Calling on bakers to disable Liquidity Baking

Philosophy and Economics
1

DeFi is necessary for generating transactions on the network and burning network coins to pay network fees, but since the XTZ/tzBTC pool introduces more inflation in the form of protocol subsidies (2.6 million xtz per year) than burning swap fees and network fees, I demand that the protocol developers restructure the pool so that the subsidies stop and swap fees are transferred to liquidity providers instead of burning them, as is done in normal DeFi.

In the meantime, we should vote OFF so that the developers will finally pay attention to this.

LB is like an endless Applefarm, but at least Applefarm wasn’t inflationary and ended.
Such support is useful initially for advertising and promotion, but on a permanent basis, it’s absolutely harmful.

Protocol subsidies creates artificial liquidity that brings no economic benefit to the network. The liquidity of any pool must be regulated by market conditions, which must be created. It’s also worth noting that maximum liquidity is limited by LB yield.

As an alternative, I can suggest liquidity providers seeking a higher APR than staking to create a loop using stXTZ on Superlend, which also offers the ability to deposit XTZ as collateral and borrow stablecoins and other assets.

If anyone is hearing about LB for the first time, it was added with the Granada protocol 4.5 years ago, at the dawn of DeFi on Tezos, as a rather silly attempt to attract funds to the XTZ/tzBTC pool.

Over these 4.5 years, almost 12 million XTZ were minted, which went to a small circle of people who provided liquidity to this pool, and you must understand that all these XTZ could not help but put pressure on the price of XTZ.

Liquidity Baking contract address (Sirius DEX):

https://tzkt.io/KT1TxqZ8QtKvLu3V3JH7Gx58n7Co8pgtpQU5/operations/

Here you can see that 0.5xtz minted in each block for this pool.

7 Likes
2

LB didn’t attract new users, and the results of the experiment are clear. While I was optimistic initially, it’s now evident that the costs outweigh the benefits for Tezos.

6 Likes
3

+1 here.

It’s time to sunset it.

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We’re in a situation where we were all hoping for LB to be a resounding success. It wasn’t. The ecosystem’s DeFi instruments and tooling have moved on to Etherlink/L2. Time has passed and now we need to take a look at what has happened to reassess our approach.

Tezos has been subsidizing tzBTC (and only tzBTC) to the tune of 2.6M tez per year for a few years. There isn’t enough liquidity in this pool to do anything substantial. We would have been better off just buying BTC with the subsidy.

I invite everyone to read the history of how LB was instantiated and specifically read about the evolution of the escape hatch.

image
image1631Ă—805 198 KB

(source: https://tezos.systems)

We definitely started with an impossible escape hatch and evolved it into a neat signaling mechanism. But Jakarta simply didn’t go far enough. The way things look now, we needed to lower the LB signaling mechanism even further, to turn off at a lower %, and make the proponents of LB work FOR CONTINUING the subsidy rather than making opponents work FOR STOPPING the subsidy.

Tezos governance keeps going and bakers keep approving proposals that don’t have contention without issue, thank goodness! But bakers will not proactively look into how LB is doing and further, bakers will conclude that their time is more valuable than whatever 2.6M tez thing may or may not be working for Tezos. We are not in a place in time (i.e. crypto down, Tezos down-down) where doing research and decisions by way of per-block voting makes most of bakers’ lists. And even with this rampant apathy, we are still lucky to have these bakers continue with us.

The whole apathy issue is a separate but very closely related one. We had a whole bunch of excited, proactive bakers with lots of passion and perhaps a few bad ideas. Instead of redirecting their excitement, we beat it out of them to the point where they either departed or stopped checking on Tezos other than seeing when it’s time to push the vote button.

Maybe one day LB will be turned off because enough bakers take up the cause. But that doesn’t erase the conclusion of our own experience. LB is impossible to turn off just as the market is at its worst, when it really matters. Those who benefit get the rewards and those who stand to lose have much bigger pain elsewhere to care about LB.

It’s time to evolve the concept of LB with Tezos X in mind and make it make a bigger difference where it matters. The only way this will happen is through a protocol proposal. Let’s keep Tezos the protocol of evolution, not the protocol of stagnation

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Information for delegators and stakers:

Your baker must set the LB toggle position (there are three positions: ON, OFF, PASS), which can be checked on the TzKT page in the block baked by your baker or on a dedicated vote tracking site https://purplematter.com/lb/

If you also believe the LB needs to be disabled, request this from your baker or find another baker who has set the LB toggle position to OFF.

Here’s an example of how vote check on TzKT:

https://tzkt.io/11987153/info

OFF
OFF281Ă—605 51.8 KB

1 Like
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I disagree, it’s the only pool with decent liquidity.

As for inflation it burns part of the fees to offset it, and it’s probably why it has not seen big growth, half the fees get burnt, your pool return get stunted.

I’d say remove the burning of fees.

And to be honest, using the LB to minimize my losses due to the loss of value that xtz has had. Without it, XTZ is pretty a financial entity. I would bail at that point.

7

It’s clear why you’re against disabling it. You’re earning money on the LB. I think everyone who chose ON is earning money on the LB, but this is harmful to all other holders and bakers. Anyone who wants a higher APY than staking should consider loop stXTZ in Superlend as an alternative to earning money in the LB pool.

We need to lure some delegators to deposit XTZ into Superlend so that everyone who wants to can have enough XTZ to make loop stXTZ.
This will help increase the number of XTZ staked.

I suggested to the Superlend team that they change the interest rate model for XTZ:

Superlend
Superlend1313Ă—557 71.3 KB

and also consider making their fees as low as possible (the difference between Deposit APY and Borrow APY).

I suggested they contact TF for sponsorship to reduce fees or remove them completely for all assets, or at least for XTZ.

Applefarm cost $6 million, which could have funded the Superlend team for a loooong time.
Applefarm was an expensive and extremely ineffective advertisement for Etherlink DeFi.

It would be better to use this money as initial reserves for assets in Superlend, sponsor a team to minimize their fees, and hire several people who would move around various trading chats on different networks and discuss low borrow interest rates, high deposit interest rates, than in other popular lending platforms, such as Aave and other opportunities available in Ethelink DeFi.

8

That’s the thing, I did not make money, I stave off some of the loss from xtz value drop.

My point is that for DEFI, there are no other pool with as much liquidity. That tezos needed to go ethereum emulation to survive is telling. People are free to vote for or against it. I think we need more DEFI, unfortunately the ecosystem is weak.

9

In a normal DeFi, liquidity providers should earn money from swap fees.

It is necessary to create conditions for the swap in the pool to occur frequently and generate a sufficient number of swap fees to earn money for liquidity providers. What is the point of a pool where swaps rarely occur?

10

Half the fees are burnt, so to alleviate the inflation, remove the subsidy BUT also stop burning the fee. At least it would keep the pool viable.

Swap are more frequent than less liquid pool (not talking about the farming scam pools)

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Yes, the tzBTC/XTZ pool should be converted into a classic pool that generates income from swap fees. Therefore, protocol development teams should pay attention to this and change their attitude towards LB.
As for farming pools, they aren’t always scams. I suggest you take a look at the pools in Curve Etherlink:
mBASIS/USDC
mRE7/USDC
mTBILL/USDC
mMEV/USDC

12

All these so far have been low liquidity. Farming that gives some un-tethered token, not from pool revenu but inflation of said pool token, is a scam. If the pool token increase only based on fee revenu, then it’s not farming.

I pushed at the time for burning the fee to be revenu neutral. I did not fully understand the goal needed for the experiment. And IMO it was a mistake stunting the pool liquidity growth .

In tezos there are not many pool with liquidity that you can trade at a decent level. And yes the transaction in the pool are low, in frequency, too low. It still is the only option to trade in the 10k xtz range without getting destroyed by slippage.

13

Study the Midas token yields and you’ll see that they’re not a scam. They’re income-generating tokens from various organizations that use investors’ funds in their own profit-generating strategies.
I’ve never personally used the tzBTC/XTZ pool. I use the XTZ/USDC pools on oku.trade. Recently, I was buying and selling around 50,000 XTZ with little slippage.

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I trade in BTC as much as possible, better value retention long term. And USDT seem to have decent liquidity. In BTC there’s nit that many option other than LP.

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Check out oku.trade, where you can trade the WXTZ/WBTC pair with a little slippage.

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I’ll make this simple. If you want to keep funding mine and Baking Bad arbitrage bags (mostly theirs, as my share is only like 2-3% of total volume) at expense of yours, just relax and keep doing nothing for next ten years.

2 Likes
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I’ll make it simple, there are very pool with liquidity, that was the first, and no one owns it. Good luck with yours. Make the proposal if you wish, we voted on it, repeatedly. I would make the point remove the burning of the fee.

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There’s no point in this pool if it’s inflationary. If you want to exchange XTZ for BTC, go to oku.trade or CEX.
DeFi is needed to generate transactions on the network and burn the network’s coins for fees, but since an LB pool introduces more inflation than burning, I don’t think such a pool is necessary.

It’s been 4.5 years since the LB pool was created and there have been no positive changes, so the LB subsidy needs to be eliminated and the XTZ/tzBTC pool needs to exist independently without subsidies.

After the subsidies are cancelled and some liquidity providers leave, let TF add liquidity from its reserves to this pool. What’s the problem?

19

Part of the fee are burned to offset inflation, trading with oku, uses the lb for the trading btc (ztz to tzbtc). Making my point. End the subsidy as long as you modify it to no longer burn the fee. It has enough funds to carry on. But IMO it’s not the problem it’s made out to be.

20

We’re already starting to say the same thing.
I’m saying that in normal DeFi, liquidity providers make money from swap fees, so let the protocol developers redevelop the pool. I demand that subsidies be eliminated, with swap fees being transferred to liquidity providers instead of being burned.