To increase liquidity on the platform, introduce a bonding mechanism for stables (suggest USDC & STBL2 to start) that offers a modest discount on BANK (at time of lock). Discount % could be derived from time locked (higher discount for longer lock) or accelerated vesting of the discounted BANK (lower discount for faster vesting).
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Hi could you please explain in more details:
- What is this bonding mechanism you are talking about?
- What would this entail for algofi?
- What issues regarding the protocol is this proposal addressing and how?
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Current ways to earn BANK include: LP and Single Sided lend and Earn Staking (USDC/USDT). BANK can also be earned on the lend platform (both on the supply and borrow side).
This would be another way to earn BANK. Under the bonding mechanism, the user would commit their stables for a set amount of time (unlike the single sided staking, they would not be with-drawable). Perhaps an easier way would be to just increase emissions of BANK on the lock (this could be n% more than on the the single sided staking). This would save development of some sort of discount BANK mechanism. The unlocking of the stable funds could also be TBD – either on some sort on linear vesting scale or all at the end (perhaps both options with different compensation rates)
Algofi would have to create new smart contracts to handle the locking mechanism.
The intended goal is a increase in liquidity to the platform — plus the stability that having a lock on funds provides.
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I’d like a version of this but where the only thing that could be bonded is STBL2. Users bonding STBL2 adds confidence to the peg because it demonstrates confidence in the backing of STBL2, while removing potential liquidity which could contribute to a depeg. Yes we have the STBL2/USDC LP but I think this would be a nice way to offer something similar that isn’t commingled with USDC. I think it also makes the rewarded BANK make more sense since the people receiving it took a specific risk on Algofi.
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I like discussions that try to make Algofi a safe and stable environment. However, my only fear is that while Bonding is good for that, how long before we get too close to being like a bank, and for regulators to treat Algofi like a bank?
Are you worried that this would make BANK a security? Or is there some other regulation you are afraid of violating?
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I am no expert on banking or securities regulation, but from what I understand, there is much personal disclosure to be had in both scenarios. If the entire experiment is to be anonymous voting and trading, I think being under the thumb of regulators is against that goal.
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Sure I agree. However, at least in the US the Howey Test is what is used to determine if something is a security.
An investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others”
As I’ve written elsewhere, the key to avoiding being slapped with being a security is to:
- Pay taxes
- Prevent BANK from being a token people want to hold for the expectation of profit.
Imo as written elsewhere, the best way to do this is by only utilizing the DAO treasury for taxes, insurance (against undercollateralization), and deepening liquidity for BANK by storing the insurance funds as BANK and STBL LP tokens. This sets up BANK to only have value if you actually value participating in governance, because you are doing meaningful transaction on Algofi such that you would like to have that influence.
imo nobody should get rich on BANK, they should get rich trading on Algofi. The value of BANK needs to be separated from the value of on chain activity such that BANK should only exist to allow the most bought in users (whether lenders, borrowers, arbitragers, liquidity providers, etc) to own and control the ecosystem they make valuable. BANK should be worthless to anyone who isn’t very active on Algofi itself.
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Has there been any application of the Howey test in similar circumstances like in Algofi? I’d reckon it is quite new.
In the US precedent was recently set in SEC vs LBRY Inc.
it’s dicta, but here the LBRY judge reasons that even if team is completely silent about efforts–no promises, no contracts–but premines tokens, that alone creates a sufficient expectation of profits from their efforts in common enterprise to pass the Howey test
Even if LBRY never said a word about it being an investment…by retaining hundreds of millions of LBC for itself, LBRY also signaled that it was motivated to work tirelessly to improve the value of its blockchain for itself and any LBC purchasers…would lead purchasers of LBC to expect that they too would profit from their holdings of LBC as a result of LBRY’s assiduous efforts.
If people buy BANK with the expectation of profit that others will work to generate (ex the Algofi dev team), then its more likely to be classified security. Hence my view that BANK needs to be setup to be relatively worthless as a speculative investment. No matter what we decide to do, this is going to require legal counseling to get right from actual lawyers. The last time this came up the dev team confirmed that bringing in legal counsel was on the docket.
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Thanks for the information. Dicta is only Dicta though, so I’ll need to delve a bit deeper into SEC cases to try and find something. I appreciate looking at SEC v LBRY as the starting point. I agree with your point that BANK shouldn’t be the way people make money here, it is by using the protocol itself. As the users of the protocol, we should have some say in how it runs, and I think governance through BANK is a good way to do that and not have it be some kind of investment under the Howey test.
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Perhaps there is a way to make a synthetic form of BANK that is only accessible to “accredited investors” — this would allow investment in unregistered securities no? Just like BANK becomes veBANK for voting rights — another lock of BANK, could become a yielding — non-registered type of security? Getting outside of my wheelhouse on this.
Good points. Does MKR earn revenue from DEX fees?
MKR doesn’t have a dex, only a lending market.
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Thanks @pescennius. Besides SundaeSwap on Cardano and Tinyman on Algorand. I’ve never really used a product quite like Algofi which offers users a way to earn interest, borrow, & trade ASA on one platform. Algofi seems very well positioned. Staying focused will be important for the team.
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