POOL liquidity on Optimism

Liquidity is currently a critical topic, and I propose a targeted solution. Specifically, we can reallocate our liquidity that is out of range to address the immediate needs for the Optimism deployment. This strategy involves withdrawing our out-of-range liquidity from both Polygon and Optimism, and then converting the treasury’s stMatic tokens to WETH to deploy a new Uniswap V3 POOL/WETH liquidity pool on Optimism.

Motivation

We need liquidity on Optimism, the current support for trading is hurting confidence in participating in the V5 system. 1,000 POOL swaps are incurring 5% price impact and 5,000 POOL swaps as much as 20%.

Relevant Assets

  • POL of 20,688 POOL 0.23 WETH on Polygon inclusive of fees

  • POL of 47,526 POOL 0.228 WETH on Optimism inclusive of fees

  • 35,518 stMatic on Polygon (13.780984 ETH value)

Execution

-If this proposal were to go to a formal vote we can use Snapshot for that vote

-The executive team can handle all aspects of execution

  • Withdraw out of range POL on Polygon

  • Swap stMatic to WETH

  • Bridge WETH to Optimism

  • Withdraw out of range POL on Optimism

  • Deploy new POOL/WETH on Uniswap V3

Technicals

  • Deploying the WETH from 0.000043 ETH per POOL (-66%) to current price

  • Deploying the POOL from current price to 0.0009 ETH per POOL (same max tick of current deployment)

  • Fee tier 1% while in custody of exec-team to leave it open for other LPs to compete for fees

  • Rough estimate shows new deployment would improve price impact from 5% to 1%-2% on a 1,000 POOL swap. There are many moving parts and we can only know for certain that this liquidity will improve the situation for swaps.

Future Unknowns

Future custody of L2 liquidity remains unknown. Can we custody the liquidity somehow on Optimism L2 with POOL token governance? If there is not a good solution to do so, do we agree to eventually burn the keys to this liquidity? This is a bigger question of post exec-team operations that we can answer in another thread.

Conclusion
I recommend we find some solution to improve liquidity on Optimism now. This is a low friction, and low cost option that can be executed in a matter of days and return the support of trading on Optimism to a minimum level. This proposal provides a solution for Q1 only and pricing is reflective of that. Further liquidity options will be explored on mainnet and in a more holistic way.

  • YES I approve
  • NO I dont like this and will explain why
  • OTHER I have another idea or would like to see a change made
0 voters
2 Likes

I agree given the urgency of the situation.

I hope we will take a deeper look at our politic about liquidity when times will permit it, because once again using a V3 liquidity with a strict range we are subsidizing sells as I explain here.

What will probably happen is that the tresury will lose this ~14 Eth once again when the price will break under that -66% lower bound of the range.

IMHO if burning liquidity is on the table we should only burn Ethereum mainet liquidity and only V2, because V3 may need mantainance.

1 Like

Thanks for your reply

Couple things worth noting.

There is no UniV2 on Optimism, only forks, which I would not recommend for a long vision solution.

This is specifically a 3 month only solution that is priced conservatively to treasury backing.

1 Like

This proposal has my support!
Current liquidity on Optimism is very thin and we need liquidity so V5 can function properly!
Deploying in the proposed price ranges should be fine for now and the fee tier is also fine!

I wanna point out that this proposal is only a band aid for solving the current liquidity issue on Optimism and does not replace a broader needed liquidity strategy. The liquidity on Ethereum is also not great and our deployed POL is out of range asfaik. But on Ethereum we still got a bit of V2 liquidity for now.

I wanna also point out that calling using V3 “subsidizing” is not correct. Liquidity is always provided in ranges, from 0 to infinity or in more narrow ranges.
I also think that the possibility of breaking under that lower bound is very very low, I know a couple of people that would stop it from doing that by taking that POOL at that price ^^

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I wrote a long post explaining why it is.

Once you narrow the ranges when the prices goes under that range you lost all your hard token (ETH in our case), unless the price recovers. We have no guarantees that the price will recover, so we are speculating on the price in the hope it will stay in the range or come back. If it does not come back PT treasury lost those ETH.

Please read it I explain in detail.

We are lower in almos all our LP on Ethereum right now!

I agree again. Let’s put a patch for now.

Our main liquidity should be on Ethereum.

1 Like

is the intent to deploy all of these three assets to LP by swapping to the correct ratios? or deploying the maximum amount of pool and leaving the rest of the weth as a treasury asset?

i may have made a mistake, but deploying all of that weth at those ticks would require ~152k pool (left image) whereas deploying max pool would use less than half of the converted smatic>weth (right image)

1 Like

Thanks for investigating. The key here is described in the technicals and uses two ranges. A WETH range and a POOL range.

The only issue with this is that sometimes we get a small gap at the current price. An alternative could be all POOL and the respective ratio of WETH and then a second range of the remaining WETH.

To some extent it depends where the market is. What the exec team can guarantee is deploying all the WETH and the POOL bound by those two ticks.

2 Likes

I do not like the suggestion of potentially burning the keys to the liquidity. One day that liquidity may be out of range and you’ve chosen to burn capital you can use instead of figuring out how to properly custody it.

I think we are now in a position where renting liquidity by incentivizing LP’s could be more beneficial then having protocol owned liquidity that is gonna sell more ETH for POOL if price keeps dropping. Giving out a little POOL to those willing to pair ETH with POOL would actually not be so bad. Our POL on Ethereum bought back 114,000 POOL from September to January. I don’t see it as dilution in this case because the Lp’ers are taking on significant risk and holding POOL.

1 Like

In recent weeks, we as a community had lots of thoughtful discussions about many things that need to improve. This topic doesn’t get the credit it deserves!

POOL Liquidity Update

The Defi Collective stepped in to help improve the POOL liquidity on Optimism. They are supporting $POOL by

  • Liquidity Providing: Bought POOL on mainnet & bridged them to Optimism to seed the POOL/wETH pair with ~$9k
  • veVELO votes: Allocated ~350k veVELO to votes on the pool
  • Vote incentives: 250 OP/week in bribes

The 0.3% POOL/WETH pool can be found on Velodrome.
As of now:

  • TVL: $28k (Goal: build & sustain >$50K TVL)
  • Votes: 1,318,120.86
  • Voting APR: 69.23%
  • LP APR: 171.97%

Poolers can support the effort either by providing liquidity with POOL & WETH or by voting for the pair with veVELO.

1 Like