Acquire and use CVX to position ParaSwap in the Curve Wars

Research and Discussion
1

Please keep in mind that this proposal is in research phase - sharing here to provide clarity on the intended usage of the BP Δ1.3 budget.

PSP-IPΔΩ - Acquire and use CVX to position ParaSwap in the Curve Wars

2. Keywords

PSP liquidity incentives, integrations, and synergies.

3. Simple Summary

The goal of this proposal is for the ParaSwap DAO to acquire Convex CVX tokens. Votelocked as vlCVX, they will create a revenue stream (paid in cvxCRV) for the DAO, as well as provide voting power on Curve’s governance, useful to get the gauge for PSP pools and once obtained boost the CRV allocations dedicated to the PSP pool(s).

4. Context

As the latest market correction has proven, Curve Finance is without contest the most resilient and efficient liquidity source. The two main competitive models suffer from serious lacks:

  • With UNIv3 user-managed liquidity concentration, the liquidity gets really narrow once the price has moved outside of usual bounds, such as during a large pump or dump, making the liquidity mostly unavailable when most needed.
  • On the other hand, the SushiSwap approach, by avoiding any concentration does not suffer such shortcomings. However, because liquidity is effectively deployed on an infinite spectrum of prices, it’s not the most efficient.

Curve on the other hand develops a model harnessing concentrated liquidity, yet the concentration is managed by the pool itself, allowing it to avoid UNIV3’s model main shortcoming.

Besides, thanks to the CRV token, there is a lot that can be done to grow and develop a Curve pool. Therefore, the PSP Curve V2 pool seems like the most resilient and scalable liquidity source for the PSP token in the long run: the one the DAO should focus its efforts on.

5. Goals

Have the ParaSwap DAO acquire CVX tokens to help secure and grow long-term our liquidity on Curve, without requiring continued incentivization.

6. Means

First, let’s consider how many CVX tokens we could acquire accounting for the present value of both PSP and CVX:

45 M PSP = 8.4M USD = 300000 CVX

So the DAO owns PSP tokens and is looking for CVX tokens. There are several paths possible to achieve this, we could also use a healthy mix of different methods.

I’ve conducted the research on the main solutions available, presented below with their summaries, main advantages, and drawbacks, as well as my personal recommendations regarding the share of the PSP budget dedicated to this proposal to allocate.

Ω.1: Direct swap using ParaSwap

**Summary: The DAO Multisig will swap directly PSP for CVX using ParaSwap. It can be done in several batches. **

:+1: BENEFITS

  • Direct PSP to CVX swap, no other intermediaries required
  • Uses ParaSwap

:warning: LIMITS

  • Limited by the current liquidity available on PSP/ETH, since the route will be PSP->ETH->CVX
  • Negative price pressure on PSP (= the DAO Multisig will sell PSP tokens)

Recommendation: Direct PSP->CVX swaps could be harnessed, but because of the negative pressure this solution exerts on PSP’s price, it cannot be the main one.

⇒ Can be used, but should be limited to the minimum and properly timed/batched: 10% of the total budget.

Ω.2: CVX bonds with Olympus Pro

Summary: Using Olympus Pro, we start a CVX bonding campaign for PSP. Owners of CVX will be able to use it to acquire PSP at a slight discount.

:+1: BENEFITS

  • Scalable (depending on market demand) way of obtaining CVX tokens.
  • ~OTC deal, does not involve direct selling of PSP tokens.

:warning: LIMITS

  • Olympus Pro charges a 3.3% fee + requires the team’s availability.
  • Requires communications and awareness to sell out the bonds.

Recommendation: Proven method of accomplishing such a swap, more commonly used to capture a project’ LP tokens but also works for other tokens. However, the scale is limited here (CVX owners with a desire for PSP tokens).

⇒ Efficient but has its own limits: 15% of the total budget.

Ω.3: Uniswap V3 Optimistic Bet

Summary: Using UniswapV3, it’s possible to create custom range orders. We could supply a PSP-CVX position with 100% PSP and a tight range. If the PSP price appreciates compared to CVX, the position will progressively shift to CVX.
The range could start 1% above the current PSP/CVX price (=100% PSP supply) and ends 10-20% above it.

:+1: BENEFITS

  • More incremental way of swapping PSP to CVX.
  • Doesn’t require CVX holders looking for PSP tokens.
  • Creative usage of available and widely supported solutions.

:warning: LIMITS

  • Even if indirect, this method essentially is a smoother version of the direct CVX->PSP swap, it will create a negative pressure on PSP price, but only if it appreciates.
  • Assumes a price appreciation of PSP - if not, the position will stay 100% PSP resulting in wasted gas costs.
  • Requires an action to pull the liquidity out once the target CVX balance has been reached.

Recommendation: It’s a bit of a hack and a manual process, but has some merits. It could be interesting to allocate a share of the overall budget to this method, as this might prove the most cost-effective method of CVX acquisition.

⇒ Cost-efficient, but a bit of a gamble: 10% of the total PSP.

alt_text

Ω.4: Using Liquidity Bootstrapping Pool (LBP)

Summary: LBP can be used to launch new tokens. They enable a project to supply a pool 100% with their token. The pool progressively rebalances as the tokens are sold. Here we would do the same but with a PSP/CVX LBP. Funded by the DAO, it will start 100% PSP and end up in a PSP-CVX mix (100% CVX if all PSP are sold).

:+1: BENEFITS

  • Dynamic and fairer price discovery
  • Transparent mechanism, usually lasting a few days to weeks.

:warning: LIMITS

  • Main limits are there enough owners of CVX with a desire to own PSP tokens?

Recommendation: It has never been done before to my knowledge, although I don’t see an obvious reason why. I would not use it as the main source, but it could be worth the try with a reasonable share of the budget.

⇒ Can be cost-efficient, might be worth it on a smaller part of the budget: 10% of the total.

Ω.5: OTC deal with Convex DAO or a CVX-heavy whale

Summary: Just like Ω1, but over the counter: the DAO would swap PSP tokens for CVX over the counter (pre-agreed price + potential discount) with one/several CVX whales.

:+1: BENEFITS

  • Direct PSP to CVX swap, without applying negative pressure on PSP’s price.
  • Most immediate method, no fees nor intermediaries. The actual swaps can be conducted using standard solutions, or even SudoSwap.

:warning: LIMITS

  • Are there enough CVX whales looking for PSP? How do we find them? Are they willing to swap enough?

Recommendation: Simple and straightforward, predictable costs (= discount), the main downside of the method is finding the interested whales. I don’t think there are enough to cover the whole purchase.

⇒ Can be the main method depending on appetite and discount desired: can stomach up to 55% of the total purchase if there’s sufficient appetite.

7. Metrics

For each method, we will measure their performance based on their unit cost of CVX: the cost of 1 CVX in PSP.

However, not all methods are equal and some such as Ω.1 or Ω.3 have negative externalities, so it should be accounted for: we could envision a maximum amount of PSP to expand on such methods for instance.

Other methods have inherent limits, such as Ω.2 or Ω.4 - while such methods are cost-efficient, they cannot be used to cover the whole purchase.

8. Forward-thinking considerations

While this plan focuses on mainnet liquidity, owning CVX tokens will give us the firepower to support the launch and growth of any Curve pools, including potential PSP pools on L2 and sidechains when available.

9. Implementation Overview

To be specified once the community agrees on the methods and their relative balances.

10. Voting options

FOR, AGAINST, ABSTAIN

9 Likes
2

Very interesting and well drafted proposals on which I’ll take some time to dig in. In addition to the balances between the different methods, have you considered the sequence of implementation? For instance, starting with an OTC deal at discount prior to selling PSP on the open market might be less relevant than the other way around.

I would add another method that complements your proposals and which would not put immediate sell pressure on PSP. If we were to implement the Gas Refund Proposal, in particular the NFT Levels for Traders, we could use the revenue of the NFTs sold in ETH to buy CVX. To maximize the revenue in a short period of time, we could for instance sell [1000] Level 4 NFT at [30]% discount (with the proposed [1] ETH tag price) during a limited period of time, generating [700] ETH to buy [75]K CVX at current price.

5 Likes
3

Absolutely love all the different solutions being proposed, I feel that if the acquisition of CVX is important we cannot simply market sell PSP when the market is so volatile and the token is still so low volume.

I personally was not aware on how different CRV pools were from the competition! I had a couple of points I wanted to ask , hopefully these answers help me and others understand the importance of convex and curve better :slight_smile:

  • Just for a sense of scale, is there currently an approximate amount of CVX that would be ideal to hold for the DAO, even as a long term objective? Maybe we could establish goals relative to $PSP’s market cap at the time, and adjust strategies depending on the mismatch between the amount of CVX held and the current market cap?

  • Obviously, as a DAO these is more importance in these tokens for governance and rewards offering than for fees revenue, but are the pool revenue fees currently consistent enough to estimate a ROI from purchasing CVX? I feel many of these proposals would be a lot more appealing if PSP holders would know that this purchase might end up appreciating well beyond its initial cost in the long term.

Also worth mentioning in here , but on the span of ~2 months we’ve accrued 15k in CRV+CVX from positive slippage alone. It might be a good idea to get a proposal out to put at least those tokens to work ASAP to start accruing yields and governance power, and afterwards work on these other methods

3 Likes
4

Glad to see a large budget allocated to the purchase of CVX by the DAO. However, there are several points on which I am not convinced:

I. @tokenbrice proposals

I have never seen a DAO sell its own tokens to the market, for several reasons:

  • Consequential decrease of the token price.
  • Selling tokens on the community and PSP holders directly → very bad in my opinion.
  • The problem with Olympus Pro is that the DAO will sell PSP at a reduced price, which will only increase the seller pressure on PSP in the short term
  • Compared to the first solution, this solution would allow the community to get involved by participating and helping the protocol acquire CVX and it’s good in my opinion.
  • Fees are also a problem
  • Olympus’ image following the drop of its token price in the last weeks to taint the image of Paraswap in the ecosystem
  • Using Uniswap V3 would be like betting on the appreciation of the PSP price, I don’t think that the DAO should do trading.
  • It is not certain that the PSP price will up in the next few weeks (nobody can know). A 20% increase in the price of PSP could take several weeks as well as several months.
  • Using a LBP would be like making a market sale of the PSP. The price of the PSP on the LBP will be arbitrated back to the market price. This is partly similar to solution 1 of selling PSP using Paraswap.
  • This could be a good solution however I am not sure that the DAO of Convex wants to do DAO to DAO swaps (needs to make a proposal on Convex governance).
  • Finding a CVX whale might be a good solution, however, we would have to make sure that he will not sell PSP on the market just after the swap.

II. New solutions that need to be explored

  1. Fork the Olympus Bonds mechanism and integrate it directly into Paraswap:
  • This would avoid the 3.3% fees of Olympus Pro
  • In the framework of the Protocol own liquidity, this solution could also be used to obtain liquidity by the DAO
  • The system could be used to diversify the treasury in the future
  • After discussing with a developer, the fork should only take 1 to 2 weeks maximum for a single developer
  1. Fork the Olympus Bonds mechanism and share it between several ‘French DeFi’ protocols.
  • Pooling the resources of several protocols as @tokenbrice proposed on Paladin governance would reduce development costs for Paraswap: PGM-6 : Transferability Event Strategy (Formerly PGP-6) - #10 by martingbz - PGM - Approved - Paladin DAO
  • Create an alliance between several DeFi protocols
  • This would avoid the 3.3% fee of Olympus Pro
  • Within the framework of the Protocol own liquidity, this solution could also be used to obtain liquidity by the DAO
  • The system could be used to diversify the treasury in the future
  • After discussion with a developer, the fork should only take 1 to 2 weeks maximum for a single developer
  1. Use the KPI options of UMA
  • Allow the community to buy PSP at market price but with a 9 month lock
  • The lock of the tokens could be removed before the 9 months if the price of the PSP go to 1$ or if PSP liquidity reach $25 million.
  • Grant a 10% bonus in PSP if the price of the PSP reaches $1 in the next 9 months or if the PSP reaches $25 million in liquidity.
  • Allow the real involved community to get more involved and help the protocol without increasing the seller pressure on the PSP in the mid-term.

The last solution using UMA’s KPI options is in my opinion the most elegant and need to be more explored.

7 Likes
5

Just helping with the cross-posting of information here, @fcmartinelli over at Balancer has commented over in the budget thread, and they have proposed some very interesting ideas! PSP-BPΔ1-3: Curve war & $CVX budget (45M $PSP, 18.93% budget) - #7 by fcmartinelli

Balancer is already a very important component of PSP thanks to the safety module, which gives us a reason to focus more attention here for now. Additionally, the DAO member has already mentioned in the thread that they’d be interested in an OTC Treasury swap to help the acquisition of BAL for us to participate in it.

This ability to acquire voting tokens without tanking the price, combined with the importance of the Balancer pool and how relatively early we’d be for these biddings makes me think that we should focus a significant amount of our budget here. Curve/CVX acquisition can still be going on in the background through less harmful methods like bonds and NFT selling in ETH, but this could be a great opportunity for us to acquire voting power directly and very quickly in the current stage.

4 Likes