Title: Limit ETH-BANK liquidity provision rewards to capped whitelisted wallets (ver. 1)
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.
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 1 ( 🗸 )||293 BANK|
|Wallet 2 ( 🗸 )||260 BANK|
|Wallet 3 ( x )||325 BANK|
|Wallet 4 ( x )||296 BANK|
|Wallet 5 ( x )||259 BANK|
|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.
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.
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.
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.