A Foundation for Protocol Owned Liquidity

Introduction

Building on our Uniswap V3 deployment on Polygon, the Treasury Working Group recommends a Mainnet Ethereum solution to protocol owned liquidity. This initiative will support POOL token liquidity using the most efficient AMM in the space, and in the process generate fees for the protocol. See the following previous posts for reference.

PTIP-69 https://gov.pooltogether.com/t/ptip-69-polygon-uniswap-v3-weth-pool-liquidity/2170
POL Analysis Pt I https://gov.pooltogether.com/t/protocol-owned-liquidity-pol-analysis-uniswap-v3-polygon-part-1/2445
POL Considerations and Next Steps Pt 3

Strategy

Deploying four liquidity ranges to secure the liquidity from attacks, provide liquidity for active trading, and add support for token price movements on both sides of the spectrum. The TWG proposes creating four positions with the ranges outlined below. The liquidity will be established on Uniswap V3 mainnet WETH/POOL with 0.3% fee tier.

Range #1 TWAP protection full range

Price 0 to Infinity
Amounts 1.5 WETH and applicable amount of POOL (aiming for $10k value)

Range #2 Current active trading range

Price 0.0004 to 0.0012 WETH per POOL
Amounts 37 WETH and applicable amount of POOL (currently estimated at 90k POOL)

Range #3 One-sided POOL range

Price 0.001 to .01 WETH per POOL
Amount 200k POOL minus POOL spent in Range #1 and #2. Estimated to be ~105k POOL

Range #4 One-sided WETH range

Price 0.0002 to 0.00045 WETH per POOL
Amount Proceeds of swapping 50k USDC to WETH (currently estimated to be ~30 WETH)

Process

  1. Add @Lonser to the TWG multi-sig for this execution making it a 5/7
  2. Propose PTIP onchain
  3. Executing PTIP sends ETH, POOL and PTaUSDC from governance timelock to TWG multi-sig
  4. Exec-team withdraws Olympus Pro WETH/POOL Uniswap V2 position and sends to TWG multi-sig
  5. TWG withdraws PTaUSDC and swaps for ETH
  6. TWG withdraws WETH/POOL V2 liquidity
  7. TWG adds liquidity in four ranges as described above
  8. Liquidity will be added in described ranges and the NFTs sent back to the timelock.

Do you approve of this initiative for POOL Protocol Owned Liquidity?

  • YES I approve
  • NO and I can explain why
  • UNDECIDED I have comments / questions

0 voters

This poll will serve as a temperature check and with consensus move to PTIP

5 Likes

Thanks for this! The rationale and strategy are both very clear.

I’d like more detail on the exact holdings though; how much more liquidity does the TWG need, and what liquidity would it custody in total? I see some ETH and POOL amounts, but having some totals with the current dollar value would be helpful.

4 Likes

Before making a final decision, I have a couple questions regarding this initiative.

What is the total amount of WETH and POOL that will be withdrawn from Olympus Pro?
Do we need to swap PTaUSDC for ETH? Can’t the ETH come from the tokens that got sold recently? Which amount for about 30ETH.

3 Likes

Thank for your questions @Brendan and @Pierrick

I think what you are both looking for is similar, so let me see if I can breakdown what this looks like. Some of the numbers above are estimates because the price at the time of adding the liquidity is unknown. I will use current conditions below but exact numbers could change.

  • Our Uniswap V2 position from Olympus is 269.78 UNI-V2 currently valued $31,729.51
    This equates to 9.68 ETH and 16,700 POOL

  • The timelock holds 30.396 ETH from the recent diversification

  • We can roughly say we have 40 ETH

  • Range #1 plus Range #2 require 38.5 ETH (includes 1.5 ETH buffer for volatility between now and execution)

  • We would request ~183k POOL (+Olympus ~17k) to add to all ranges with the remainder of #1 and #2 being put into range #3 (diversification).

  • Range #4 asks for 50k PTaUSDC to swap to ETH (approx 30 ETH) for a buyback range

To Summarize

  1. 30.396 ETH from timelock
  2. 50k PTaUSDC from timelock
  3. 183k POOL from timelock
  4. Olympus UNI V2 position from Exec-Team

edited misnaming of Olympus UNI V2 position

3 Likes

Ok, so to summarize your summary :smiley: :

TWG wants an additional:

  • ~$100k split between ETH and USDC
  • 183k POOL

This will be an additional ~$283k USD of custody. The multisig is being upgraded to a 5/7.

I don’t recall the existing funds that are held by the TWG; but I assume there are some.

I think this is a reasonable ask. However, I’m cautious about the TWG having custody over much more funds than this, as this is not a reversible decision. I would like to see improvements in terms of how the funds are handled. Ideally this can be part of the TWG’s research.

That being said, I really want to see this experiment play out. I approve of this! Let’s move forward.

2 Likes

Will you use any tool to manage the various ranges and liquidity?

It may be too gas consuming on Mainnet and not ideal if we want to manage liquidity through a multisig, but InstaDapp is perfect to handle Uniswap V3 ranges: Uniswap v3 | Instadapp

1 Like

This proposal has the TWG creating the positions, but the custody returns to the timelock.

Do you think we should use Instadapp to manage our protocol owned liquidity?

The total liquidity value is about right, perhaps a little higher including the V2 position. The proposal says we will create the positions but then send them to be held by the timelock. This is distinctly different than the Polygon POL which we custody because there is no timelock on Polygon.

Custody risk is important to consider and we have proposed what we feel comfortable with which includes beefing up the multi-sig with an additional signer. Other options to consider; adding more signers, having the exec-team handle the execution, and/or executing in smaller batches. Adding liquidity to V3 is time sensitive to price movements so we cannot execute directly from the timelock and we need a multi-sig that can send transactions relatively quickly.

3 Likes

I’m using it on Arbitrum and it’s very useful to rebalance positions since they use flashloans to perform it but on Mainnet it may cost a lot of gas.

As you mentioned, custody of funds would be a problem though. The Uniswap V3 positions would live in the InstaDapp smart wallet contract and the multi-sig would be added as an Authority to be able to manage positions. So the positions would not live in the Timelock.

That being said, it would offer more flexibility to manage the positions cause once the positions will be in the Timelock, the only way to update them would be through a vote and I’m not even sure we could update them directly via vote, the positions may have to be sent back to the multi-sig that would handle the update.

2 Likes

@underthesea considering your suggestion not to go through with extending LP incentives on Ethereum, plus this post here, is your vision that PT’s goal is to have protocol-owned liquidity mainly on Polygon?

We discussed this a bit on the discord but I wanted to followup here incase other people missed it.

This proposal is specifically designed to be low maintenance and low custody risk where the NFT tokens that represent our positions are held by the governance timelock. There are a lot of things we could do with more custody risk, like managing liquidity from a multi-sig, but we are suggesting to start with this as a foundation and then we can consider other options to build our liquidity solution out further. This is distinctly different from how we handle the Polygon POL, where we do custody the liquidity because there is no timelock on Polygon.

No, this proposal is specifically for Mainnet Ethereum. Sorry if the first sentence made that a bit confusing. Note this part

I will edit to clarify “Mainnet Ethereum”

2 Likes

Perfect, then it has my full support!

1 Like