Silo Liquidity Solution
Authors: Esteemed Janitor @chutoro
Submission Date: April 13, 2022
Bancor V3 is an AMM that allows single-sided staking of tokens that are matched with BNT, Bancor’s native token. Originally, Bancor V2 provided 100% IL protection only if liquidity was provided for at least 100 days. However, with their recent v3 update, 100% IL protection is granted from day one which means funds deployed to a SILO:BNT pool will not be negatively affected by volatility.
V2 Positions will also be migratable to V3 and be treated as 100% IL Protected for the migration even if the LP has been in for less than 100 days so there is no financial drawback to depositing prior to V3 Launch.
LPs need to be aware that there is a 7-day “cooldown” to withdraw from a position. During that withdrawal period you are still protected from impermanent loss but do not earn fees & rewards. If you end up deciding not to withdraw after those 7 days the fees and rewards are paid as normal.
Listing a liquidity pool on Bancor requires whitelisting by the Bancor DAO. There is currently a sister proposal prepared by our community member Tenzent#0038, a Bancor OG championing the proposal in the Bancor community.
Currently, $SILO is tradable on Curve v2 and Uniswap v3, providing decent exposure for traders wishing to trade $SILO. Bancor will provide an alternative to the aforementioned options allowing for a more diversified trading experience. Having multiple sources of liquidity will also help make $SILO more attractive as a collateral asset.
From the LPs’ perspective, single-sided staking and 100% IL protection from day one is highly desirable. In addition, DAO deposits are matched with BNT which allows for higher capital efficiency than other AMMs.
In the beginning the pool will be capped at 400,000 BNT (~$900K). Bancor will provide 200,000 BNT. Silo will add 100,000 BNT in $SILO to bootstrap the pool. The left over space will be open to community members which will allow SILO holders to LP without fear of Impermanent Loss.
Note that we will increase the size of the pool over time to allow for larger trading volumes.
We can use the development fund to bootstrap the pool - 1.5M SILO had been allocated for the development fund earlier this year to cover costs related to security, marketing, and insurance amongst others. See SIP-02
Using the development fund’s holdings of $SILO will motivate the Bancor community to vote for whitelisting the pool. In the future, the DAO can vote to remove $SILO from the pool to allow community members to add more liquidity to earn trading fees.
Specification and Rationale
To be listed on Bancor, Silo must pass a whitelisting process via Bancor governance. A proposal has been prepared here . We implore any Bancor holders within our community to voice their support for the proposal.
- Trading fees will be earned by the Silo Treasury
- IL protection eliminates risk from price volatility
- Single sided staking means $SILO does not need to be sold for LPing
- LP is matched by $BNT which provides for high capital efficiency
Single-sided staking means that the treasury does not have to liquidate $SILO from the treasury which would deplete treasury funds and increase sell-pressure. Bancor matching $SILO deposits with $BNT means that this AMM option is also highly capital efficient. $225K of $SILO will match with 100K $BNT from Bancor providing for $450K TVL with a $225K investment.
We propose that SiloDAO deploys $225k in $SILO from the development fund. This will effectively allow for a $SILO pool with $900K TVL on Bancor V3. If needed, the DAO can later reimburse the development fund. Alternatively, the development fund can later withdraw the tokens from the pool allowing for community LPs to add liquidity themselves to earn trading fees.
This is contingent on successful whitelisting by Bancor governance.
$SILO can be returned from Bancor at any time.
Barring strong opposition, we will follow the proposal with a Snapshot vote.