Turning on BPRO fees, and simultaneously improving BPRO liquidity

Summary

Create a staking pool that will receive a portion of all liquidation profits from BAMM backed protocols. But instead of simply using staked BPRO for this, we would use staked BPRO-WETH uni v3 LP tokens. So in order to get a piece of the fees, you need to provide liquidity. The BPRO-WETH price range would be updated once or twice a month based on some formula where the liquidity is redeployed to center around the market price. This would improve capital efficiency over a uni V2 pool, and reduce the friction of managing the pool LP position because it’s all moved at once. And the trading fees of the pool add yield in addition to the liquidation fees.

The B.protocol take rate on liquidations would be voted on in governance, and would be in the range of 5%-25%.

To minimize the chance of front running liquidation profits, we could explore adding a staking lock of somewhere in the range of 7-30 days.

Staked BPRO-WETH would also become the token used for governance voting, aligning the incentives of governance, profit sharing, and liquidity provision.

The net result would be more backstop integrations → more liquidation fees → higher incentive to stake BPRO-WETH → more liquidity for BPRO → more investment flows into BPRO → more incentive to hold BPRO.

Motivation

Currently B.protocol is rapidly expanding and awareness has been growing about the benefits of our novel BAMM backstop. However, there is currently no utility for the BPRO token aside from governance voting. Additionally, it is very hard to onboard new investors to BPRO due to the paper thin liquidity on exchanges. This proposal would solve both of these problems at once by incentivizing more people to buy BPRO due to the profit sharing mechanism, as well as improving exchange liquidity without relying on dilution of existing token holders with additional token emissions.

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Because there seemed to be some confusion about what I am proposing on discord, I wanted to clarify things.

This proposal does NOT use BPRO-WETH LP tokens as the backstop liquidity. The backstop will remain in stables as currently designed. My idea was to use staked BPRO-WETH LP tokens as the liquidation FEE receiver. Right now, BPRO does not get any portion of the liquidation fees. The proposal is designed to funnel a percentage of all liquidation fees generated by the backstop to the BPRO-WETH LP stakers. This gives BPRO holders a revenue stream, as well as an incentive to provide liquidity for BPRO.

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Just a thought I’ve had lately that is somewhat related.

It would be an interesting idea to do something like this around BPRO/(USDC, DAI, LUSD, etc) pairs considering the facts that we need stables for the backstop, and also need BPRO liquidity. I wonder if we could tap into the dormant stables in the v3 LP to use them either as liquidity or backstop depending on market conditions.

We need stable liquidity for BPRO during downturns when people sell normally, but since liquidations happen in downturns, connecting fees to BPRO’s price should theoretically fight this. Therefore some stable liquidity should be able to be used in the backstop. Am I crazy for thinking this is possible?

I’m beginning to see an inverted Curve finance forming in my head when I think about B.Protocol. We would benefit from something like the 3pool connected to the backtop as well…

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The problem I see with using BPRO as part of the backstop in any form is that it creates a negative reflexive price loop, where BPRO is sold on the market during liquidations, which leads to possibly having the backstop become undercollateralized.

But using something like 3crv as the backstop might work, and would allow the backstop pool to earn curve trading fees while it waits for liquidations, making the BAMM more capital efficient. But that is beyond the scope of this proposal, so I digress.

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I feel like there is an equilibrium that can be reached between BPRO sell pressure as people take profits during down turns and fee revenue from liquidations. I could be overly optimistic though.

Perhaps highly incentivized, time locked BPRO/3pool-like LP tokens could solve all the problems at once…

you are right using only BPRO in the backstop could make the backstops undercollateralized
so there are two possible solutions to prevent that

  1. using it with other assets as well (not only)
  2. or using a stable that is collateralized by BPRO (in this case BPRO value is loosely connected to the backstops)

but not being able to feedback that capital value of BPRO into the backstops in any way
would reduce the capital efficiency of BPRO holders.

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I am not sure this can be modeled into a function
maybe with a lot more backstops liquidating for a year or two you could model this to say
when the market goes 20% down we have 40% more liquidations producing 100% more profits
divided by BPRO holders and backstopers …

it seems to me like too many variables to model

but returning to my suggestion
using BPRO in the form of a stable (BUSD) in the backstops
would make BPRO holders and backstopers the same user so all liquidation gains go to BPRO holders not just the 1% fee
so in that case selling BPRO when the market is down will not make sense.

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so as an initial staking design
I think it’s a great idea
straight forward design to implement
it will be a quick win

but I also think we can do better
so this could be a starting point to iterate
or to add complementary staking alternatives to it later on

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Not saying we need to make a function that reacts to market dynamics, the speculators should do that for us if properly incentivized. The rewards for staking BPRO/liquidation-3pool would naturally increase as liquidations occur, and be drawn down somewhat over time when there are long periods without liquidations. This draw down on the rewards can be countered by the DAO using excess stables in yield aggregators. It still feels like a variation on the veTokenomics can work in this type of system based around B.AMMs and a BPRO/liquidation-3pool market. They would compliment each other nicely, and have a decent ecosystem of tools already available. I

The liquidation based 3pool would create a massive amount of stable liquidity and should be enough to help both with liquidations and gaining passive revenue to build a war chest.

Edit: should add that this also rolls trading fees, liquidation fees, yield aggregation, and stableswap fees all into one revenue stream for end users in a very simple way. I feel like this is a huge win.

I agree we can do better and I know we will continue to improve the protocol. I do think that it is time to move somewhat quickly towards a simple staking solution :slight_smile:

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I like the way you think and set it up. Couple of thoughts I wanted to share.

The problem with providing liquidity at is that these prices is that we would suffer huge Impermanent Loss. For me there in no incentive to provide liquidity the coming year (untill we reach fair-value and go sideways) because the liquidation fee’s don’t weigh up against IL. Also, Uniswap v3 pools are very hard to optimize by ourselves. Unless ur a pro ofcourse :slight_smile:

Maybe a BPRO/veBPRO pool i’d consider, and make the ve tokens represent governance and fee rewards.

I would encourage BPRO to finally become a DAO (very longterm). Maybe the overarching theme could be yield-aggregator? And that the liquidations are just one ingredient of our special sauce that provides higher yields than the best others. Just a thought.

Lastly, BPRO will dump in price if the markets dump. In the big liquidation events liquidity is pulled out of fear, and than people are not going to buy BPRO (especially not with a liquidity-frontrun-lockup). BPRO shouldn’t be used as collateral (maybe minimally) or unless the tokens are backed by actual USDC/DAI (from the DAO? Then as the DAO grows the BPRO collateral grows)

I love the protocol you guys have build. Literally critical infrastructure within the DeFi landscape.

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I agree that combating IL is going to be a major factor for people LPing a BPRO/3B.Pool (my name for our hypothetical backstop stablecoin pool). I think that IL can be fought in a variety of ways though and want to share a few ideas around this staking design.

Firstly, by shifting the majority of BPRO volume to a pair backed by the same liquidity that we use for stable rebalancing we create a disincentive to sell BPRO around downturns. Stable liquidity should naturally dry up, and create a market imbalance fighting people selling unless other liquidity appears. If possible we should also make it to where the 3B.Pool liquidity prioritizes liquidations over BPRO sales completely.

Second, BPRO/3B.Pool v3 positions can be created at any market position but the LPs concentration from the spot price should be inversely related to the reward share gained. Meaning if someone is LPing 50% above or below price, according to the closest end of their price band, they take a reduction (maybe 50%) in rewards. This means that wider v3 LPs get preferential treatment, because they are always receiving 100% rewards. This also creates a few other interesting characteristics including making timelocking LP tokens a little more appealing IMHO. We could also do this around v2 pools, but the more I think about this mechanism in combination with v3 pools I can’t decide whether its a terrible idea or not.

To fight IL a little more, we can have BPRO buybacks that are awarded to these LP holders with revenues from liquidations, stableswaps, and yield aggregators.

What does everyone think?

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I like the discussion, there are two somewhat orthogonal topics, namely BPRO liquidity, and 3pool (stable coin) inventory that can be used for liquidations.

3 pool

Let me start with the 3pool topic. Idk if it was the original intention, but in general I like the idea of using backstop liquidity also for other things when there are no liquidations.
From technical point of view, it would be most efficient to tokenize the backstop deposits (e.g., bLUSD for LUSD bamm deposits), and then use the bLUSD as the basic unit. And then, if hundred were on the same chain, to have 3pool as bLUSD, bUSDC and bDAI.
Moreover, using bLUSD as a collateral in lending platforms is also with potential. This way people could leverage their backstop deposits.

Currently there are some technical difficulties here, namely that our integrations are spanning over multiple chains, but i think in the near future we will start to see more integrations on the same chain.

BPRO liquidity

It would be very cool if we could somehow apply our system also to BPRO itself. While using BPRO as a backstop to lending platforms is infeasible, in might be possible in the long term to borrow backstop liquidity against BPRO collateral. This can be nice goal to aim to, but I have to admit that I don’t have a full plan on how to make it happen.

As for BPRO/ETH or BPRO/USD liquidity. I understand the community see the low BPRO liquidity as a barrier to on-board new members, but asking the current community members to provide LP might be a bit of zero sum game. Where the loyal members transfer their BPRO to random buyers.
There is a recent trend of protocol owned liquidity, and I think it could bring better results in the long run. And then it will be also easier to experiment more exotic ideas like BPRO/3pool.

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This makes sense. Each chain will have their own tokenized B.AMM stable pools. These pools can then use each others liquidity to gain stability and additional yield for the protocol.

I like the idea of being able to borrow backstop liquidity with BPRO. Aligns incentives and rewards the community.

Since it appears the Olympus approach to protocol owned liquidity is somewhat unpopular currently and the community is voting for veTokenomics according to the discord poll. Perhaps ve(3,3) could be a compromise…? Just a thought.

Even though i mix up topics here my thoughts about the discussion

  • As much as i like the 3Pool-idea i am wondering how much capital actually is needed as liquidity in general. I mean if we want to be capital efficent only TVL does not really matter. Currently we leave out the “to be liquidated” assets (fe. HND-fantom has a 5m backstop for 14m borrowed assets (tvl200m)) Goal should it be sufficent for the existing tasks. Maybe someone more expirenced can throw up a ratio or say that its just plain stupid to try to boil it down to simple numbers. Its more like a risk evaluation which we are missing but should be considered or can be a core benefit.

  • Maybe the fees could be redirected to 3Pool somehow but i do not have a smart idea or probably do not understand the 3Pool benefits thourougly. I just read about the yearn approach with yveCRV which reminds me of the ve33-approach (which basically incentivices the ve-ing further). yveCRV is meant to pay fees collected which is actually what is to be reached for bpro/bpro lps.

  • Considering the LUSD/ETH case from the last days i guess the utilizing the 3pool approach could actually support in situations (does it?) like LUSD overshooting (by design). The mentioned approach to use DAI/USDC temporary until LUSD peg is restored is in my pov a great idea and supports backstop/stability pool providers interests.

Feel free to discuss further on discord with me :slight_smile:

Oh and if someone can provide me a reference project/doc where such a 3Pool approach helps i would be glad.

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I think I have a solution
would love to get your input on it

I want fees turned on. What can I do to make this happen?