Subsidized insurance to protect KNC/PAIRS from Impermanent Loss

Since DMM fees are going to be distributed 90% to LP’s and only 10% for KNC KyberDAO voters, then there is not many profits left for KNC investors unless they become LP’s. If we are going to become LP’s, then let’s give 100% of the DMM fees to LP’s, not just 90%. Also, let’s make KyberDAO, so the voters are the Liquidity providers of KNC/pairs.

So in order for original/OLD KNC investors (and new KNC investors) to become liquidity providers instead of regular KyberDAO voters, let’s eliminate the risk of IL for us, which is a huge disincentive for us to become LP’s, I propose that KNC farming pairs are protected from IL from an insurance fund which is funded by the approval of KNC minting by kyberDAO. This way, we can participate on the juicy 100% fees of DMM and become liquidity providers without the worry of IL.

2 key Advantages of IL subsidized protection:

  1. There won’t be any dilution from inflationary emission for KNC holders as long as they are providing liquidity in KNC pairs. If the KNC price goes down because of the minting of new KNC tokens, KNC holders will be the beneficiaries, because the minted coins goes to their pockets increasing their stash, this will offset any dilution due to price decrease.

  2. This will create more demand for KNC token, new investors will buy KNC to get the benefit of the IL insurance protection. This is also a good way to honor OLD KNC token holders, since we won’t need to buy anything to get those benefit because we already own KNC.

There is only 1 rule with number 1 Advantage, so inflation doesn’t become diluting for KNC holders, only KNC farming pairs are going to be insured, this is obvious because if we insure non-KNC pairs like ETH/WBTC, then there will be indeed dilution due to the subsidy because ETH/WBTC are not KNC hodlers.

We can start by insuring KNC/ETH farming pair and KNC/USDT.


I like this idea too, I’d like to put my KNC to work providing liquidity but i don’t do it because of IL risk. Maybe this is the step we need to unify KyberDAO voters and Liquidity providers? This would be a great use case for KNC, access to IL insurance, investors would buy KNC to get the benefit.

But wouldn’t KNC/ETH pair mint more KNC than KNC/USDT? I think we can only do it with 1 pair because KNC/ETH would be much more volatile and there would be more KNC minting for those providing liquidity for that pair than for those providing liquidity for KNC/USDT.

But if we do it with only one pair, KNC/ETH it would be great for me, i have both assets. Almost all KNC investors own ETH as well. I like the idea of KNC/ETH liquidity providers being the KyberDAO voters as long as there is no IL risk. With no risk of IL, this is a win-win, unification of voters and LP’s and a new awesome use case for KNC token.

That’s a horrible idea, didnt work out for bancor and wont work out here, IL protection is not feasible and self-incentivizing to be outplayed.

Bancor used this subsidy to protect ALL PAIRS, even non-BNT pairs. That created diluting inflation for BNT token holders. But here, we are only protecting 1 KNC pair, KNC-ETH and/or KNC-USD, the inflation in our case will not be diluting because the subsidy will get into the pockets of KNC holders exclusively. You can’t compare bancor failure with this idea because they were providing IL protection subsidy for non-BNT token pairs aswell, which was diluting.

If this idea is NOT diluting for KNC holders, then this is just a way for KNC holders to get into the 90% fee rewards of liquidity providers without experiencing impermanent loss, instead of just getting the 10% of the fees for voting in kyberDAO. This is how the fee pie was separated by kyber Team. Sorry, but I’d like to get into that 90% fee pie as a KNC investor, but I don’t want the IL risk.

Maybe you are not a KNC bag holder, maybe you are just an LP that don’t want KNC token holders to have that advantage or new use case over non-KNC liquidity mining because you think is “unfair”. Just buy KNC to get that advantage as well. This new use case can only create more Demand for KNC token.

So where would the capital for the insurance come from? I would also like to get 100% fees with zero risk (who wouldn’t cos its basically free money) but in terms of practical implementation I don’t think this is realistic

The capital of that subsidy would come from monetary emission, but it wouldn’t be diluting to KNC holders, because the beneficiaries that will receive that capital ARE KNC holders only, because the only pair insured would be KNC/ETH.

In this case, monetary emission would not be diluting to us by any means, if you have 10,000 KNC tokens providing liquidity in KNC/ETH pair, and due to the insurance protection, 25% of more supply was printed in a year, then you will end up with 12,500 KNC tokens at the end of the year (+ fees and mining rewards), you didn’t suffer any dilution due to the monetary emission, because you were the beneficiary. No dilution for you.

That’s the idea, only profits, here is a quote of bancor’s guy:

The problem with bancor’s IL insurance protection, is that the protocol gives insurances to ALL pairs, including non-BNT pairs. This means, it gives insurance to non-BNT token holders, which will end up diluting BNT token holders.

What I’m proposing is to only give insurance to 1 KNC pair, KNC/ETH. So the beneficiaries are only exclusively KNC token holders, this way we can participate in the BIG pie of the LP rewards, which is 90% fees to LP’s (the rest 10% of the fees goes to KyberDAO voters)

In fact, with IL protection, I would say to give 100% of the fees to LP’s, instead of only 90%. Also let’s get rid of KyberDAO voters concept as separate entities as LP’s, and let’s unify them, let’s make KNC/ETH insured liquidity providers the voters of KyberDAO.

We can start adding insurance to others KNC pairs later, KNC/USDT, KNC/MATIC, etc. We can also make KNC/USDT and other KNC PAIRS the voters of KyberDAO, instead of separate entities as it is right now.

Not to say, that this “privilege” that the KNC token will have, will create a new use case for KNC token and will create a new demand for the token in the market. People will want to buy KNC to get IL protection.

I dont agree to this at all, how would this be less of a problem just because it goes to knc holders? Its a downwards spiral, you dont seem to think this to the end.

I agree. This looks like something that’s good on paper but wouldn’t work out in real-life practice.

Let’s discuss why exactly is a downward spiral for you, I want to hear convicing arguments, not just, nah it will be a downward spiral, so please tell me your arguments.

IF the beneficiaries from this inflationary scheme are KNC holders. Inflation rewards AS LONG AS they are given to KNC HOLDERS, there is NO DILUTION, there CAN’T be any downward spiral for us.

The only downward spiral here, are the LP’s getting all the monetary inflation for them, while we KyberDAO voters only get a little. That is indeed a downward spiral that will end up diluting our investments, without letting us participate in the LP rewards program with this well deserved privilege of IL protection, we are ALREADY in a downward spiral.

This idea, can’t be a downward spiral for us, this will only drive demand to the KNC token because now it will have this new utility and people will want to exploit that new privilege/utility and buy the token.

Not sure about what are the best solutions to prevent IL. But I strongly agree with the general idea that KNC lps should also be voters and get a share of DAO rewards. it can be argued that KNC lps are adding more value than KNC holders with their tokens sitting idle. Why are KNC lps excluded from voting? they should be getting both trading fees and DAO rewards. the current DAO model needs a change.


you print tokens to cover IL, which increases IL of all pools as that affects price, which requires more token print, which causes more IL, which causes more token printed, and so on…

I don’t see bancor token going to 0 because of that same practice, also, people getting IL protection rewards, doesn’t mean they will sell it for profit, they can hodl it, which means that if people don’t sell it, it will not affect the price as you say. I remind you, this is a way for KNC token holders to be able to enter into the juicy LP rewards, which is much more than the KyberDAO rewards, but without IL risk, a well deserved privilege for long term KNC hodlers.

My recommendation:

  • keep 10% going to dao, use this instead as a treasury for using on proposals to mitigate the need for inflation.

  • as you suggested, make it so liquidity providers can vote (but don’t remove the option to vote for those that don’t provide liquidity)

  • for the insurance, set aside another 10% of all fees for insurance on impermanent loss, pairs have to be approved for this (to stop anyone gaming it)

I also only agree with this if there’s a way to make it work on layer 2 chains. Ethereum is butt hurt expensive.