Bootstrapping liquidity for renZEC on Binance Smart Chain

Hey everyone, we at the Ren team have created a grant proposal on ZF Grants, with the goal of using funds for bootstrapping liquidity on Binance Smart Chain. The grant and details can be found here:

Would be great to hear folks thoughts.

Right now anyone can wrap Zcash on Ethereum and Binance Smart Chain through RenVM (using this site: RenBridge 2.0), with the Ethereum support being live since summer last year, and Binance Smart Chain going live last year.

Zcash already has some liquidity on Ethereum, and is beginning to get some proper DeFi integrations. At the same time Ethereum is pretty congested right now, with standard contract interactions on Ethereum (like trading on Uniswap) regularly costing ~$50, which is debilitating. So we don’t think it’s necessary to spend funds on bootstrapping more liquidity on Ethereum at the moment.

But for Binance Smart Chain, which does not have many integrations yet and almost no liquidity for renZEC, and where gas fees are neglible (~$0.1-0.5), we believe there is a perfect opportunity now for getting the ball rolling for ZEC utility in the Binance Smart Chain ecosystem. It’s a primarily Asian ecosystem, but we also forsee a part of the Ethereum DeFi users going over to BSC while the gas fee situation is as it is.

We will likely be able to get some matching of liquidity mining incentives on the protocols we decide to provide incentives for, through the teams responsible for those protocols.

8 Likes

This makes sense to me.

The one piece I don’t fully understand is where the $7500 number comes from, what counts as success here, and whether $7500 is likely to be sufficient.

That is, is this an experiment where the $7500 will probably not solve the problem, but will give us some data on the budget needed to get things going? Or is there some experience you’ve had that leads you to believe this will be enough to achieve a meaningful impact? And what’s some measure of the impact you want to achieve?

I get the direction you’re pushing in but it would be great to see some basic metrics attached to this. One way to articulate that would be something like “A user should be able to trade $10, $100, or $1000 ZEC to BTC (or vice versa) via Ren and BSC with minimal fees, for the next 6 months.”

4 Likes

Also, this is just a general question about Ren and unrelated to the proposal but I’m curious!

Does Ren let users pay the Ethereum (or BSC, or whatever) transaction fees in the native currency they’re trading? Like is there a way I could use Ren to go from ZEC to BTC where whatever Ethereum fees I pay are covered out of the ZEC I’ve given to a Ren node? Do you have any plans to do this?

Needing ETH to pay fees when going from Bitcoin to ZEC or vice versa complicates the UX for wallets trying to use Ren as a user-friendly exchange, and also makes it more complicated to provide privacy to the user, since they now need some privacy friendly way of procuring ETH as well.

3 Likes

To be honest the $7,500 number is on the lower end even when you add matching incentives from the AMM, but I didn’t know what’s appropriate to ask for and would rather be able to get something, which always helps bootstrapping liquidity, than nothing.

What we can tell from our experiences doing liquidity mining programs previously, and observing the results of programs launched by other projects, more always work better, but cost-effective sums in terms of getting the desired effect lay in the $20k-$100k range. Intuitively the effect of the incentives are according to this pattern:
zcashLM

Of course doubling incentives from $100k to $200k would increase how much liquidity comes in, but there would also be more potentially leaving when the temporary incentives dry up leaving only the trading volume incentivizing the liquidity to stay. If the ‘natural’ volume isn’t high enough to make it profitable for the current amount of liquidity to stay, some of it will move. And $100k would likely provide a similar desired effect over the long-term as $200k would.

But even smaller values have worked in practice, the $20k-$50k is sufficient to bootstrap liquidity in new protocols/pools.

So given that we’ll likely be able to get matching from whichever AMM we want to deploy the liquidity mining program on, a $10k grant from the Zcash Foundation would turn to $20k which is likely ‘good enough’ to create sustainable growth. But looking at what the sizes of grants that have been given out previously, it felt a bit much asking for $10k, so lowered it a little. But if Zcash Foundation is willing I would definitely say that a little more could significantly improve the outcome.

3 Likes

Yes gasless transactions are 100% possible and the designs for that have been ready for a long time, we just haven’t implemented it yet on Ethereum because gasless transactions would require a transaction through something like Uniswap to trade part of the sent ZEC to ETH to cover the gas expenses, but this itself costs significant amount of gas which on Ethereum is currently and has been for a long time very expensive, at today’s prices we are talking about it costing an extra ~$100 on top of the other minting costs going through RenVM.

On Binance Smart Chain gasless transactions would work, we would only need to bootstrap some liquidity pools first so there is a way to trade ZEC to BNB in that case to cover the gas expenses. Because if there are no liquidity pools, there is no way to automatically convert ZEC to BNB to do the gasless transaction.

2 Likes

One guiding principle for me is that expertise and attention (especially engineering time) will usually be the bottleneck for Zcash, so we should be comfortable spending money in exchange for more efficiency for engineers.

In this case it seems like spending more (Would a 20k grant be matched 1:1 by the AMM?) would give us a less ambiguous result. If you think it makes sense to try a lower amount first, we could stage funding in milestones. But it seems best to do the thing we think will most likely work, verify that it did, and move on to other things!

It also seems like incentivizing liquidity for ZEC <-> BNB makes sense here, at least as soon as you have an implementation for gasless transactions.

As far as whether follow-on grants of this sort will be needed, you’re saying that typically once there is proven demand for a trading pair, the liquidity providers are properly incentivized to show up, and you don’t need this incentive, so there’s a good chance that follow-on funding to maintain the functionality of this type of exchange won’t be necessary?

2 Likes

Also, I’m curious — @iBek @NighthawkWallet and @adityapk00, would you use this “gasless transactions” feature for doing BTC <-> ZEC with low fees using Ren on Binance Smart Chain, if the feature existed?

That is correct. While one always could pump the liquidity of an asset in a protocol through extra incentives, the sustainable path is doing incentives only in the beginning to help that initial liquidity form, which allows traders to begin trade through that liquidity (if these traders exists, and marketing is important here as well to make sure people become aware), which pays the liquidity providers trading fees, which makes sure they stay. And then complex system dynamics take over where liquidity, volume, and other opportunities influence each other.

But without the initial incentive, it is very hard to ever get that initial liquidity forming as there isn’t any expectation of receiving trading fees.

2 Likes

Also to provide some extra context in general about what our (Ren) roadmap is in general and how ZEC fits in:

  • Our goal with RenVM is to have an interoperability network that can bridge all major blockchain platforms now and in the future, especially those that enable DeFi ecosystems. For every new blockchain platform we integrate, we will push for ZEC integrations. We foresee Ethereum to remain the King of DeFi for a very long time (and perhaps even for as long as we can look ahead), so Ethereum is our primary focus when it comes to nurturing liquidity for the assets we bridge.

  • The reason we target Binance Smart Chain such as in this proposal, is because it is the next platform after Ethereum with the most active ecosystem, mostly due to Binance being the behemoth it is and pushing in and helping grow liquidity there. It is also more Asia-centric so we do get overall more exposure to more users by pushing ZEC on both Ethereum and BSC, it does not split liquidity that much we believe. BSC also has allows for everything Ethereum does but at cheaper transaction costs (at the centralization tradeoff), which is useful specifically for trading and complex DeFi interactions.

  • But when we launch on Solana, Fantom, Avalance etc., we will also push for ZEC liquidity there. Over time as the whole crypto ecosystem matures, we’ll likely see some platforms get bigger than others, but we can’t predict which at this stage, and we at Ren are in general neutral in terms of favoring any over another, so we’ll stay aggressive, pushing for ZEC everywhere.


And some context for how we think DeFi integrations overall typically play out:

  • The primary thing that decides DeFi integrations is liquidity and volume. Because without liquidity you can’t do most of the basic things in DeFi like enabling a lending/borrowing market, because there is no way to automatically liquidate a position if the collateral falls below a certain threshold. And without a lending/borrowing market you can’t enable a derivatives market. And derivatives markets drive a lot of volume which attracts more liquidity to the space. So for that reason the first thing to focus on when pushing for an asset in a DeFi ecosystem is building up liquidity.

  • This is why incentives to attract the initial liquidity is so important. But it is also costly, which is why any help we can get is appreciated.

5 Likes

Thanks @MaximilianR! I like the idea of bootstrapping our way up the value chain of DeFi applications.

Just so I’m clear, can i check if this is the exact flow of funds and hypothesis that you have for this grant?

Sequence:

  1. Users exchange ZEC in exchange for renZEC, as wrapped on BSC
  2. Users then send their renZEC to liquidity pools at AMMs built on BSC; this is when they start to get their “booster” ZEC rewards from this grant. (is this step right? and is the BSC ecosystem meaningful enough - i think so but how do we think about it / what stats can we refer to that are related to this grant?)
  3. These liquidity pools can then facilitate trades between (ren)ZEC and other assets e.g (wrapped)BTC and BUSD, which is critical for the success of DeFi services such as lending/borrowing (and thereafter a derivatives market)
  4. (me adding:) the Zcash groups (ECC/ZF, though obviously I don’t represent them) could approach lending protocols / derivatives platforms together with you to tie this liquidity seamlessly to the next use case. What do you think?

Is this right? Am i missing any other beneficial effect of facilitating swaps ?

PS - i like the idea of the AMM matching 1:1. Both AMM and Zcash are beneficiaries so we should both contribute. I was going to ask and then you mentioned it :slight_smile:

2 Likes

Yes that is right, a user would go to RenBridge 2.0 to get renZEC on BSC, and then just as an example if we went with 1inch’s AMM pools to providing the liquidity incentives, which is the most popular DEX aggregator on Ethereum and also deployed on BSC, you’d deposit renZEC in their renZEC/BNB pool using this UI to start earning both trading fees and the “booster”:

And we’d obviously provide proper guides for how to do these things when it would be live.

This liquidity would be critical to facilitate the growth of other usecases such as lending, derivatives, yield farming, users getting easy access to shielded pool privacy by releasing back to native ZEC etc.

Zcash groups could help down on the ground interacting with DeFi protocols to get integrations but liquidity and volume is what matters the most, so in a way it’s more useful if Zcash groups help raise awareness within the Zcash community, while we at Ren who work with many DeFi projects already can help get the proper governance proposals up if that is needed, or simply approach other projects in a business development kind of way to help get ZEC integrated.

This is helpful. Thanks!

If the DeFi platforms are interacting with renZEC (not ZEC), why do you say the Zcash teams should help with (technical?) integrations onto those platforms? Excuse me if this is a basic question!

1 Like

Ah haha sorry for being unclear. So you asked if Zcash groups need to approach these DeFi projects to get more integrations, and I meant that sure that is always helpful, but it’s not “mandatory” for success, as we at Ren and the Ren community will reach out to DeFi projects to get more integrations for ZEC. And liquidity speaks louder than words, so what’s most helpful is if Zcash groups simply raise awareness within the Zcash ecosystem, instead of having to do business development with tons of DeFi projects, which we at Ren will be doing anyway.

2 Likes

ok, clear, thanks!

@MaximilianR, I have the pleasure of representing the ZOMG in informing you that we have unanimously approved the grant application! We are very keen to grow ZEC’s representation in DeFi and this is certainly one well-structured experiment. Thank you for reaching out.

Please watch out for admin items in your inbox as the grant gets put through the usual admin process.

Could we request that you post updates on this thread (or via email/DM for sensitive items), so that we can track how things are going and see where/if we should invest more?

6 Likes

Fantastic news! :grin:

The immediate next steps we’ll be taking is negotiating with one or two AMMs to launch a liquidity mining program for renZEC on Binance Smart Chain.

We’ll target a renZEC/BNB pool, because most assets on BSC have liquidity pools paired with BNB, which means BNB can be used as the bridge asset in any trade on BSC. E.g. if you have renZEC and would like to trade that against one of the different USD-tokens, instead of creating a specific renZEC pool with that USD-token, having to bootstrap liquidity for that specific pool, you’ll trade renZEC → BNB → USD because there already exists liquid BNB/USD pools. And to make it clear, the exchanges take care of that routing for users, so the user experience is always simply trade renZEC for USD. And similarly if you want to trade renZEC for BTC, there are liquid BTC pools with BNB, so having one single renZEC/BNB pool to focus all liquidity on will open up liquidity for everything else.

We’ll try with PancakeSwap first given that it’s the most used exchange on BSC, with most liquidity overall and most volume, and we already have an established relationship with them.

I’ll keep everyone posted in this thread, and when we reach the stage where we are ready to launch the program, coordinating around announcing that event would be extremely helpful to make it successful! :tada:

6 Likes

Does the gas fee increase as the number of pools in the route increase?

It does but we’re talking about a few cents extra on BSC

1 Like

This post was flagged by the community and is temporarily hidden.

1 Like

Hey @MaximilianR! Are there any developments you could update us with? We’re excited about this! :slight_smile:

5 Likes