[FIP-001] - Limit ETH-BANK liquidity provision rewards to capped whitelisted wallets

Title: Limit ETH-BANK liquidity provision rewards to capped whitelisted wallets (ver. 1)

Summary

Phase 2 of the Float Protocol launch currently differs from Phase 1 most radically in that limitations on participation per address are removed, as is outlined in the original democratic launch proposal. New, non-stable pools are currently set to be added, as well as an incentivized liquidity pool for BANK-ETH (a so-called ‘deathpool’). If passed, this proposal would respect the status quo in respect to the removal of limitations on participation in single token staking pools (USDC, DAI, USDC and any new additions), but it would establish three stipulations in regards to BANK-ETH LP.

  • Firstly, the outcome of this proposal would be a limit on participation in the incentivized BANK-ETH pool to whitelisted addresses only.
  • Secondly, a cap would be set on the amount of BANK-ETH SushiSwap LP Token (or equivalent) that can be staked for rewards.
  • Thirdly, it would signal for a weighting of the BANK-ETH pool in which it receives the largest single proportion of rewards emissions during Phase 2.

Background and Reasoning

The BANK-ETH pool will be the first pool to be rewarded by the Float Protocol that is exposed to impermanent loss. Impermanent loss occurs when the value of one pooled token falls relative to the other and the LP suffers a loss versus holding the two tokens had they not provided liquidity. Despite their capacity for volatility, they are a key means of carrying out price discovery during the early phases of a project. For this reason, pools such as these often receive ‘compensation’ in the form of a high proportion of inflationary rewards during a project’s first stages.

In order to participate in the BANK-ETH pool it will be necessary to hold an equal value of the two tokens at the point at which liquidity is added to the pool. For this reason, accounts holding disproportionately large amounts of these two assets relative to their fellows will stand to gain a disproportionately large portion of what may well be the most heavily rewarded pool, thus acquiring either an ever-greater proportion of the governance token, BANK, or an incentive to front run volatility by selling their rewards, thereby themselves contributing to volatility.

In the democratic launch proposal laid out by Float’s founders, it was lamented that in project launches “big players arrive early, farm most of the token and control the governance moving forward.” While the launch has thus far performed, I believe, excellently in diminishing the chance of this outcome, owing to Ethereum being a permissionless system there is nothing to prevent big players purchasing large quantities of the token in preparation for the start of Phase 2, during which they have the potential to bring about the two outcomes outlined above.

In order to illustrate the vulnerability of the protocol to the above outcomes, I would like to briefly illustrate that whales with the capacity result in it are more than likely already among us. These are individuals or conspiring parties that have acquired a far greater amount of the token than the principles of the democratic launch intended.

Whale Watching

In conducting some chain analysis, I have come to the conclusion that there is likely at least one whale (so far) that has in their control a significant proportion of the current BANK supply. While they have split their BANK balances across multiple wallets, it is possible to distinguish signs that imply multiple purchased balances remain under the control of a single party. All data outlined below is correct as of Tuesday, March 9th 2021 (10:00 UTC).

On July 23rd 2020 the following account was funded in this transaction.

(Wallet 1) 0x0c1f01dF7f044bdE6127b0bc3918740f81F3e5f4 (Current BANK Balance: 293 BANK)

On August 12th 2020 Wallet 1 funded the next wallet in this transaction.

(Wallet 2) 0x22de3e6f5422fc658fba26433016123b3037ed67 (Current BANK Balance: 260 BANK)

On August 20th 2020 Wallet 3 was funded by the same wallet as Wallet 1 in this transaction.

(Wallet 3) 0xea28663b42a7cb56a7d1495c16f2eb065034b06c (Current BANK Balance: 325 BANK)

On September 8th 2020 Wallet 2 funded the next wallet in this transaction.

(Wallet 4) 0x8d2df04aa50387a790eab8a852747f284cdcb07d (Current BANK Balance: 296 BANK)

On March 8th 2011 the next wallet sent Wallet 3 $64,387.97 DAI in this transaction.

(Wallet 5) 0xF555eA7a85C2Cf13DB640148e2d4c8a8027e8eF4 (Current BANK Balance: 259 BANK)

The data above is not exhaustive as many other transactions implying the wallets’ interconnectedness exist. Nor does it seek to imply certainty that the assets in these wallets are held by an individual. It does, however, establish a strong likelihood that the funds held within them have the capacity to act in collusion.

Wallet Whitelisted Current Balance
Wallet 1 ( 🗸 ) 293 BANK
Wallet 2 ( 🗸 ) 260 BANK
Wallet 3 ( x ) 325 BANK
Wallet 4 ( x ) 296 BANK
Wallet 5 ( x ) 259 BANK
Total BANK 1433
Total value with BANK @ $650 $931,450

The data above leads me to believe that there is a distinct possibility that a unrestricted and incentivized BANK-ETH is vulnerable to either a big player having a means of taking greater control of governance or volatility to the detriment of holders of less capital.

Response

I would like to propose that rewards granted to LP providers in any two-token BANK pool (BANK-ETH most specifically) be capped at a value established at a point prior to rewards emission beginning, and should not be in excess of $60,000 USD total (value of BANK + value of ETH). Furthermore, I would like to propose that wallets able to stake their BANK-ETH LP tokens be limited to wallets that are on the present whitelist. Lastly, as it is likely that whales are currently among us that possess the ability to drastically alter the price, I would like to propose confirmation that BANK-ETH liquidity providers receive the largest portion of rewards during Phase 2.

Afterward

Money talks in Ethereum, and transaction costs currently only make its ability to speak loud and fast all the more significant. What is more, the permissionless nature of Ethereum and the ability of users to obfuscate data (traits that have merits) means ensuring equality and fairness is problematic even in the most democratic of launches. Still, I believe it is worth trying to increase the power of the majority of governance participants in the Float Protocol by putting roadblocks in the capacity of power/capital rich parrties to accrue more of the same.

History

This is version 1 of this proposal and has been written by a single author. As such, it is not anticipated to pass to the voting stage of the governance process without further discussion and revisions conducted through the assistance of interested parties.

All balances have been rounded down for simplicity.

9 Likes

I think it’s important to note that this proposal seems to differ from the approach anticipated by the Team, meaning that I would expect that having it pass will require both a high degree of community engagement and a high quorum in any vote that takes place. Furthermore, implementation of this change in approach would likely take some time, meaning that it shall be probably be necessary to move quickly through the discussion stage and onto snapshot creation.

Despite the time pressure, I think a high quorum in a vote in response to a proposal such as this and at this stage, whatever the outcome, would be an excellent reflection of the democratic ideals of the Float Protocol launch.

I think restricting phase 2 will kill the momentum for the project. The goal of Phase1 is to incentivize the highly active governance participants, which I think phase 1 is accomplishing. Goal of phase 2 is to open it up to everyone to invite the participation of all groups, we should not come off as exclusionary towards a specific group of participants. We have to remember that there are bunch of other competing stable protocols such as fei and rai also launching farms around the same time…We need to be open and attract all the capital we can get so we have a diverse and healthy ecosystem.

Being closed off in phase 2 would kill the network effect needed to bootstrap a healthy capital pool for the network.

5 Likes

I honestly believe the network effect that would take place during the two week period of Phase 2 could be achieved through the unrestricted single token staking avenue (as per the proposal), an initiative which is designed to directly appeal to pre-existing DeFi communities. We’re also in a position where, with a price of $750, it would take only 10% of the BANK distributed so far to put a BANK-ETH pool on the top 50 pairs on Uniswap in terms of liquidity (8400BANK x $750 x 2 for the matched ETH = $12,600,000) so I don’t think attracting necessary capital to that pool would be such an issue. This method may allow for the acquired capital to just be more evenly distributed.

2 Likes

This is good to know.

Just my concern is that adding arbitrary limits based on incomplete information only complicates things with not clear provable benefit to the protocol. Who knows how many of the whitelisted governance addresses are controlled by single individuals or closed groups. Without that data its hard to prove restricting rewards to whitelisted addresses will reduce collusion…infact it might make it worse. My fear is that if we start going down this rabbit hole, we will only end up with a bunch of unnecessary constraints with not clear provable benefit. Since there is no established identity system yet for defi. Any kind of arbitrary restrictions will only led to more sybil attack.

May be there are other ways to address this issue…bring down the rewards for the 2 token pools and increase the reward to the single token pools? This would be a much better way to address this concern imho.

1 Like

I would propose to have single staking pool of BANK tokens in addition to ETH-BANK pool. This single staking pool can have a lockin of 48 hours (or 7 days). The rewards for this pool should also be lower than the death-pool. Later on this pool can also be used for governance. A locked single token pool also helps in getting rid of short term governance token shopping by whales.

Ok I would like to stake a share in this big fish

I don’t think the BANK/ETH pool should be restricted, the holders of BANK are all related to the Float Protocol’s interests. On the contrary, I think we should continue to limit the participation amount of the stablecoins and other tokens, which will guarantee a higher APY (no whales pulls down APY) to ensure wider participation

I like the idea of an initial whitelist and limit on LP. I have participated in several launches recently only see 5-10 whales take the lion’s share of rewards and dump on the rest of the community in 2-3 waves. This is not good.

This is very forward-thinking and even if it is not the final solution it’s a great start to get things headed in the right direction. Another option I have seen recently is time-based lockups on rewards with 50% available and the rest unlocked over some period of time. The recommended option is likely easier to code though.

1 Like

So it seems there is some for and against, which is to be expected. At this point, however, I think it’s necessary to run by the development team the question of whether they would have the time and practical opportunity to implement the necessary changes if such a proposal were to pass, something I can do over direct messaging. One thing worse than whale accumulation would be a compromised launch brought about by last-minute contract integrations.

Yes this broadly sums up our thinking. Now that we have lots of engaged participants, we actually want to bring in lots of liquidity and interest to the BANK market to benefit of holders.

HOWEVER, I want to stress that community is everything for us and we want to abide by the spirit of FLOAT: demos cratos, people power.

btw I want to big up TerraBellus for being so active community wise :raised_hands:. The quality of democracy, and therefore Float, comes from the strength of the diverging voices and TerraBellus has been a really vocal advocate so far, for which we are so grateful :pray:

2 Likes

Not sure restricting ANY pools makes any sense at this point. Let the market work itself out!! This seems totally unncecessary and an overkill!!

Agreed! Great to see such engagement at an early stage.

But we have to remember we are building a free market protocol that we expect the market to self stabilize!! Won’t be a good look if all of the launch was closed off to a set of insiders…thats not democracy!! How would this be any different than a black box VC coin?

Hello everyone!

This is my first post on this forum, glad to be part of this active and open community.

I find this proposal very interesting, but at the same time I understand the concerns regarding the need to bring in as much liquidity as possible to the “death pools” (ETH-BANK).

I would thus suggest a compromise:
Two ETH-BANK pools could be created, one with no strings attached open to everyone, and one only available to whitelisted addresses (possibly with the 60k cap as outlines in this proposal).

The rewards (in BANK/block) to the two pools could well be identical, but clearly the first pool is far more likely to generate higher yield due to presumably lower liquidity in there.
This also allows whitelisted addresses who accumulate extra BANK via purchasing to stake all of them in the pools: up to 60k in the “whitelisted” one, and any overshoot in the regular pool.

Some supplementary material on how farming mechanics can lead to protocol takeover, from cryptoyieldinfo on twitter:

I think I may need to provide some clarification regarding how I envisage the BANK-ETH rewards pool working were this proposal implemented.

The proposal, as it stands, would not prevent any amount of BANK being added to an BANK-ETH SushiSwap pool (or any other DEX pool), it would instead prevent an unlimited amount of the LP tokens one receives when adding liquidity being eligible to be staked in a Float Protocol contract that pays out BANK in proportion to the amount added and the total TVL in the contract/time.

For example, a whale could still provide, say, 1000 BANK (plus an equal value of ETH) liquidity, receiving a number of LP tokens that represent their share of the pool, but, if a cap were in place, only a limited number of those received LP tokens could then be staked in a Float rewards contract. This would be similar to the manner we can now only add 10k of USDC/DAI/USDT per address.

With this in mind, liquidity could be concentrated entirely in one pool if desired, but the payout of BANK rewards would be distributed more evenly across the participating wallets.

Appreciate the clarification. I agree with the intention of your proposal. But question the approach to solving it. We have to understand that it is the current whitelisting approach that has lead to the present situtation. It is the tokens that were sold by some of the whitelist addresses in the market that enabled interested folks to accumulate the tokens. (By the way I dont personally see anything wrong with this…thats how a free market should operate).

I would argue that if we really want to do something about it. It would be to remove those addresses that sold into the market from the whitelist. But im personally a free market proponent who thinks its better to leave things alone and let the matket work itself out. But to each his own.

What would be wrong is to continue to reimplement the exact same whitelist approach again and expect a different result??!

We should not be treating people who put good money in the market to support the project as though they did something wrong. Infact it should be the opposite. It is the sellers who should be penalized…not the supporters who brought from the market and held.

Rather than thinking about caping individual addresses(this has no provable benefit by the way…just leads to more sibil attack)…a better approach would be to enable pools that have longer lockups with propotionally higher rewards…thats the best way to seperate the short term holders vs the long term believers…just my 2 cents…

5 Likes

I’m in support of requiring lock-ups for liquidity providers - with increasing rewards proportional to time committed.

3 Likes

On the Discord today Paul M mentioned that any changes integrated at this point would cause delays. Personally, I take the position that delaying in order to integrate changes in the way Phase 2 would be conducted would not provide enough benefit to be worth the disruption it would cause.

Mulling over things, it’s a fact that those with capital are always going to be able to buy up supply, whatever the distribution method, as long as there a sellers. However for many, hopefully, the 6 weeks of whitelisting period has given people a good amount of time to determine that hodling and participating in governance could well have the best long term benefit both to themselves and the wider crypto space.

Regarding single-asset pools, I myself am comfortable that the addition of single-asset pools uncapped and non-whitelisted may well be non-negative in a holistic sense (not just price) through the quantity of supply distributed by that method. For all the criticism one might level at a distribution such as that of BDP, much of it valid, providing a means of anyone taking part drew many who would not have otherwise known about the project into its purview.

For the above reasons, I don’t plan on taking this proposal any further, though I would welcome other mining it for alternatives.