The post provides a high-level overview of staking in single-sided liquidity pools on bancor.networkhttps://medium.com/media/d7ac7a07299bff6a05f8826770f23169/hrefContents:Single-Sided LiquidityImpermanent Loss ProtectionLiquidity Mining RewardsSummary:Compared to other AMMs, Bancor protocol offers several unique features to LPs including […]
The post provides a high-level overview of staking in single-sided liquidity pools on bancor.networkhttps://medium.com/media/d7ac7a07299bff6a05f8826770f23169/hrefContents:Single-Sided LiquidityImpermanent Loss ProtectionLiquidity Mining RewardsSummary:Compared to other AMMs, Bancor protocol offers several unique features to LPs including single-sided exposure and impermanent loss protection.These features are designed to generate higher, more reliable yield from swap fees & liquidity mining rewards.1. Single-Sided LiquidityA user may provide liquidity to a Bancor pool with a single token and maintain 100% exposure to the token. In contrast, other AMMs require LPs to take on exposure to multiple assets. With single-sided liquidity, LPs can stay long on a single asset and collect HODL returns, while earning swap fees and mining rewards.Swap fees auto-compound in the pool and are paid in the tokens staked, while rewards (discussed below) may be manually re-staked to the protocol in a single-sided fashion to compound yield.How it works:Provide liquidity to a pool in the risk asset (e.g., ETH, WBTC, LINK) or in the Bancor Network Token (BNT).To support single-sided, non-BNT deposits, the protocol co-invests BNT in its pools to match user deposits. For example, a user deposit of $100K LINK triggers $100K of BNT emissions by the protocol into the LINK pool.Protocol-invested BNT generally remains in the pool earning fees until the associated stake (i.e., user-deposited $100K LINK) is withdrawn, at which point the protocol burns the BNT it had invested and its accumulated fees.Protocol-invested BNT may also be burned if a BNT holder provides their BNT to the pool. In this case, the user-deposited BNT takes over the protocol’s position in the pool, burning an equal value of protocol-invested BNT.2. Impermanent Loss ProtectionImpermanent loss (IL) occurs in AMM pools when the prices of the tokens in a pool diverge in any direction. The more divergence, the greater the IL, reducing an LP’s profits from swap fees & rewards.Bancor v2.1 removes IL risk for LPs and transfers it to the Bancor protocol, which aggregates and backstops IL risk across its pools. The protocol uses fees earned from its co-investments to compensate for the network-wide cost of IL. While some pools may have high IL & low fees, others may have low IL and high fees. If there aren’t enough fees to fully compensate an LP’s IL at the time of their withdrawal, the protocol mints BNT to cover the delta.How it works:When a user makes a new deposit, the cover offered by their insurance policy increases at a rate of 1% each day the stake remains live, and matures to full coverage after 100 days.After this period, any impermanent loss that occurred in the first 100 days or any time thereafter is covered by the protocol at the time of withdrawal.Withdrawals prior to the 100-day maturity are only eligible for partial compensation. For example, withdrawals after 60 days in the pool receive 60% compensation on any impermanent loss incurred.There is no IL compensation offered for stakes withdrawn within the first 30 days; the LP is subject to the same IL they would have incurred in a standard AMM.This means that even if a token moons in price, an LP is entitled to withdraw the full value of their tokens as if they held them in their wallet, so long as the LP has accrued full protection. For example, if an LP stakes 1 ETH, and the ETH price doubles, the LP can still withdraw at least the equivalent value of 1 ETH back, plus fees & rewards.3. Liquidity Mining RewardsPools may be selected by the BancorDAO for the BNT liquidity mining program. Current pools in the BNT liquidity mining program include: ETH, WBTC, LINK, USDC, DAI, USDT, YFI, SNX, AAVE, UNI, GRT, ALPHA, REN, ENJ, OCEAN, ROOK, MATIC.View real-time APYs on bancor.network, and historical APYs on Dune.How it works:Each selected pool receives a fixed emission of minted BNT tokens, which are shared by the pool’s LPs.Pools are initially voted into the program for a minimum of 12 weeks of rewards, after which the DAO may vote to extend rewards on a pool every 30 days.LPs may re-stake their rewards single-sided to the same or a separate pool to compound their yield.Helpful screens:The LINK pool above on bancor.network displays in the “Rewards” column the annual percentage returns from BNT mining rewards (paid in BNT) and in the “APR” column the APR from swap fees (paid in LINK).For each individual LP position, the bancor.network portfolio manager (in the “Protection tab) displays:“Initial Stake” — the total number of tokens initially staked“Protected” — the value of your position as if it has achieved full 100% protection“Claimable” — tokens available for withdrawal now. If IL has occurred, and the stake is less than 100 days old, Claimable will be lower than ProtectedFees, rewards, ROI, APR and IL insurance accrued per positionResourcesSingle-sided staking guideFAQs & Bancor WikiVideo tutorial here & explainer video herev2.1 Economic analysisBancor Dune AnalyticsSmart Contract AuditsBancor v2.1 Staking for (DeFi) Dummies was originally published in Bancor on Medium, where people are continuing the conversation by highlighting and responding to this story.
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