[Passed/ Executed] IIP-28 SushiSwap Liquidity IIP

[white jolt]

IIP X – Withdrawal of Sushiswap Liquidity
Dec 9, 2022
Updated Jan 4, 2022
Author: Blickter

Simple Summary:
The DAO will remove 100% of the current Treasury ILV/ETH liquidity position from Sushiswap. The ETH component of this liquidity position will be swapped for USDC to provide additional runway for development.

Abstract:
Following the BLBP sale, the Treasury provided liquidity into the Sushi Liquidity Pool to increase liquidity for the ILV/ETH token pair. The total position is currently worth $5.44M USD. (https://debank.com/profile/0x58c37a622cdf8ace54d8b25c58223f61d0d738aa). This liquidity is no longer required, as SLP staking adoption has thrived, and the ILV/ETH liquidity pool is extremely deep on Sushiswap. This proposal seeks to utilize the Etherum component of this liquidity position to be swapped for USDC to ensure runway stability for the DAO.

Motivation:
As a component of overall risk management strategy, this proposal seeks to increase the Treasury’s stablecoin holdings by utilizing a currently unnecessary liquidity position.

Ensuring runway stability for the DAO is critical as we approach the launch of Illuvium. The sale of the Ethereum component of this liquidity position will raise funds in USDC, while not impacting the ILV token price. It remains critical to ensure we have sufficient stablecoin funds available for payments, increased marketing presence and partnerships as we approach the launch of Illuvium.

The sale of the Ethereum component of the Treasury’s ILV/ETH liquidity position will provide USDC runway to cover approximately 2.2 months of game development and operations.

The removal of the Treasury SLP liquidity position will not affect staking APR.

Specification:
The DAO will remove 100% of the Treasury ILV/ETH Liquidity Position, swapping the ETH component for USDC. The ILV component shall be added to the Treasury’s ILV balance.

Identified Downsides:
It’s been identified that liquidity levels could drop in the future as the APR in Illuvium’s staking pools decreases. The council and community have identified many potential solutions and alternatives to support long term liquidity or make long term liquidity unnecessary on the scale of vault buybacks. This is not a short term concern, and there are many potential solutions should this become an issue.

Test Cases: N/A

** Updated 1/8/23 - IIP-28 has gone live for voting: https://gov.illuvium.io/#/proposal/0x1d85ac89d79ab248a0ec2120358af510288f4d036c8296d786ab33ad4906c59b **

<@&814435151307866142>

[plain falcon]

I would call this an easy win with very little downsides

[mild ermine]

This goes without saying that wed probably wait until both eth and ILV goes up before we convert it to usdc?

[buoyant dragon]

That's not the plan, no. I don't personally feel it is the role of the council to play TA with funds needed for development.

I see no guarantee that ETH or ILV increases in price substantially prior to this runway being utilized.

[mild ermine]

I feel timing is important considering we still have enough runway for 12 months. If we jump the gun while we dont need it theres an opportunity lost.

It may not be the councils job but we should enable the team, namely finance to make that call

[buoyant dragon]

What's the play if ETH or ILV only goes down in price?

The name of the game is risk management, adding extra risk doesn't seem particularly advisable.

[mild ermine]

That is true but time is on our side here and finance will have a better sense when theyd need the funds. The concept of tapping slp is there the execution can be vested on them as to when.

[buoyant dragon]

This proposal was written based on consultation with the team.

The recommended "when" is now.

[mild ermine]

A bit strange but if thats their recommendation.

[vestal belfry]

Was treasury taking rewards? Will staked SLP ARP/APY% rewards increase?

[buoyant dragon]

The Treasury SLP position wasn't staked in the SLP staking pool. If we're getting into the nitty gritty, LPs will get a slightly higher percentage of swap fees, but this should be mostly negligible.

Functionally, there should be very little change.

[white jolt]

Sushi LP providers get a larger cut of the trading fees associated with sushi slp

[buoyant dragon]

Just to define this super clearly, because it's not necessarily apparent:

Currently the ETH/ILV LP has $45.6M of liquidity provided. A 0.3% fee is charged by Sushi for all ETH -> ILV or ILV -> ETH swaps. 0.25% goes back into the LP, and is divided among LPs (individual LPs realize this on withdrawal of liquidity). Removal of $5.4M would bring total liquidity down to $40.2M. This would result in a proportional 13%(45.6/40.3) increase in fees for remaining LPs.

[plain falcon]

I'd argue the execution happens at the retrieval layer. If the decision is to remain in ETH and ILV then why withdraw from liquidity at all.

[mild ermine]

What i was suggesting was its up to the team as to the timing of any withdrawal and subsequent conversion to usdc/fiat

[plain falcon]

I guess I don't see heaps of harm giving them the trigger. But I dont think waiting is necessary. We are padding the runway for the benefit of everyone, especially in terms of sentiment

[analog ridge]

One of the key reasons to extend runway at this stage is to build confidence in the team that they have jobs longer term. While not ideal, selling eth now is the intend.
We had a similar discussion around the capital raise last epoch. There was concern selling low when ilv was in the $60's.
Uncertainty is the reason to take this action. USDC is greater certainty.

[mild ermine]

Like I said if Danny believes now is the time to do the withdrawal and exchange I'm good with that.

I mean team sentiment in runway should be assured and I just take the position that were wiling to give up revdis on illuvitar, have a safety fund, and the potential to tap the slp at any time does exactly that.

However, I don't position myself to be an expert on this so I abide by the decisions herein

[nocturne gorge]

Agreed. do this ASAP

[keen heart]

hey mate, Treasury's SLP values at the moment represent:
ILV: 68588.27427514056
ETH: 2161.6435254127873

Which are currently valued at: U$ 5404328.417909363

These values include fees, as UniswapV2 contracts (like Sushiswap) auto-compound them and they are fungible with the LP tokens, so it's not very straight forward to separate fees unless we use some 3rd party platform that shows this value (been looking for something but no luck so far), or we write a custom script that will properly calculate and separate deposit from fees (edited)
January 5, 2023

From Pedro

[grim zinc]

"The ILV component shall be added to the Treasury’s ILV balance."

Those ILVs would be staked as the rest of the treasury or as the revdis received following land sale, just sitting in the treasury wallet ?

[analog ridge]

they would be considered identical to all other treasury ILV and available for revdis, or that is my expectation

[grim zinc]

I’m asking because revdis ilv are sitting in the wallet since land sale, not staked with the rest of the treasury ILV…

[ember yarrow]

Danny is a smart guy, but neither he or anyone else in the world have a crystal ball. Waiting, based on the hopes of prices going up, is not a good fit IMO. There could be other valid reasons for waiting, just wanted to throw the sentiment in here

[mild ermine]

For sure. The idea was to just let them decide when they need it tbh. Converting it all now seems to connote there's an urgency.

[vestal belfry]

I think the business does not have urgency from a financial point of view. It looks like it is more for employee peace of mind. Most companies of this size have limited visibility into runway. Since there is much more transparency getting extra padding of runway as soon as possible makes sense.

[thorn stream]

Interesting - so the whole purpose of the extended runway is to get to launch, where NFT and fuel revenue from sales begin to fund operations and further development, in the simplest of terms?

[buoyant dragon]

We would probably make it to launch without extending the runway, but risk management is making sure we're covered in all scenarios (all reasonably plannable scenarios anyways, we're not planning for asteroid strikes or anything). If ETH goes to $800, are we still covered? Basically, looking at the potential events that could impact the project, assigning some range of probability to the likelihood of those events happening, and making sure we're 100% ok if some (but not all) of those events were to happen.

There's some additional considerations beyond just making it past the "finish line" of launch, including giving the team freedom to hire if there are desirable candidates on the market, and ensuring existing core contributors feel secure in their positions. The DAO needs to show that we're serious about working with Illuvium Labs and capable of supporting them to develop these products.

It's also worth mentioning that this proposal isn't necessarily runway extension, strictly speaking. We're converting something the Treasury already owns (The ETH in the ILV + ETH LP) into something that is more stable (USDC).

[thorn stream]

ah ok so the DAO pays Illuvium Labs. Basically we are choosing the stable path USDC appose to the larger upside or downside of ETH. by doing so leaving RevDis alone, not eroding confidence in returns.

[buoyant dragon]

Correct. By way of analogy, this would be like selling a car you're not actively using. Cars are useful, but we've been taking the train for a long time anyways, and cash is something you can actually spend.

Also correct that this proposal doesn't involve revenue distributions.

[late meadow]

How does this effect us individual SLP stakers?

[buoyant dragon]

The Treasury liquidity isn't staked (in the normal Illuvium staking pool) so the APR won't be affected. The only other change is detailed here: #1060705136248377414 message

With recent volume, this should be pretty minor, but might be noticeable if you have a large position.

[late meadow]

Ok, let's see if I am understanding this. We have 1 SLP for the treasury and 1 SLP for everyone else. The treasury SLP will now become USDC/ILV, while the everyone else SLP will remain ETH/ILV. Am I close?

[buoyant dragon]

Yup, this won't change staker's SLP at all. There's some more details but your fundamental understanding is correct.

[late meadow]

Well, if it helps I give it a 👍. Plus I just want @buoyant dragon you and @white jolt to know how much you guys rock. Illuvium is lucky to have you 2 on the team. Keep up the good work.🍻

[white jolt]

Bless your heart

[vestal belfry]

I would suggest a definition section to all IIPs. Runway is not necessary language everyone knows (I don't even think a single definition exists for it)

[buoyant dragon]

This is a good idea, it's already been added to the next iteration of Gov V2, but it could be a standard practice for anything that might be vague or misunderstood in a proposal.

[thorn stream]

If it is all about W3 games going main stream, then Entry level needs to be easier for Noobs.

[buoyant dragon]

Lowering the barrier to entry is important, absolutely, but is not related to this proposal. If you have any specific ideas about things that currently pose a barrier, #1020759212172775464 could be a good place to post about them.

[plain falcon]

Agreed

[white jolt]

IIP-28 SushiSwap Liquidity IIP