bens44 Liquidity

[noble vapor]

@tender loom You should be able to post your idea here now.

[tender loom]

Test test! @noble vapor Did I do this right? 🙌

[tender loom]

Hi All! I would to propose an idea for discussion regarding the current staking options for ILV holders.

Motivation:
Illuvium has the #1 biggest pool on Sushi and offers some of the best yields through its yield farming token allocation in its tokenomics. The problem is that eventually, the rewards will run out and this leads to many risks in balanced liquidity pools on Sushi like impermanent loss.

If Illuvium had a more efficient liquidity mechanism, the ILV rewards could be extended way past its 3 year allocation and thus more value would be kept within the project. (Also, stakers could earn more apy from trading fees).

Proposed Idea
Transfer the liquidity in the Sushi pool to an unbalanced pool (like on Uniswap V3) to make it more efficient (earn more revenue for stakers).

[fair vortex]

I don’t get it, could you care to explain how moving would grant us free money? Or am I missing something?

[gilded blade]

How does changing pool structure allow us to extend the duration of staking rewards?

And also does an unbalanced pool impact price movement? Because over the long term I think its better to have the ILV price go up, rather than artificially hold it down with a modified pool.

[noble vapor]

I genuinely didn't realize imbalanced pools existed. It's not a terrible idea TBH, it limits the amount of IL incurred by price divergence. Instead of maintaining a 50:50 ratio in a pool, it can be set to 95:5 or 98:2, as examples. That makes the impact of extreme price swings on the "volatile" token incur less IL for LPs. This is a pretty detailed look at the idea.

There are a lot of other factors to consider, and I don't think extending yield rewards would be a given, but it DOES incentivize LPs in times of volatility.

https://blog.defiyield.app/why-are-you-miscalculating-your-impermanent-loss-and-how-to-stop-doing-it-866a7f1aa3a8

I think the general idea that bens44 is getting at is that the APR in the SLP pool is high to account for potential IL incurred. It wouldn't need to be as high if IL were limited. Obviously changing any of the terms of staking would be pretty major, and potentially impractical, but it's an interesting idea.

[tender loom]

One thing that is great about unbalanced pools is that you can concentrate the liquidity in a way where there is more on the "buy side" of the ILV token price so that the token price is less likely to drop when the market goes down. But still goes up at a similar rate when the market goes up!

[tender loom]

When you concentrate the liquidity in certain price ranges, your liquidity earns way more trading fees. Meaning that you earn more yield per token you deposit.

[tender loom]

If you concentrated the pool to place less ILV tokens up "for sale" against ETH, the price would actually be more likely to go up than down - and impermanent loss wouldnt be as prevalent

[eternal karma]

Very interesting… I know there have been talks about v3 staking maybe this is something to investigate further with our boy @stuck wedge

[digital epoch]

Personally not a fan of uni v3 pools so far as far as fees are involved, inefficient for the avg person and having to mint nfts and not autocompounding is an unfortunate outcome of v3.

[tender loom]

While all this is true, and yes uni v3 is hard to manage for the average user, there are liquidity management protocols (like ICHI for example) that make it actually useable

[tired granite]

I'll reintroduce an Idea I've put before and discussed.

Having the revdis as an incentive in the LP pool.
Here's the gist of it.
Split revdis in some ratio(50/50 for example) and after that distribute it based on token weights. This will make ILV in the LP pool earn more revdis than ILV in the solo pool, this is because only 50% of tokens in LP are ILV, but they are getting 50% of the revdis. This will make $100 in either pool provide the same amount of revdis. This will provide arbitrage opportunity, which will keep the LP pool more stable.

I know this is not strictly on point with ben's idea. But I think this might be a viable alternative.

[tender loom]

This is an interesting idea too! Is there a place where we can officially bring these ideas to the team?

[tired granite]

Discord is pretty official. I have reached multiple council members. The general consensus is that it is too early to think about this. We still have over a year of yield. Which incentivises staking in the liquidity pool due to the bigger rewards.

[tender loom]

I would suggest that now is the time to start proposing a change like this - before the extra yields run out. It's time to establish an actually profitable liquidity strategy rather than only sending out token rewards. If the liquidity strategies are profitable while the added rewards are still being distributed, then the staking APR/APY would be way higher and attract way more stakers

[tired granite]

I'm pretty sure team is catching up to these threads, so if they deem it necessary it'll be brought up.

[tender loom]

Awesome!

[gilded wyvern]

Overhauling the staking system needs to show extremely significant advantages to the current system.

Also need to take into account the fact that we have lock up liquidity that cannot move when changes are done.

Tough spot, only thing in my mind is if the switch is so efficient that we don't have to give out the remaining 1M tokens to liquidity its worth the change.

Think that was possible with Tokemak staking but we didn’t move forward with it

[wintry thistle]

To me, any change in staking should be done with a year notice, so i agree its worth discussing this in advance of the issue. I've had other ideas brought to me on changing weighting/lock timing, and while I'm not opposed, there needs to be the way for OG stakers to not feel burned that the terms changed.
Long term liquidity is necessary and it's a question of the role DAO/treasury plays in providing/maintaining liquidity, and the cost benefit analysis of the new system.
I'm unconvinced unbalanced pools are the answer, though I look for case studies where it was successful and open to the transition.
Revdis is an interesting lever to pull though I'm not sure it accomplishes the objective here as presented. Alternatively, the balance of revdis can shift to replenish rewards and maintain enough incentive without a major system overhaul.
This is one to monitor.

[tired granite]

The way the idea got into my head was if we split the revdis by staking pool 50/50, then we're having $100 in ILV earn the same as $100 in SLP. And we'd have arbitrage keep us ballanced. And since both pools are beneficial to the protocol, it's a win/win. This will make us "own" our own liquidity and prevent the mass exodus, that almost certainly will happen near the end of the yield rewards.

Also the 50/50 is an example. Any split will accomplish this. The 50/50 is just way easier to grasp.

By defining such split, we're basically saying (X * 2)% of our market cap will be in the LP. Where X is the split portion in favor of SLP. And we're multiplying it by 2, due to the nature of LPs.

[west crater]

IMO disagree with the 50 / 50 split this out of principle cutting ILV solo pool revdis in half is unacceptable. ( this is coming form someone whos primary is in slp and is staked in both pools )

[tired granite]

50/50 is just an example. But I think having split per pool is a solid measure to incentivise people staying in the SLP post yield rewards. And it's not like it's bad for the DAO to be able to control the amount of money in the LP.