POL should be price agnostic (full range v3 LP)

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I believe Pooltogether should deploy its own liquidity on Uniswap v3, spanning a price range from $0 to infinity. This ensures the protocol remains price-neutral and positions us as the ultimate “LP of last resort.” Permitting $POOL swaps of any size at any value is essential. While this approach may be costly, viewing Protocol Owned Liquidity (POL) as a backup to third-party liquidity makes it justifiable and possibly advantageous.

Optionally, implementing 1% fees could encourage users to deploy their own LPs with more favorable price ranges, leading to lower swap fees.

(Written in terrible English and fixed by chatGPT)

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Your english is fine! :slight_smile:

Can you provide more details to the proposal, and the supporting rationale? I know there are others who have expressed interest in PoL.

I like the idea that it’s full-range so that it’s zero-maintenance and the protocol can burn ownership (in the event the position is on an L2)

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My rationales are mainly two:

  • The protocol should not define a price range of the token, for good or for bad;
  • If tomorrow an actor wants to buy $3M (or any amount) of $POOL (or sell) they should be able to, even if with a slipapge price to pay;

Less important but still relevant are:

  • Low maintenance for governance;
  • More opportunity for third parties to speculate on v3 price ranges that is a legit action, but I dont feel it’s the right action for the token emitter.

In the actual situation we may see a lot of capital incoming (or leaving) and no liquidity to support the swaps if we break some price boundaries: I think we should lay a safe net blanket on every price and let the market eventually do its magic to add liquidity.

We may see a lot of swaps due to prizes conversion to other tokens and there might be people deploying very concentrated liquidity to capture that swap fees.

About swap fee tier for POL and whether to burn the LP or not I don’t have a strong idea. Up to you.

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To add some context to this discussion, the treasury currently controls 6 uniswap v3 positions of POOL/WETH. All except one has fallen out of range. These positions currently contain a total of 662,524.07 POOL and 25.1287 ETH (including rewards and inactive LP positions).

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Interesting…that’s a good point. Being out-of-range isn’t useful.

Uniswap V3 requires active management of the position and claiming of fees, which governance cannot do.

I would be in favour of pulling all of the above liquidity out and putting it into a full-range position. Perhaps even on V2, as the fees get recycled back into the liquidity.

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@mr_DvD - thanks for posting; was wondering about the same thing myself. I was surprised the other day to discover the state of POOL liquidity.

At a level of “introducing my extended family to the best things about crypto through PT”, the current situation means I may also have to explain things like slippage, impermanent loss, and why some low-liquidity tokens are definitely not scams but you should be really careful when you encounter low liquidity generally. That is, lots of stuff that… isn’t the best about crypto.

Price agnostic PoL feels like a straightforward fix - I’d like to better understand the potential drawbacks, though.

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For anyone joining the discussion: There are some valuable reports & experiments under the POL tag.

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I don’t see any drawbacks

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Hey, using a comment I wrote on the Discord mostly but think it’s good to have it here as well.
I think the details are currently not shown totally correct, the last comment says „I don‘t see any drawbacks“. The reason that the LP was deployed in ranges and the way they are is that we get much deeper liquidity that way in LP range than we would get from a infinite range. Infinite ranges are not very efficient.
I appreciate the work the TWG did when deploying the ranges and think it was the right decision to choose ranges instead of using a single 0 to infinity LP.
Saying only 1 position out of 6 are in range does not show the full picture imo, the ranges are not all made equal or fullfill the same function, this here is part 3 of the POL Analysis back then Part 3: POL considerations and next steps
We got a TWAP protection range, Concentrated in-range position and Out-of-range diversification position (100% POOL above a certain price to a high price).
(I wasn‘t active on the TWG or the report, just looking at it as an outsider)
I‘m not a liquidity expert and if people would prefer a single full range LP, that‘s fine.
At the end, it‘s a matter of preference though, I just think that the discussion is not presenting the situation correctly partially, it‘s not that we generally got bad liquidity, it just is not equally up and down, we got few liquidity down and lots of liquidity up. We could even the liquidity again by providing more down liquidity or by removing up liquidity, I‘m not totally sure if I would prefer deploying more ETH to support the price down.
Saying a full range position is price agnostic also depends on how you see it imo, if we deploy more liquidity on the current price, we support the current price up and down and kind of say that the current price is correct and worth supporting, we could have deployed a full range LP when POOL was at 10$ and would be now also in a bad spot.

I don’t have a strong opinion about the topic and would be fine with a full range LP, just wanna provide some other viewpoints here.

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Thanks for that viewpoint @Lonser. I recall that rationale.

That being said, I’m in favour of a zero-maintenance PoL full range position.

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This is my first proposal I’m not sure if there is something to do on my side, should we vote here to test the situation before creating the real proposal? Is it too early?

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I don’t think we need a poll here now (but always feel free to add now, I think one could have been in the original post, people that know me, know I’m a big fan of gov post polls ^^).
What would be helpful I think is some details what the proposal is about in regards to our current POL position, it’s maybe implied here and there but not rly written out.

We currently have a quite big POL, Poolexplorer has a quiet nice overview of that:
https://poolexplorer.win/protocol
Currently roughly 650k POOL and 31 ETH.

Do you wanna:
Add another full range LP in addition to that or

Remove the current POL and redeploy it as full range with only the current funds (which would mean there is unused POOL that would be returned to treasury because the LP has more POOL than ETH) or

Remove the current POL and redeploy it as full range with additional funds from treasury and if so how much (31 ETH are currently roughly 90k POOL, so we still got 560k POOL that would need ETH to pair with).

Also the decision what fee to choose, in the OP you suggested 1%, is that what the position should be?

Additional to that there are technical details how we do it on chain. We haven’t done any Uniswap transactions directly on chain yet and usually go the route to just send to a Gnosis Safe, do the tx and send back to treasury (probably Exec Team in this case, although I know underethsea would prefer not custody and more funds, it would be just for a short time, but would still need their approval to execute this proposal).

The proposal should also explain the why, the benefits, drawbacks and risks.
In this case this would entail stuff like, cost for the treasury if adding new funds, less upside liquidity, more downside liquidity, claiming current fees from the LPs, funds being in custody of Exec Team of a short time.

I know Governance and making a proposal can be quite complex and deciding for a concrete way is not easy but it’s usually the best way to have a working proposal and then collaboratively decide needed changes instead of trying to work out the proposal from scratch via polls with everyone ^^
Next step would probably be a real proposal with a [RFC] at the beginning in the title for “Request for comments” where a plan to execute is proposed and where people can still suggest changes, if there are no voices against, we can do a PTIP-X with the final params and vote on that! (Tbh I’m not the biggest fan of the middle step with the RFC and think some stuff can go directly to PTIP but if there are lots of changes it can make sense to still have an overview, if people edit the original post directly it’s rly hard to understand what exactly changed compared to the final proposal)

I can help with the planning and write up and appreciate you as a first timer participating in Governance and wanna make that as nice as possible! :slight_smile:

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Thank you for this long post!

My idea is to remove the current POL and redeploy it as full range V2 with only the current funds (which would mean there is unused POOL that would be returned to treasury because the LP has more POOL than ETH).
V2 does not need maintenance you just deposit and forget and leave it do its job.

Uniswap v2 has only one 0.3% fee, that was easy!

No idea about this. Up to team I guess what’s the best way.

  • we want PT to be a real autonomous protocol: a real autonomous protocol should have a full range v2 LP that does not need maintenance. It’s there, it’s working forever, done!

  • first of all we should not speculate on a price range and let it be whatever the market decides it to be, but this is not happening with concentrated liquidity since we create friction to the price to stay in certain ranges. This is not bad per se, but I think it’s not what we should do, or if we decided to do it like that we should explain why we are doing it.
    Concentrated liquidity make sense on a stable coin or on similar pairs like stETH/ETH or BTC/ETH. We have $4M market cap vs $200B of Ethereum, on this kind of pair if we get some visibility we may grow very fast (on a V2 LP) or we may go off range on a V3.

  • benefits are less maintenance (zero maintenance?) for POL, no artificial limits on the price, KISS keep it simple.

  • drawbacks are less efficient swaps while the price is in the current range, but this could be mitigated by nonPOL LP with concentrated liquidity. Once we exit that range the drawback becomes a benefit, since outside the range there would be no liquidity, or governance should deploy new liquidity…

  • cost: virtually zero minus the gas spent. I would do the migration in some steps, like removing 1/3 of the v3 liquidity and convert it to v2 three times, in order to avoid low liquidity problems, attacks or whatever could happen.
    As you said we would have some extra POOL that are now in the v3 but would not fit in the 50/50 v2: we can just send those POOL back to treasury. Or we can burn them if we like that kind of stunts.

  • risks: again I see this as an improvement that removes v3 liquidity management risks and put us a step forward the autonomous machine we are trying to build!

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If you add a full range v3 position, it would bolster the existing liquidity. That seems like the simplest option.

Correct me if I am wrong, but if the Treasury added a full range v2 position, it would splinter liquidity and disadvantage the existing v3 positions (those put up by PT and others who happened to follow on w/ an lp). If this is the case, I think adding a full range v2 position would be inefficient and confusing to end-user.

There is probably a more efficient hybrid strategy where there is a base full range position for say half of the liquidity being provided, and then the other half is adjusted quarterly (i.e concentrate remaining PT liquidity to 200% =/- the trading price.)

IMO - just adding a full range v3 position for a material portion of liquidity is best for everyone.

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Today swaps are make trough many routes with aggregators like 1inch, so having a mixed liquidity is less of a problem. But we still have to pay 3x gas if we make a swap across Univ2, Univ3 ans Sushi for example.

This is the point many are not getting clear in my opinion: it is not that simple to just “adjusting quarterly”. When you use a v3 LP you are no more 50% of asset A and 50% of asset B, but that is a variable amount.

This implies that adjusting the liquidity means we need to spend more ETH, spend more POOL, or have a thinner liquidity. This is exactly why I’m proposing to go, even partially, with the safest v2 route. If it were just a matter of moving the liquidity following the price, v3 would be magic. Instead it has a cost many - apparently - does not understand. It is a cost we pay to have less swap slippage at the moment, but we will pay in the future.

As I asked on Discord: if the price goes under the range and we have no more ETH in the LP, what will we do? In that scenario we have no more POL, only LP from third parties (on v2) and we basically bought back POOL with treasury ETH.
At this point we have both the bad user experience that we are trying to avoid PLUS we need more ETH to create another LP. This is the question to answer: what we do in the limits. Of course if the price stay stable having a concentrated v3 is the best option. But we have to think about price movements.

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V3 upper bound is like a limited sell order: at the top margin of the range the protocol has sold all POOL in the LP and is full of ETH in the LP (0% POOL, 100% ETH).

V3 lower bound is a limited buy order: at the bottom margin of the range the protocol has bought all POOL in the LP and has no more ETH (100% POOL, 0% ETH).

This is why I am asking: do we want to make this price politic assessments?
“we will buy back until here, we will sell until there”?
Because these are the side effect of a concentrated liquidity.

What are the governance politics to cover the cost of redeploying a different rage?
It will cost one of the three:

  • More POOL
  • More ETH
  • Less liquidity

One may also argue that putting a concentrated liquidity under the price is like helping sellers to swap their POOL for treasury ETH, which is what is happening since we are so near the lower bound. While a v2, again, would be agnostic.

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I think we both saying the same thing @mr_DvD - a full range is best. We can probably all agree that this removes any manual adjustment and price speculation.

However, it makes most sense to just do it with V3.

  • makes the need to have an aggregator obsolete
  • avoids the higher gas as you point out
  • they have a button for full range and it is more direct than v2.

As far as a hybrid potentially working - it still makes some amount of sense. The main con argument is that someone would have to make price speculation (even if it is an algo like I suggest). The main pro argument tho is that concentrated liquidity with specific ticks creates less slippage and is a better end user experience. The hybrid would have a little bit of both, but the extent to which is for the community to decide.

Either way, adding some percentage of liquidity on a full range position is prudent, sensible, and recommended.

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I agree.

But as someone noticed here earlier v2 had the advantage of leaving the fees in the LP, while a fullrange v3 needs the owner to fetch the fees.

In a scenario where we burn the LP ownership (send the LP to null address) v2 is better.

We could say that in a v2 burned LP each swap burns some POOL increasing the liquidity!

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Ahhh, I see.

Given that context, then your suggestion makes a lot of sense.

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Fees go back into the LP in V2, like you pointed out, DVD, so they don’t get burned with each swap. If you use V3 and the fees aren’t claimed, they are effectively burned, which makes V3 better for that use case, if you want to push that narrative.

It is also possible to use a liquidity management (LM) protocol like DefiEdge or Arrakis to have a V3 position that is actively managed by the respective LM protocol and adjusts as POOL price moves up or down. That would keep liquidity in range and provide a better UX, since slippage would be improved and depth of liquidity in the active tick would be better, as well.

You can set a full-range on Arrakis or have a narrow range that’s more efficient, but POOLers wouldn’t have to actively manage it: it would be handled by the liquidity management protocol.

I’m still waiting on the prospective numbers on how liquidity in V2 would impact slippage. We know it would increase gas costs for trades split across V2 and V3 pools.

I don’t know how this could transition to a PTIP without any analysis on the actual impact a V2 LP or a full-range V3 LP would have.

If POOLers want to burn the V3 NFTs, they can do that and it has the same outcome as sending V2 LP tokens to the null address. NFTs can be sent to the null address, as well.