Pause of BNT Distribution

On June 19th, BNT distribution was paused per the Bancor DAO’s intervention policy. Information regarding the BNT minting pause is available in two blogposts (1,2)

For the most recent update, please refer to the Bancor v3 Progress Update blog post HERE.

Q: Why was the BNT distribution mechanism disabled?

A: Extreme market conditions on June 2022 exposed an economic vulnerability in the Bancor protocol under specific unforeseen circumstances.

Due to heavy selling pressure on the BNT token at the time, the BNT price rapidly diverged from the prices of tokens listed on the protocol (TKNs) in tandem with large TKN withdrawals from the protocol.

The automated rebalancing of Bancor AMMs resulted in arbitrageurs selling BNT to the protocol in exchange for TKNs, creating deficits in the TKN vault balances.

The amount of BNT distribution needed to cover the pending withdrawals created a runaway effect in the BNT price that may have resulted in only the fastest LPs being able to withdraw from the protocol and the rest of LPs being unable to withdraw at all.

Per the Bancor DAO’s emergency intervention policy, the DAO took emergency action to pause all BNT distribution.

Q: How does disabling the BNT distribution affect users?

A: BNT distribution is the mechanism that reimburses LPs for deficits from rebalancing and impermanent loss. As a direct result of the BNT distribution being disabled, users who choose to withdraw from the protocol are choosing to do so knowing they are not eligible to receive BNT in the event of vault deficits. Keeping BNT distribution live to cover the deficit would have resulted in that BNT immediately being traded for a user’s originally deposited token, resulting in zero chance the slower moving users would retrieve any of their funds at all.

Q: What options do I have?

A: v3 BNT liquidity positions remain unaffected by the emergency action. LPs may withdraw the full amount of BNT deposited in addition to any rewards received and/or fees earned.

v3 TKN LPs may continue providing liquidity or withdraw without BNT compensation for any deficit.

v2.1 BNT LPs may continue providing liquidity or withdraw the full amount of BNT deposited in addition to any rewards received and/or fees earned.

v2.1 TKN LPs may remain on v2.1 or withdraw without BNT compensation for any deficit.

Q: What is the origin of the deficit and what does it mean when a pool has a vault balance in deficit or surplus?

A: Anytime a trade occurs, a deficit and surplus appear. The vault balance represents how many of a specific token are currently in the protocol. The vault is in surplus when it contains more tokens than was directly supplied by liquidity providers. The vault is in deficit when it contains fewer tokens than liquidity providers deposited.

Please refer to this explainer on Bancor v3 mechanics to understand how deficits and surpluses are calculated in v3.

https://blog.bancor.network/bancor-3-the-mechanics-fb69600ef10b

Q: How can I calculate my deficit & surplus on v3?

A: On the portfolio page, under holdings, for each token that is in deficit there is a red triangle next to it. Hover over this red triangle to get an approximation of your withdrawal amount.

Alternatively, for v3 a close approximation is to input the ERC20 token contract address in the "stakedbalance" function and compare that to the token quantity in the MasterVault contract.The "stakedbalance" entry represents the initial principal and accrued fees for all users who deposited that specific token.

Master Vault Contract: https://etherscan.io/address/0x649765821D9f64198c905eC0B2B037a4a52Bc373

Stakedbalance Function: https://etherscan.io/address/0x8E303D296851B320e6a697bAcB979d13c9D6E760#readProxyContract#F22

Q: I’m trying to make a withdrawal, but it’s telling me "withdrawal is temporarily paused!". Why can’t I make a withdrawal?

A: The price in the pool is too volatile. This is a vital security feature to avoid manipulation of the pools. Please try again in a few minutes.

Q: If I keep my liquidity in Bancor, will I ever be able to withdraw it all?

A: All users have the ability to withdraw their liquidity from the Bancor protocol. TKN liquidity providers in Bancor v3 who withdraw from a pool that is in deficit will not receive BNT as part of their withdrawal to make up for the pool deficit. In other words, you can decide to hold off on withdrawing until the issues are resolved, or withdraw now with TKN only and zero BNT.

Q: If I withdrew from Bancor at a loss while BNT distribution is disabled, will I be able to get back my initial amount in the future?

A: Currently, any losses incurred due to deficits by users who withdrew from the protocol are final. The Bancor DAO controls the protocol and has the ability to revisit this in the future.

Q: Will I get more of my TKN if I withdraw before others?

A: The relative deficit or surplus of the system in TKN should remain constant so long as the market does not cause a change in the deficit or surplus. Regardless of the amount of TKN being withdrawn, or depth of the pool, the amount users are able to withdraw is proportional to the deficit of the pool. Example: If a pool has a deficit of 25% and everyone were to leave while the market does not cause a change in the deficit, then everyone will have a 25% deficit in their withdrawal.

Q: Who made this decision?

A: The Bancor DAO passed “BIP21: DAO Multisig Intervention Policy“ that gave the multisig signers emergency powers to take protective actions if an emergency presented itself. Such an emergency presented itself on 6/19/2022 which required special intervention to protect users of the Bancor protocol. All emergency actions taken are subject to a subsequent ratification vote, which the Bancor DAO approved.

Please refer to BIP21 from the Bancor Governance for more information: https://gov.bancor.network/t/bip21-dao-multisig-intervention-policy/3504

Please refer to the ratification of emergency actions take on Sunday June 19th 2022 for more information: https://gov.bancor.network/t/ratification-of-emergency-actions-taken-on-sunday-19th-june-utc/3714

Q: Why is trading still enabled?

A: Trades are good for the Bancor ecosystem and help restore health to the protocol. However, it can lead to fluctuations in pools that are in deficit. If trading is disabled then the DAO needs to make sure that the pools between v2.1 and v3 are well equilibrated (a large effort to undertake). If the pools are frozen then the Bancor AMM will not be in sync with the rest of the markets, and there will be additional complexities with having to rebalance the pools in the future.

Q: Are there historical analytics to view the deficits/surplus for a token overtime?

A: You can visit our analytics site to get historical information around surplus/deficits for a specific token over time and other Bancor network stats.

Please refer to the analytics site for more information: https://analytics.bancor.network/