Improving $BANK Liquidity and Utility by creating a 80% BANK / 20% WETH Pool on Balancer Protocol

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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.

The proposal
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%)

Proposal Roadmap

  1. Acquire feedback on this draft and preference for transaction fees (0.15% or 1%)
  2. Submit a formal proposal to BanklessDAO - if passes, move to step 3
  3. Apply for Tier 4 Rewards from Balancer - if passes, move to step 4
  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

0 voters

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Doing this on Beefy or quickswap would be better. The eth fees are ridiculous…

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Never heard of beefly quick swap but have heard of balancer and like what I read.

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polygon.beefy.finance

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Ah! I forgot to mention that Balancer reimburses up to 70% of the GAS costs of a trade with BAL tokens.

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@LuukDAO Solid post! I’m not familiar with Balancer, so this was insightful.

I have two questions:

  1. What happens if the prices swing in an 80/20 pool?
  2. You mentioned Balancer as our primary liquidity source. I’m hesitant to commit to any one protocol. As I understand it, multiple pools will diversify risk and lets people use the AMMs they’re most comfortable with.
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I think we 100% want to be on eth, as that is where the token is, and where all our bots are checking against to validate so that people get level 1 access.

It is primarily the layer we are interacting with, at least for now.

This could be a great initiative in the future, as polygon and others are great platforms.

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I love this proposal.
I imagine we would want the treasury to post up the bank for this?

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To answer the first question - you have dampened impermanent loss with an 80/20 pool. More reading on this here: Calculating Value, Impermanent Loss and Slippage for Balancer Pools | by Fernando Martinelli | Balancer Protocol | Medium

I also agree that I think having multiple pools to help diversify risk is the right move. That said, big fans of what the Balancer team is doing so would definitely be in favor of this proposal!

I’ll also disclose that I’ve worked with the Balancer team so there’s some bias :slight_smile:

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I’m just wondering if it’s healthy to have so much rewards (assuming Balancer wants to help the DAO and adds us in this new generous rewards program), are we really talking 75% APY (1560000$ rewards /2000000$ liquidity )? If it’s the DAO’s treasury going in, that’s great, but won’t many individuals buy BANK to get the BAL rewards, giving it “fake” value, and as soon as the program stops, just dump big?

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It should be on L2 . its a big mistake to do this on l1

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There is no reason we couldn’t do both if people see the need.

You could write a proposal for Polygon if you want, or we could start something when Arbitrum launches etc.

To me the proposal here makes sense though, it is fits the current market pretty well imho.

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We could also potentially create a liquidity pool on Balancer once it deploys on an L2 scaling solution as it shares Ethereum security guarantees.

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What’s the big deal if people buy in for liquidity mining and then dump when rewards dry up? Is there a good reason to incentivize not having large price swings?

The way I see it is that we who believe in the DAO can have diamond hands through the drama. In the meantime, large price swings might get the DAO more attention (which is the highest value commodity of all in crypto right now).

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I think this is great proposal – thanks for putting this together @LuukDAO. I think it’d be key to convert some portion of the annual BAL rewards into BANK that can then be held by the DAO treasury.

These additional funds could be allocated as grants to community members looking to build out the DAO (in turn adding even more revenue to the DAO)!

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I still cant believe im in an org with so many forward thinking ppl. Little ol nobody me soaking up info from the smartest ppl in the game. Best advice yet was simple. Just get involved. Use the dapps, stake, swap, interact, and get your feet wet. Ive just loaded small amounts of money on many dapps. No risk really while learning the most sophisticated bleeding edge tech! Just a massive opportunity. Thank you all!

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Thanks for the input (un)BANKers!

It seems there is positive sentiment for the creation of the BANK/WETH pool. I’ve also checked with Balancer and the chances are high that this pool would qualify for the 1K BAL reward slot, which may already start on June 14. With that in mind, I think it’s time to move this proposal to the next step!

Currently, there is an exact 50% / 50% split on the forum poll for having 0.15% or 1% as the transaction fee of the pool. Now there are two things we can do:

  1. We can submit a multiple-choice proposal to BanklessDAO selecting either A. No pool creation B. Creation of a 0.15% pool or C. Creation of a 1% fee pool.

  2. We go by lazy consensus - create both pools right now in Balancer V2 and let the community voice their support through adding BANK liquidity to one of the two pools. We can let the pool with the highest AUM at a certain point become the pool that we apply for Balancer rewards with.

Not sure what the go-to contributor ethos is in Bankless, option 1) might be better for the education of newer members where option 2) might be more fun and engaging for the more educated bankless members :slight_smile:

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Creating a balancer pool requires seeding with an initial amount of both tokens in the specified ratio. If this will use treasury funds, can we be clear on how much from the treasury will go into the pool? If it will not use treasury funds (e.g. a DAO member is creating the pools) will it instead include a funding mechanism to reimburse their gas costs? Creating a pool is not cheap.

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This proposal does not include any request for treasury funding to answer the first part of the question.

Not sure on the cost to create a pool right now in V2, but gas fees are down tremendously which helps a lot there.

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It would be worth having a bit of debate on the pros and cons of incentivizing people to speculate on bank price. That way people can think about the trade offs and make an educated choice before they vote.

Off the top of my head, I can think of a few.

If we allow bank price speculation:
Pro - Bank is likely to be higher in price and give the treasury greater spending power.
Con - Speculators seeking profit can end up with voting rights. They will vote to maximize their profit rather than voting in line with our mission.

I’ve started a google doc where anyone can add their thoughts on the cons and the pros. @oxrabbi @frogmonkee @Icedcool @Icedcool @0x_Lucas @fifilechien @oktal

After we have drafted out pros and cons I’ll (and anyone who wants) reconstruct a new document so it’s educational to allow for informed decision making.

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