AIP5: Boosting ARCX liquidity

TL;DR

The Uniswap v3 position has been a success, not only has it increased the depth of the liquidity, it’s brought in a lot of protocol revenue. I propose to boost this liquidity to get orders of up to $100k within a 2% depth.

Problem

Now that the incentives for the sushiswap pool have stopped there has been a huge drop in token liquidity. The below chart shows the pool liquidity over time.

We need to boost liquidity.

Previously we had paid for this through liquidity mining incentives to the tune of 200 - 500k ARCX per month. This is an expensive way to effectively “rent” liquidity.

Solution

In previous discussions thanks to the hard work of @monadnoc we created the Uniswap v3 position.
Since the inception of the position (3rd August), the project has now earned almost $100k worth of fees in both ETH and ARCX.

Referencing the Dune Dashboard created by @msilb7 and the Llama team we can see how the pool, consisting of 1million ARCX to start has processed almost $1million worth of trades.

The below image indicates the uptick in uniswap volumes as the team found a stable range for the pool and the sushiswap incentives stopped.

In terms of volume, the Uniswap pool has had slightly less of the market share:

With less than half of the sushiswap liquidity (at it’s peak) this is no mean feat and gives an indication of the capital efficiency obtained through the use of Uniswap v3.

I propose we increase the Uniswap v3 position and effectively own the majority of the liquidity for the ARCX token.

Having spoke with the Llama team and utilising their expertise; the range we suggest at current prices to allow orders of $100k a 2% depth is from 0.00025 to 0.00082 ETH/ARCX. This would require the addition of 7.5 million ARCX and $500k USDC from the treasury to buy ETH.

We want to act quickly on this as the current liquidity pool is simply not deep enough. For this reason I will put this immediately on snapshot with a 22 hour window.

6 Likes

Much needed and will be voting yes.

By doing this, we also make the ARCx price a lot less volatile, meaning that it will require A LOT more capital to return to the pre-vested sale announcement price.
Have other alternatives been explored?
Balancer now has 10k BAL allocations/week that they can allocate to projects doing partnership with them.
We could have a 60/40 or 80/20 ARCx/ETH pool with dual liquidity incentive, shared between ARCx and Balancer.
Also, I don’t think 150%+ APY incentive is required to have people contribute to LP. Anything above 50% will have large participation.
Effectively, it would “cost” 25% in liquidity incentive from ARCx, which is currently less than the staking contract.
Just my 2 ARCx.

1 Like

It’s a tough one regarding volatility, but we need to have liquidity.
Balancer is a good idea and has been discussed briefly. Something akin to the AAVE model where they use BPT and stAAVE to backstop the protocol.
We could still implement this at a later date.

I would argue it’s much better for the project to own the liquidity and earn on the trading fees rather than effectively “rent” the liquidity. Especially when the project is so young. There may be other trading venues as time goes on so we should take advantage of this while we can.

The tokens are really important and will be used for future incentives when the product launches.

1 Like