 Likes

Have had nothing but good experiences with the Bancor team from Harvest finance. Congrats on this one

I just want to say : congratulations and thank you :smiley:

1 Like