[PASSED] BIP-10: BitDAO Owned Liquidity for $BIT

This proposal is authored by cateatpeanut of Windranger Labs.

Background

The SushiSwap Onsen rewards are expected to expire on 2022 April 26th. After this the $BIT-ETH pool on SushiSwap will no longer be incentivized by $BIT rewards, which may lead to a decrease in the $BIT-ETH LP (liquidity provider) amount.

Proposal

  1. For the BitDAO Treasury to provide liquidity for $BIT on DEXs.
  2. Initial setting shall be approximately $60M Uniswap v3 BIT-ETH full range with 0.3% swap fee.
  3. DEX selection and settings can be adjusted via subsequent BitDAO proposals.

Execution

$BIT and ETH shall be transferred out of the BitDAO Treasury, sent to a trusted operator for BIT-ETH LP creation, and returned to the BitDAO Treasury.

Analysis

Why do we need DEX liquidity?

  • To provide avenues for DeFi users to trade $BIT.
  • To interact with DeFi protocols.

Why should BitDAO Treasury provide liquidity for $BIT?

  • The BitDAO Treasury has surplus $BIT and $ETH assets that are not currently utilized.
  • Current Sushi Onsen rewards for the $BIT-ETH pool are set at 100,000 $BIT units per day. By providing its own liquidity, BitDAO can reduce the costs of incentivizing liquidity. Subsequent incentivization of liquidity can be proposed later, especially in support of future BitDAO DeFi partnered projects.
  • For further details on the benefits of “protocol owned liquidity”, there are good articles from OlympusDAO, including:
    Basics - Olympus
    Introducing Olympus Pro. A paradigm shift in the way protocols… | by OlympusDAO | Medium

Why Uniswap V3?

Based on analysis of Ethereum Layer1 DEX volumes and users, Uniswap v3 has the highest trading volume and users. Other contenders are Uniswap v2 and SushiSwap.

Depending on strategic opportunities with other DeFi protocols, especially around structured products, we may propose to move the liquidity to another DEX.

Why Full Range?

Uniswap V3 allows the liquidity provider to quote a narrower range “concentrated liquidity”. For more information, read this Uniswap V3 Article.

However, a concentrated liquidity position is not recommended for the BitDAO Treasury as: 1) suffers increased impermanent loss; and 2) prices may move out of range and it is difficult for BitDAO to actively manage the position (as proposals take more than 2 weeks).

45 Likes

Hi BitDao! Curtis here from the Partnerships Team at Balancer Labs. We’ve been following your protocol for a while and are big fans!

First of all I personally am very pleased to see you all thinking forward and advocating for Protocol Owned Liquidity. It solves one of the most pressing needs in DeFi for fair launch platforms (How can I guarantee long term liquidity for my token without renting it for years via LM incentives?). However, I’m not sure that using UniV3 (or any 50/50 pool) is the best option.

UniswapVBalancer

50/50 Pools, while extremely well known and recognizable in DeFi have shown to have several shortcomings. Namely those based around Impermanent Loss and preserving upside for Liquidity Providers.

What I recommend instead is to open a BalancerV2 80/20 pool, with 80% in BIT, 20% in ETH. What this will do is protect BitDAO itself from Impermanent Loss as well as preserve upside exposure for BitDAO while simultaneously generating some significant swap fees via Balancer’s Dynamic Swap Fee and further increasing returns thanks to the recently released veBAL incentive direction program. Furthermore, based on the avg volume, it can still deliver the necessary price depth that the market currently demands via The Vault.

80/20 Pools are not the current standard in DeFi (however we’re working to help educate the ecosystem as to it’s benefits) so we are more than willing to help setup/design the pool, run simulations and assist in the veBAL incentive program.

Below is a spreadsheet with additional information/simulations we ran based on BitDAO’s current liquidity. Please feel free to play around in it or ask any questions - here.

7 Likes

Thanks for the analysis.

Will reach out to discuss.

5 Likes

This is a great opportunity to use UniV3. Uniswap is still a leading Defi project in space with proven track records.

Hi BitDAO, this is the Integral Team. We love BitDAO’s vision and plans, as well as your vision around BitDAO protocol owned liquidity!

We would like to present an alternative proposal: Instead of having a BIT-ETH pool on Sushi or Uniswap, BitDAO can consider splitting the pool between two places:

  1. 50% of the capital in the BIT-ETH pool on a traditional DEX such as Sushi or Uniswap, AND
  2. 50% of the capital in the BIT-ETH pool on Integral SIZE.

(Integral SIZE) is a DeFi primitive for TWAP execution. It allows traders to execute token swaps at 30-min time-weighted-average-price (TWAP) with zero price impact relative to price oracles provided by DEXes such as Sushi.

We show the benefits of such proposal by comparing the following two scenarios. For simplicity, we assume that a.) there is $30mm total capital for BIT and ETH, and b.) its a 50/50 DEX.

Scenario 1: Put $30mm in the BIT-ETH pool on Uniswap v2 or Sushi.
Scenario 2: Put $15mm in the BIT-ETH pool on Uniswap v2 or Sushi AND $15mm on Integral SIZE.

Under Scenario 1, a trade of $300,000 would cause 2% price impact. A trade of $750,000 would cause 5% price impact.
tvl_price_impact

Under scenario 2, traders would like to transact a large amount of BIT <> ETH can save a lot of transaction costs by trading on Integral SIZE.

  • Assuming the $15mm pool on Integral SIZE is a 50/50, a trader can execute a swap between BIT and ETH up to $7.5mm with zero price impact relative to the 30 minute TWAP based on the price oracle of either Uniswap v2, or a Sushi pool.
  • Scenario two is much more capital efficient for BitDAO and beneficial to traders who transact BIT.
  • Further, Sushi operations, treasury multi-sig, and community can interact with Integral SIZE with GNOSIS safe app.

Please feel free to look at our documentation and blogs. We would love to talk more about it if there is something interesting to you.

Twitter: @IntegralHQ

Discord: https
://bit.ly/3vFGihK

Docs: Integral SIZE - Integral SIZE

Latest Blog: https
://integral.link/post/myth-or-reality-zero-price-impact-trading-in-defi

Gnosis Safe Details: https
://docs.integral.link/size/concepts/advanced-topics/use-size-on-gnosis-safe

(Sorry had to break the links!)

3 Likes

BIP-10: BitDAO Owned Liquidity for $BIT has been officially proposed

If approved:

  • BitDAO treasury will provide liquidity for $BIT on DEXs
  • Initial setting ~$60M Uniswap v3 BIT-ETH full range, with 0.3% swap fee

:arrow_right: Cast your vote now

1 Like

I find the TWAP trading concept quite interesting and think your proposal is worth serious consideration.

3 Likes

Current net worth (of the $60M liquidity) can be checked here

2 Likes

As the old Grant Lead at Balancer, I am a bit biased, but Balancer tech and it’s TWAP are unique and the 80/20 pools have proven itself. Deff worth checking out.

At the moment I’m building with Game7, a BitDAO related project, so not just here for Balancer :slight_smile: want to see BitDAO flourish!

2 Likes

You are right, but can’t we think of forming a working group within BitDAO, to actively & effectively manage treasury?

Just to prove this point:
If there’s a working group of 3-4 dedicated team in place (that can be selected on vote, once per every quarter or so, so that there’s no necessity for voting for every trivial activity, so can aptly respond in extreme cases) :

  1. You could have chosen ‘concentrated liquidity’ option, that’s many times more effective than ‘full range’ in Uniswap V3.

  2. The result could have been that : it could have been in profits, rather than losing half its worth. It’s still at 33% loss compared to the initial amount deployed,

  3. On a simple cost benefit analysis, even after subtracting expenses incur for paying ‘the suggested’ working group, NAV could have been close to break even.

  4. Such a specialised working groups, could have been used to pick up some valuable assets at such mouth watering valuations, thanks to bear phase we have been in for last two months.

I guess, BitDAO, being the first of its kind, can set out to leverage technology, and human talent at its disposal, for better results, aka Maximising Treasury.

Request all the concerned to think over.

2 Likes