TLDR It has been more than three months since we deployed our Mainnet protocol owned liquidity. We have witnessed substantial sell pressure move the price into the lower buyback range and back into the active range. The ranges have performed as expected and we recommend making no changes at this time.
This post is a followup to our deployment of protocol owned liquidity (POL) on Sept 29, 2022. For previous discussion see A Foundation for Protocol Owned Liquidity
Reviewing the ranges
The red line in the chart below shows the current price of POOL and the blue bars represent liquidity depth.
#1 - To the left we see the diversification range which currently is all POOL and out of range.
#2 - Moving right the wide tall bar shows the overlap between the diversification range and our active trading range.
#3 - The primary trough in the middle is our active range, where the price currently resides.
#4 - To the right there is an increase in the depth of liquidity where the active range overlaps with the buyback range.
#5 - To the far right is the buyback range, currently all in WETH.
From: Q1 2022 POL Analysis - Google Sheets
With price lower than initial deployment the protocol has accrued 47,732 POOL across the POL positions. With 29.35 less WETH the result is an average buyback price of 0.000615 WETH / POOL.
The Mainnet POL has generated 2,949 POOL and 1.33 WETH in fees. These fees are not providing liquidity and are dispersed across the ranges. Annualized the fees provide around a 5% return.
Deployment Sept 29th - POOL $1.01 or .00075293 WETH / POOL
Report Captured Jan 18th - POOL $.789 or .00051606 WETH / POOL
The chart below shows the price going lower into the buyback range and recovering into the active trading range. Between .0004 and .0005 WETH / POOL the buyback and active ranges overlap.
Supporting the POOL token
Below the active range the slippage for the token increases. This means that trading moves the price quicker. Net buying pushes price back towards the active range. There is also less support for selling and below the buyback range there is no support. This is by design and sets a floor where the treasury is willing to buyback POOL and support trading.
With the current price being in the overlap of the buyback and active range it’s a sweet spot of support for token trading - providing a cushion before falling into the buyback range and liquidity for buyers. With price appreciation we have the same setup inverted going into the diversification range.
This quarter we saw circulating market cap go below treasury value. We do not see a risk of a 51% attack. Treasury value looks to be an area of support for the token and lines up pretty well with the bottom of our active range, depending on ones approach to value the treasury.
We have discovered an error in the initial deployment of POL that can be attributed to the Uniswap UI. Essentially the liquidity was added with the intention of having the lower bound being price = 0 but it deployed at .000377 WETH/POOL. This deployment issue occured on our TWAP protection range where the intended price is zero to infinity. Given the current state of the token there is no concern of an attack at this time and no immediate action is necessary to mitigate this error. https://twitter.com/underethsea/status/1612558468317347840?s=20&t=js3wLSLwopsxidMQlt7fuw
We have added a dashboard to monitor protocol owned liquidity at Pool Together V4
We are happy with the Mainnet protocol owned liquidity as deployed. The liquidity has been in range since deployment and acts as a solid foundation to support trading. In the process the protocol is generating fees from trading. If price falls significantly below treasury value it is possible we will no longer be supporting token trading. This is an expected outcome. Conversely, if price excels beyond our range we will have diversified the POOL treasury deployed as POL into ETH. By looking at performance thus far we come to the conclusion and advise that no action is needed at this time.
Please don’t hesitate to ask questions, share feedback, or express concerns.
Post author: @underthesea
Thanks to @bravenewdefi and @lonser for help in putting together this post.