This proposal aims to create an 80% BANK / 20% WETH Pool on Balancer V2 as a primary liquidity source for the BANK token.
The liquidity and utility of a token go hand in hand. Before AMMs, it was tough to create sufficient liquidity (markets) for tokens. Now, any project (or DAO) can create its own liquidity by setting up a liquidity pool. When tokens are liquid, they can be traded with less friction, improving the experience for traders/investors (as they can buy more tokens without raising the price too much) and contributors (as they can sell tokens without lowering the price too much) alike.
Currently, the BANK token is illiquid - the main market is a Uniswap V2 pool with a 2% depth of about $1000. This is extremely low and limits the utility of the token. One single Airdrop recipient selling his/her airdrop can already lead to the token price going down nearly 5%. If we want BanklessDAO to flourish, we need to ensure that the BANK token is functional and liquid.
Create an 80% BANK / 20% WETH Pool on Balancer V2 and apply for a Tier 4 BAL reward slot
Why create an 80% BANK / 20% WETH pool on Balancer V2.0?
Balancer protocol is one of the largest and most secure Decentralized Exchanges, with over $2B in assets managed on the platform. Balancer is also an official sponsor of Bankless and has supported the community early on. One of the Balancer Protocol’s key advantages is that Pools on Balancer are flexible, allowing the pool creator to specify the number of assets, asset weights, and transaction fees. This allows pool creators to design pools that have certain characteristics and better represent the conviction of a community. 80% / 20% pools are used by many projects to create a strong liquidity foundation, including AAVE for their Staked BPT, Gitcoin, and Balancer themselves.
- Balancer is also running a reimbursement campaign that rewards each trade on Balancer with BAL tokens up to about 70% of the txs’ GAS costs.
Proposed Pool parameters
The number of assets: The pool will include 2 assets, BANK and WETH. The decision to have WETH as the counter asset is straightforward as the values of BANK and ETH are highly intertwined and because ETH shares liquidity with nearly all other DeFi Assets.
Asset Weights: The pool will consist of 80% BANK and 20% WETH. There are several benefits to having an 80%/20% asset allocation over, for example, a 50%/50% pool. Mainly it means that liquidity providers only need to match 20% of the value with the counter asset.
Transaction Fees: The most straightforward transaction fees are 0.15% or 1% - below, I’ll break down the difference and would appreciate some discussion around which amount is preferred by the BanklessDAO.
- 0.15% Low transactions fee’s (half of Uniswap standard) that make it cheaper to trade - likely leading to more trades (and speculation)
- 1% High transaction fees (about triple of Uniswap standard) that make it more expensive to trade - likely leading to fewer trades (and speculation)
Oftentimes, small communities, like Metafactory, put high transaction fees early on (even up to 4%) to disincentivize speculation and incentive early contributors to hold the tokens. On the other hand, high fees make it harder for traders to trade the BANK token.
Bonus: BAL liquidity mining
Another benefit of Balancer is the potential to qualify the BANK/WETH pool for the BAL liquidity mining program. Balancer has recently shifted from Balancer V1 to Balancer V2, and now liquidity rewards are allocated primarily to value-aligned pools. Next week, a proposal will likely be submitted to add Tier 4 rewards (1000 BAL per week) -With sufficient community engagement, BanklessDAO will likely qualify for the Tier 4 slot. I can help steward and champion this application as I’m a Balancer Contributor (Baller) myself.
If accepted - BANK holders would be able to provide liquidity do the 80% BANK / 20% WETH pool to earn BAL tokens and trading fees.
A quick simulation of potential rewards if the Pool Value would be $2,000,000 with a swap fee of 0.15%, a daily volume of $100,000, and Tier 4 BAL rewards.
Trading fees per year: $55,000
Tier 4 BAL rewards with BAL at $30: $1,560,000
Total Rewards per year: $1,615,000 (80.75%)
- Acquire feedback on this draft and preference for transaction fees (0.15% or 1%)
- Submit a formal proposal to BanklessDAO - if passes, move to step 3
- Apply for Tier 4 Rewards from Balancer - if passes, move to step 4
- To maintain the Tier 4 BAL Rewards - think of potential value adds BanklessDAO can provide to Balancer Protocol, for example, providing BANK tokens for co-liquidity mining, providing a sponsor discount, or contributing to Balancer through evangelism and communications support.
Eager to get feedback,k and input on this draft proposal - let’s have a prosperous BANK economy and help the world go Bankless!
- I prefer disincentivizing traders (and speculators) - 1% transaction fee
- I prefer incentivizing traders (and speculators) - 0.15% transaction fee