- The Bancor Vortex Burner has been deployed to the Ethereum mainnet.
- The Vortex Burner collects an adjustable percentage of swap fee revenue and uses it to buy and burn vBNT.
- vBNT will now be burned with every swap — locking BNT in the protocol forever, and putting deflationary pressure on the circulating supply of BNT.
- vBNT burning also lowers borrowing risk for users who wish to take leverage on their staked BNT.
- The vBNT burn rate will become a critical part of the BancorDAO’s flexible monetary policy, and may be adjusted to collect up to 15% of swap fee revenue.
What is the Vortex Burner?
The Vortex Burner introduces an adjustable fee taken from swap revenue generated by liquidity providers (BIP9 and addendum). For example, if a $100,000 trade is executed on a pool with a 0.2% pool fee, $200 is collected by the liquidity providers as commission. The vBNT burner takes a 5% portion ($10) and uses it to buy vBNT and burn it.
vBNT burning is designed to:
- Increase locked liquidity: a portion of every swap is permanently locked into the protocol
- Reduce the circulating supply of BNT: BNT is continuously bought and removed from circulation forever
- Increase lending capacity: By putting continuous upward pressure on the vBNT price, the burning of vBNT lowers borrowing risk for users who wish to take leverage on their staked BNT
The full powers of the Bancor Vortex can now be accessed to perform key actions on the network that drive increased value to traders, LPs and the protocol’s owners, BNT holders. These actions, including swapping, staking and borrowing against staked BNT, are discussed in more detail below.
1. Swap tokens on the network
Traders and aggregators can use Bancor’s deep liquidity pools to swap tokens at the best rates, generating fees that increase the amount of vBNT bought and burned by the protocol. As volume rises, vBNT burning accelerates.
2. Provide BNT to a Bancor pool
Providing BNT to a Bancor pool mints a vBNT liquidity position (similar to a pool token), which earns yield from swap fees and liquidity mining rewards. Each vBNT position consists of its underlying BNT stake plus accrued swap fees, both of which can be redeemed by the wallet that originally staked the BNT, by sending the same number of vBNT tokens back to the pool.
Liquidity mining rewards earned on a given stake accrue in a separate rewards contract, and can be redeemed or re-staked to the protocol at any time using the wallet that staked the BNT.
3. Swap vBNT for other tokens
After providing BNT liquidity on the network, a user may choose to sell their vBNT for other tokens on the network (e.g., BNT, ETH, LINK etc.). They can use the purchased tokens to earn more yield by providing additional liquidity on Bancor, or by using the tokens in another DeFi protocol.
Example scenario:
- Greg has $1M+ worth of BNT staked single-sided in the LINK pool
- A new yield farming project commences with an attractive APY for ETH deposits
- Before Vortex, Greg would have been forced to unstake some BNT and swap it for ETH to participate in the project; now he can sell vBNT for ETH, and keep his BNT cosy in the pools
Important: Selling vBNT implicitly removes the option to unstake the associated BNT stake. You will need to buy back vBNT in order to unstake your BNT. Educate yourself, have a risk management plan and proceed with caution.
Why borrow against your staked BNT?
In short, to earn additional yield by providing more liquidity on Bancor or via another protocol.
When you sell your vBNT, you’re effectively betting that if/when you eventually buy back the vBNT needed to retrieve your full BNT stake, the revenue you’ve earned with your borrowed tokens is of greater value than the amount of vBNT you originally sold.
The vBNT/BNT rate can be used to determine the borrowing risk at any given time. As more users sell their vBNT to take leverage, the price of vBNT drops relative to BNT, increasing the risk for a new borrower. Alternatively, as more users buy vBNT to close their leveraged positions, the price of vBNT rises relative to BNT, reducing the borrowing risk, since the price of vBNT has less room to climb.
Crucially, vBNT burning creates a continuous upward pressure on the vBNT price that effectively increases the network’s capacity to offer credit.
In rare occasions, the vBNT price may rise above the BNT price, which creates an arbitrage opportunity. Such an arbitrage trade is executed by purchasing BNT on the open market, staking it, and immediately selling the issued vBNT. This exercise remains profitable until 1 vBNT = 1 BNT.
4. Stake vBNT in the vBNT pool
When space becomes available in the vBNT pool, users can stake their vBNT in the pool to earn a portion of swap fees from vBNT trading.
The DAO may vote to increase the cap on the vBNT pool to open more space for vBNT staking.
Follow Bancor Governance for the latest updates, as well BancorVortex (on Twitter) or BancorAlerts (on Telegram) for notifications of space openings.
5. Poke the Vortex Burner
Behind the scenes, swap fees used to buy and burn vBNT accumulate in a dedicated wallet (the Network Fee Wallet). The Network Fee Wallet grants permission to withdraw its tokens to the Vortex Burner, where the vBNT is burned. While fees automatically accrue in the Network Fee Wallet, a user must interact with the Vortex Burner contract in order to trigger a burn. Any user can trigger a burn, and because the transaction costs gas, users are offered an incentive to trigger a burn.
Instructions on triggering a burn and earning BNT for doing so can be found Bancor’s technical docs.
Conclusion
Analytics will soon be released in the bancor.network front-end and on Bancor’s Dune dashboard showing the total vBNT burned over time. The rate of vBNT burning is expected to ramp up as whitelisted pools opt into the network upgrade.
We are incredibly excited for the next phase of Bancor Vortex and for Bancor tokenomics to continue evolving, guided by the DAO and the growing community of researchers and economists who support its operations.
