Overview
POOL holders approved PTIP-69: Polygon Uniswap V3 WETH/POOL Liquidity, which gave the TWG approval to manage 25k POOL and 6525 GTC, which was swapped for ETH, to be used to create liquidity on Uniswap V3 on the Polygon network.
This proposal was passed on 19 April 2022, and below is a review of our Uniswap V3 POL experiment.
What follows is a review of the positions, performance, and conclusions. This post is the first of a three part series, which will cover:
- Performance and review
- POL management protocols, potential strategies
- POL Considerations and next steps
Funding, Creating Positions
The 6525 GTC was sold for 12.77 WETH, which was then bridged to Polgyon.
Three ranges were created, which I’ll define below:
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TWAP Protection Range (103979)
- Initial POOL: 249.9999
- Initial WETH: 0.19233996
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- Initial POOL: 9999.99
- Initial WETH: 4.43105
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Narrow Range, In-Range (104040)
- Initial POOL: 14579.29
- Initial WETH: 8.155693
The TWG members created these three ranges to (1) establish best practices by establishing a TWAP protection range that makes it more difficult to manipulate the price via a TWAP attack; (2) establishing a wider range that allows for liquidity if the price of POOL increases or decreases in ETH value significantly so adequate liquidity remains for trading; and (3) a narrow range to provide deeper, efficient liquidity ticks to facilitate larger trades.
Performance
The three ranges that we set never had to be adjusted, and all remain in-range, despite a decrease in the USD value. This is the benefit of pairing tokens with ETH: DeFi tokens tend to move in tandem with ETH, even if ETH outperforms on a longer time horizon. Poolers can review the POOL/WETH pool on Uniswap V3 to review the pool metrics as well.
Pairing POOL with WETH on Polygon ensured that deep liquidity was available for WETH/TKN pairs, and there were days when trading volume on Polygon (Uni V3) exceeded trading volume for POOL on Uni V2 (Ethereum).
Overall, the Polygon Uni V3 positions allowed for trades between $3k to $5k with minimal difference in slippage as compared to Uni V2 on mainnet.
When liquidity was first deployed, the Uni V3 TVL was $81.61k and declined until mid-June where it began to stabilize around ~$38k to $39k. From 29 April to 16 July, the Uni V3 POOL/WETH pool saw a total of $202,904.16 trade volume, with an average daily volume of $2,568.41.
The positions earned ~0.18 WETH and ~319.53 POOL, which was claimed on 18 July. These claimed fees were used to increase liquidity on the Narrow Range (104040).
If you’re interested in review the data in more detail, you can review the data sets I compiled in this PoolTogether | POL Review sheet. To keep this post more concise, I’ve created charts to represent key performance metrics, comparisons.
Positions as of 16 July
Conclusions
Uni V3 is far more efficient than Uni V2 and presents an opportunity for our community to established deep, efficient liquidity that enables larger trades with less slippage. The size of trade sampled for slippage was limited to 3500 POOL, as any sum greater resulted in Uniswap’s auto-router to slip the transaction across Uni v2 and Uni v3 on mainnet.
From the data the TWG has collected, it’s clear that Uni V3 presents the greatest opportunity to manage POL, but there are certain considerations that POOL holders need to evaluate before moving forward. Most of these considerations will follow in the next post, but I’ll share one unanticipated conclusion we reached after deploying liquidity on Uni V3 Polygon.
On days when trading volume was high on Uni V2 (mainnet), we saw higher trading on Uni V3 (Polygon) as well. This is due in part to the price difference that results when the price of POOL differs across Uniswap markets. MEV bots bridged POOL to Polygon and their subsequent swaps accounted for larger trade volume on certain days, which almost always resulted in POOL sell pressure to balance the price to that of POOL price on Uni V2 (mainnet) market.
If POL is strategically deployed at scale on different networks, then larger trade volume will be required to move the price enough to create such cross-chain arbitrage opportunities, but this does have implications for managing liquidity across networks.
Overall, the TWG was happy with the results of the Uni V3 (Polygon) POL experiment. We look forward to the community’s review and comment on our findings.
The Part 2 post will be shared on the forum later next week, after I have time to evaluate Arrakis and Liquity’s Chicken Bonds.
Next Steps for POL on Polygon
As outlined in our previous proposal, the TWG indicated we would provide analysis and poll the community on next steps for the Uni V3 ranges on Polygon. The community can decide to keep the POL active on Polygon under the management of the TWG or signal that the TWG should withdraw the liquidity, bridge back to mainnet, and return the funds back to the Governor Alpha contract (PoolTogether Treasury).
- Keep POL active on Uni V3 Polygon, give TWG discretion to continue management
- Withdraw liquidity from ranges and return the funds to the treasury
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