RFC: Protocol Deployed Liquidity On Polygon Uniswap V3

In response to PTIP 61 (PTIP-61: Provide Single-Sided Liquidity to Uniswap V3) which showed strong support for the protocol deploying a liquidity solution on Uniswap V3, The Treasury Working group wants to move forward with a liquidity solution for the POOL token on Polygon. Doing so will allow us to hone our community V3 knowledge, such that if we decide to deploy a much larger scale solution on Mainnet, we will be able to develop the most efficient and effective plan to do so.

Why should we add POOL liquidity to Polygon?

  • Previous attempts for protocol owned liquidity with Olympus PRO and Ondo LaaS have been deemed unsuccessful and the protocol is looking for the most effective liquidity solution to support the token

  • POOL liquidity on Polygon is particularly shallow resulting in large slippage which makes it unattractive to trade or make any sizable swaps

  • We can use the experience as a stepping stone to a more comprehensive cross-chain liquidity solution

  • We can effectively diversify our treasury in the process, shall the price of POOL increase

  • We will generate fees for the protocol

What do we need?

  • We are asking for 25k POOL from the treasury to be managed with the TWG gnosis safe on Polygon. We think 25k POOL is a reasonable custody risk for the treasury, and only increases the total POOL supply on Polygon by approximately 25%.

  • In the case where the community wants us to provide liquidity below the current price we will need a paired asset/s to accompany POOL. For this we recommend we use half of the accrued Aave rewards on Polygon which equates to 18,573 MATIC.

  • We anticipate gas costs to be extremely minimal, allowing us to more actively manage the positions while we work towards a more comprehensive longterm solution

How will we do it?

  • Liquidity on V3 is supplied in a user defined range. As an example (solely for illustrative purposes) - if we deploy a pair of POOL/USDC with a range of $3-$15, at POOL price < $3 we have 100% POOL and at > $15 we have 100% USDC ^3

  • The three assets we are considering for pairing with POOL are USDC, WETH, and MATIC

  • We will create three ranges: a TWAP attack prevention range, a broad liquidity position supporting a significant price increase, and a concentrated trading liquidity position

Timeline

  • By 45 days we will report on the operation and advise future steps for the DAO and protocol owned liquidity on a higher-level

  • We ask for 90 days to manage this position. At the end of the 90 days we will report the results and return the held assets to treasury or propose a specific plan for continuation

Questions/Polls

  • Do you entrust the TWG to custody the proposed 25k POOL for liquidity on Polygon using our 4/6 Gnosis safe?
  • Yes I support
  • No I oppose and can explain why
  • Unsure

0 voters

PTIP-61 proposed providing single sided liquidity, where the protocol only adds POOL above the price, effectively selling POOL as price goes up. What this does not accommodate is the possibility of a downward trend in price. To provide liquidity below the market price we need to add the base asset of the pairing (amount dependent on price, range, and POOL amount). To avoid a scenario where we are chasing the price going down with a liquidity range above price, we recommend we use our MATIC reserves to build some support liquidity below the price at deployment.

  • Do you approve of the TWG utilizing half of the MATIC reserves (18,573) to set up ranged liquidity positions to include liquidity below market price?
  • Yes I support
  • No I oppose and can explain why
  • Unsure

0 voters

Any questions or comments please do not hesitate to post in this thread! Do you have experience providing liquidity on Uniswap V3? Please share your opinion and perspective!

5 Likes

All previous undertakings of the Treasury Working Group have added immense value to the protocol and its treasury in either a direct or indirect way.
I’m in full support of this kind of research and think it’s a good initiative to add liquidity before the new tokenomics are being rolled out, possibly increasing the demand for the token.

2 Likes

Overall supportive! I would however be more inclined to support the single sided liquidity. It’s not a huge deal but I just think we could leverage those matic tokens in other ways (yield farm with them or distribute them as rewards via TWAB to depositors).

1 Like

I just wanted to provide some context here on behalf of the TWG regarding this RFC and the proposed Uni V3 position on Polygon.

Our main goals are to improve liquidity on Polygon and to provide some data we can use to inform decisions made about POL on mainnet, which will be significantly higher in value. Given this, a single-sided position could be prohibitive to both goals if POOL were to trade below the out-of-range POOL position.

After further consideration and communication with members of the team and community, we think there is stronger consensus to use our Gitcoin (GTC) reserves to diversify the treasury into ETH. If the community agrees, the GTC currently held in the treasury can be converted to ETH, with half allocated to the current POL proposal and the remaining ETH returned to the protocol treasury. This amounts to 13,051 GTC being exchanged for ~26.87 ETH, of which 13.43 ETH would be reserved for this POL proposal.

A POOL-ETH pair can be used to provide in-range liquidity, while a sizeable amount of POOL is placed in an out of range position, as you’re proposing, @Leighton.

By providing in-range liquidity, we allow users to trade in the Uni V3 pool, which earns the DAO trading fees and improves POOL liquidity on Polygon. If POOL were to increase in price, the Uni V3 position would balance into more ETH as POOL price increases vs. ETH. More ETH would result in greater resistance to sell pressure.

By collecting data on trading in the Uni V3 position on Polygon, we can then create a proposal regarding mainnet POL that is backed by trading activity where PT v4 has the greatest TVL and active users.

Do you approve of the TWG selling all the GTC reserves ($86,000) for ETH, using half of that ETH to provide liquidity and half to be returned to the Treasury?
  • Yes I support
  • No I oppose and can explain why

0 voters

4 Likes

Great proposal and thx to the TWG! :slight_smile:

I’m a big supporter of L2 and especially Polygon, so ofc I’m very happy we will hopefully soon have more liquidity there :slight_smile:

Any specific reason for using Uniswap and not Sushi or Quickswap for example with maybe additional Sushi/Quick rewards from them? (I think it was Quickswap that provided nice rewards in the early days on Polygon and was interested in further collaboration. According to Coingecko Sushi currently has the best liquidity on Polygon, +/- 2% spread with 500$, not good but at least something and they also seemed interested in a partnership, although that post is pretty old already PTIP-36: Migrate PoolTogether Uniswap V2 Liquidity Mining Program to SushiSwap - #17 by Andre)

Personally I don’t prefer any specific DEX, I am using 1inch and other aggregators myself (and can only recommend anyone doing the same) but just something that came to my mind :slight_smile:

Sounds like a great opportunity to get hands-on experience. I look forward to reading the report on the outcome.

2 Likes

As broached in other threads, selling tokens can be a public relations issue. I think we might have more to gain from good relations with Gitcoin than from selling the token. I rather sell other tokens UNI, SUSHI, COMP, BADGER; keeping GTC, stkAAVE, MATIC, WAVAX, and TRIBE in treasury. I do dig this Uniswap v3 experiment and ETH liquidity.

2 Likes

A group of us have been working on an official Bounties program behind the scenes, and given that we’ll be working with Gitcoin I do agree with @Taliskye that we should keep the GTC for now. It may prove useful in our relationship!

1 Like

Thank you to everyone for participating in the discussion and in the polls. This is now live for voting as PTIP-69.

Using GTC showed strong support here (16-1) and on the non-stablecoin management thread. The basis of our thinking was that Gitcoin is our largest holding that has seen no use for PoolTogether thus far. However, in acknowledgement of the comments of @Taliskye and @Brendan we have have proposed a compromise that we use only half of the Gitcoin for this initiative, leaving half in the treasury.

The onchain vote is here: PoolTogether Governance
Snapshot here: Snapshot

2 Likes