Great proposal, @Leighton ! Thank you for starting this discussion.
While the proposed Treasury Management Committee has not yet been formed, the proposed members wanted to weigh in with an opinion and provide some additional insights for the PoolTogether community to consider when reviewing this proposal.
Other protocols have benefited from using Olympus Pro to sell bonds and add protocol-owned liquidity to current treasury holdings. Alchemix discussed their bond sale in AIP-21, and any community members interested in reviewing their discussion can read the relevant forum post.
After discussing the Olympus Pro LP Proposal internally, we believe PoolTogether would greatly benefit from a bond sale.
Rationale
- A bond sale that targets liquidity where it is deepest and where we offer the greatest incentives (Uniswap V2) benefits the protocol in the long run.
- Through a bond sale, PoolTogether would diversify into ETH and earn trading fees on POOL buys and sells. With protocol-owned liquidity, our treasury would benefit from short-term traders.
- With Uniswap V2 positions, we essentially buy more POOL as the price of POOL vs. ETH declines and further diversity into ETH as the price of POOL vs. ETH increases. All the while, the treasury will earn trading fees.
- Through a bond sale, we give current LPs a choice: are you more bullish on POOL long term vs. short term? If so, sell your liquidity to the treasury for discounted POOL.
- Establishing a DAO-to-DAO relationship with Olympus could prove to be very beneficial long term. Inter-DAO collaboration is crucial, and working with Olympus on a bond sale would strengthen our relationship with their community, while adding POOL to the Olympus treasury.
If PoolTogether uses Olympus Pro for the bond sale, it would further align incentives between our communities if PoolTogether could add a 3.3% reserve rate on the OHM prize pool, as @brendan has already proposed in this response. Olympus would have POOL in their treasury, and PoolTogether can earn OHM to hold in the treasury reserve.
Any scenario where PoolTogether buys ETH and supplies our own liquidity would cost more when time, resources, fees, etc., are taken into account. This approach would also take longer, as we wouldn’t want to sell large amounts of POOL at once to acquire ETH.
With any other approach, we’d still be discussing the sale of POOL to facilitate the same outcome. Using Olympus Pro to execute a bond sale would be the most cost effective short-term solution with the added benefit of a stronger relationship with the Olympus community.
Review of Uniswap V2 Incentives
Below is a breakdown of current incentives over the next 6 months (182 days).
While current Uniswap V2 incentives will expire in ~14 days, we can use the existing 300 POOL per day to evaluate the expense in terms of POOL over 6 months.
300 POOL x 182 days = 54,600 POOL
Assuming we kept incentives at 300 POOL per day, the impact of a bond sale would be:
Lower bounds w/ 14,000 POOL used to buy bonds: 40,600 POOL / 182 days = ~223 POOL/day
Upper bounds w/ 20,000 POOL used to buy bonds: 34,600 POOL / 182 days = ~190 POOL/day
If incentives were lowered to 250 POOL per day, the impact of the bond sale would be:
250 POOL x 182 days = 45,500 POOL
Lower bounds w/ 14,000 POOL used to buy bonds: 31,500 POOL / 182 days = ~173 POOL/day
Upper bounds w/ 20,000 POOL used to buy bonds: 25,500 POOL / 182 days = ~140 POOL/day
If PoolTogether used a bond sale and sold POOL in exchange for LP tokens, the protocol could reduce emissions by at least 25% over 6 months. With a further reduction of 50 POOL/day in incentives, the protocol could reduce emissions by at least 42% over the next six months.
As a trade off, PoolTogether would be selling 14,000 to 20,000 POOL in the short term to any current LP holders or opportunistic community members. Current LPs don’t have to sell LP tokens for POOL.
Why a Bond Sale Makes Sense
Let’s assume a few things:
Discount Offered to LPs: 5-8%
Olympus Pro Fee: 3.3%
At 14k POOL
Olympus Fee: 462 POOL
5% Discount: 700 POOL
8% Discount: 1,120 POOL
Total LP Owned at 5% + 3.3% = 12,838 POOL worth of LP (~6.34% of Uni V2 Liquidity)
Total LP Owned at 8% + 3.3% = 12,418 POOL worth of LP (~6.13% of Uni V2 Liquidity)
At 20k POOL
Olympus Fee: 660 POOL
5% Discount: 1,000 POOL
8% Discount: 1,600 POOL
Total LP Owned at 5% + 3.3% = 18,340 POOL worth of LP (~9.06% of Uni V2 Liquidity)
Total LP Owned at 8% + 3.3% = 17,740 POOL worth of LP (~8.76% of Uni V2 Liquidity)
Instead of dripping POOL and having farmers sell POOL with no added benefit to the PoolTogether community, we can use existing POOL allocated for liquidity mining incentives to purchase LPs and benefit from short-term traders.
Owning liquidity is a long-term bet that trading fees will outpace the cost of a bond sale, and it allows us to reduce POOL incentives over time.
Protocol-owned liquidity is subject to impermanent loss, but if the price of POOL declines, the LP position rebalances to buy more POOL and sell ETH to achieve a 50/50 ratio. As the price of POOL increases, the LP position sells POOL to diversify into ETH. In either scenario, it’s a benefit for the treasury.
We encourage the community to discuss this proposal, but we are in favor of using Olympus Pro to add Uniswap V2 liquidity to the PoolTogether treasury.