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.