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 liquidity incentives, integrations, and synergies.
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).
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.
Have the ParaSwap DAO acquire CVX tokens to help secure and grow long-term our liquidity on Curve, without requiring continued incentivization.
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.
**Summary: The DAO Multisig will swap directly PSP for CVX using ParaSwap. It can be done in several batches. **
- Direct PSP to CVX swap, no other intermediaries required
- Uses ParaSwap
- 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.
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.
- Scalable (depending on market demand) way of obtaining CVX tokens.
- ~OTC deal, does not involve direct selling of PSP tokens.
- 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.
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.
- 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.
- 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.
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).
- Dynamic and fairer price discovery
- Transparent mechanism, usually lasting a few days to weeks.
- 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.
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.
- 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.
- 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.
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.
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.
To be specified once the community agrees on the methods and their relative balances.
FOR, AGAINST, ABSTAIN