The post provides a high-level overview of staking in single-sided liquidity pools on bancor.network
Contents:
- Single-Sided Liquidity
- Impermanent Loss Protection
- Liquidity Mining Rewards
Summary:
- 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 trading fees & liquidity mining rewards.
1. Single-Sided Liquidity
A user may provide liquidity to a Bancor pool with a single token only and maintain exposure to the token. In contrast, other AMMs require LPs to take on exposure to multiple assets.
Trading 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BNT generally remains in the pool earning fees until the associated stake (i.e., user-deposited $100K LINK) is withdrawn, at which point the protocol burns the BNT it had invested and its accumulated fees.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 Protection
Impermanent 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 trading fees & rewards.
Bancor v2.1 mitigates IL risk for LPs by transferring 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. 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.
3. Liquidity Mining Rewards
Pools 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.
GUIDE:
- Go to app.bancor.network
- Connect your wallet
3. Find a pool and click the “+” button to add liquidity:
- REWARDS column: APR from BNT rewards (paid in BNT)
- APR column: APR from trading fees (paid in LINK)
3. Select the single token you’d like to stake and the amount to stake:
4. After confirming the transaction, you’ll be redirected to your Portfolio on bancor.network, where you can track each individual stake and the cumulative fees and rewards you’re earning:
For each individual stake in a pool, the bancor.network Portfolio page 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” —value available for withdrawal now. If IL has occurred, and the stake is less than 100 days old, Claimable will be lower than Protected
- Fees, BNT Rewards, ROI (Protected-Initial Stake/Initial Stake*100), APR and time until you’ve accrued 100% IL protection
