No idea how much is that easy to calculate, an alternative could be to split liquidity 50/50 on V2/V3 and look at them after a reasonable amount of time (6 months min?).
I would prefer to avoid contract risks if they are not really worth it.
1 Like
I will do it eventually, it’s a PITA but needed.
Consider that every time we give less price impact on a swap on V3, treasury is de facto paying some POOL or some ETH to lower the slippage. This is another way to see it, and this is why the LP can be depleted at some price levels of POOL or ETH.
Automatic repositioning will never work unless we add more tokens or we shrink the liquidity.
I agree with you that using a full range V3 and burning the nft would be like burning, but I’d prefer to have the fees stay in the LP and increase liquidity as in V2.
I said burned because those fees will forever stay in the LP anyway, it is not really burning you are right.
I’m not a fan of the burn thesis. Tokens are not equities. When fees go back into the LP in V2, people can still access that supply since it is in the liquidity pool. In V3, there will be a negligible amount in unclaimable fees if you burn the NFT (I.e., renounce ownership). I’m assuming the primary reason folks want to renounce ownership of any LP is for legal liability.
Given the burn rate for the treasury is $630k/quarter currently, the cost of providing liquidity is quite low. It is, as I’ve shared before, a public good.
While putting up analysis might be a PITA, this can’t go to a vote until people can review the impact.
Burning the LP assures that there will be liquidity forever.
I’m trying to preserve this public good too. I’d like it to be forever available at every price level no matter what. That is a v2 LP with burned ownership, as Brendan suggested.
I agree with you here
OK let’s revive this thread, starting from the fundamentals.
A V2 POOL/ETH liquidity is a pool where there is always half value in ETH and half in POOL. This means that it is impossible to run out of ETH or to run out of POOL, and each swap moves the relative price of ETH vs POOL or POOL vs ETH.
There are many articles about it, just google it to go deeper:
A simplified example: if we make a new LP with 100 POOL and 100 USDC, for that LP 1 POOL will be prices 1 USDC.
If we then swap 20 POOL for 20 USDC in the LP there will be 120 POOL and 80 USDC, updating the price at 1 POOL = 80USDC/120POOL = 0.66 USDC. (it is a bit more complicated, check the links if you need the the correct math).
In this example a $20 swap moved the price 33%.
If the liquidity was instead primed with 1000 POOL and 1000 USDC, and we had made the same 20 POOL swap we would have had a new POOL price of 1 POOL = 980 USDC / 1020 POOL = 0.96USDC.
In this example a $20 swap moved the price down only 4%.
This is why more liquidity is better than less liquidity.
In reality the price change does not happens AFTER the swap but DURING the swap (This is the price impact you see in the GUI on the dex).
The first swapper in reality would not have got 20 USDC but 13USDC 33% less (more or less) and the second swapper 4% less (more or less).
All this is made because in DeFi we don’t have the order book: V2 liquidity simulates an order book with all possible prices.
This, in some situations, is not capita efficient for example in the case of a stable/stable pool like USDC/DAI, or correlated tokens like WETH/ETH, stETH/WETH and the like.
To solve this issue first came Curve and then uniswap V3.
Comes Uniswap V3:
What Uniswap V3 does is concentrating liquidity in a price range (remember prices are not in $$ but expressed one token vs the other, in our case how many ETH to buy POOL or how many POOL to buy ETH.
With uniswap V3 we can have a better price impact on the swaps even if we have less liquidity: remember the first example where a $20 sell was only receiving 13 USDC? If this were done in a V3 liquidity the seller would have received more than 13 USDC, how much more depending on the range, let’s say 16 USDC instead of 13.
So V3 is better because it make us swap more efficiently?
Yes and no: those 3 more USDC are removed artificially from the LP, think it like a subsidized swap. The idea is that when a contrary swap will happen (someone buys $20 of POOL instead of selling) he will receive less $POOL, countering the $USDC loss.
This all works like magic for tokens that are constraints in a range like USDC/DAI, stETH/ETH and the likes, but for tokens that are on the open market like POOL it will eventually move in a single direction, and subside after subside deplete the USDC in the LP (ETH in our case).
What happens next? next the LP will be full of POOL, zero ETH only POOL, and will not participate in the further swaps.
This is the situation we are now: we subsidized sellers giving them more ETH than the fair V2 swap, and now we are run out of ETH in the LP but full of POOL.
This is exactly the situation I was trying to avoid, but there is more:
Since we are only using the V2 liquidity at this price, (and thanks RNG Jesus that there is a V2 liquidity) we are in the situation where if there are more sells the price will go down at a speed, but if there are buys we will eventually get back in the V3 range and it will slow down the price appreciation!!
It’s like a smooth way to go down but a friction way to go up.
Hence I renew my proposal to remove the V3 LP now that it is all POOL, find some treasury budget and increase the V2 LP.
Liquidity will grow automagically with the increase of POOL price, since there will be more and more ETH in the pool as long with new people buying.
We could fix the liquidity price just by making the token desiderable again.
In the current situation no one reasonable is going to buy something that will decrease its value much faster than increase it, given the same amount of money in the swap.
I repeat this the same money put on a swap, say 10,000$ will increase the price of say 10% but decrease it by say 20%. This is what I call NOT being price agnostic.
We want the POL to be agnostic: you buy X amount? price go up Y. You sell the same X amount? Price goes down the same Y. You only get this with V2.
We are not in this situation, we are constraining the price to stay low.