PSP-BPΔ1-5: Protocol owned liquidity (POL) budget (11M $PSP, 4.63% budget)

Governance Proposals Budget
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Keywords
Protocol owned liquidity

Simple summary
The liquidity mining is not sustainable long term from a protocol treasury perspective. We could explore the OHM pro option (or another protocol) that would allow the DAO to buy most of the liquidity from the users using a bond mechanism.

Context
If the PSP-BPΔ1-2 is voted, the yearly budget for Liquidity Mining is 16.67%. By adding 4.68% for this program, we could probably reduce the Liquidity Mining by a lot next year, considering that most of the liquidity will be held by ParaSwap DAO.

Goals

  • Increase the $PSP liquidity owned by the DAO
  • Reduce the liquidity mining programs in the coming years

Rationale
There will be a detailed proposal about this program, as this one is only to vote on a budget.

It can be seen as a double spending with the liquidity mining budget, but the idea would be to reduce or stop the incentives in the next few years.

The goal would be to start it in mid February/early march, which is why there is 0 $PSP allocated for the first month on the table.

Means
The proposed budget is 11M $PSP yearly with a distribution of 500K $PSP/epoch for the bonds rewards.

Voting options

  • Accept the Protocol owned liquidity (POL) budget (11M $PSP, 4.63% budget)
  • Refuse the Protocol owned liquidity (POL) budget (11M $PSP, 4.63% budget)
  • Abstain
Should we allocate a budget for the protocol owned liquidity (POL) ?
  • Accept the Protocol owned liquidity (POL) budget (11M $PSP, 4.63% budget)
  • Refuse the Protocol owned liquidity (POL) budget (11M $PSP, 4.63% budget)
  • Abstain

0 voters

3 Likes
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Prior to this proposal, I wasn’t aware of the concept of POL, but from what I’ve read it seems like a great way to sustain liquidity in the long term without constantly having to fund liquidity pools. I’ve just got a couple of questions for somebody more knowledgeable in POL:

  • Is OHM Pro currently the only major provider of this service? I tried looking into other alternative protocols and could not find much. I’ve got nothing against OlympusDAO btw, I just want to compare different bond marketplaces to see the options.

  • Since the system itself seems to be quite simple (provide token/LP, lock it, receive discounted token), how viable would it be to make our own version of POL on chains where OHM Pro is not supported? I feel that having as much liquidity as possible owned by the protocol is a big priority after all, as it could become a (small) source of revenue through swap fees.

1 Like
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PoolTogether Recently did an analysis of their OHM Pro Program and I’d like to make some of the main points known before we proceed with this route. I do think this should be in the budget though.

Notable Points;

  • The total number of participants in the Olympus Pro sale: 5
  • bots accounted for 127 of the 227 bonded LP tokens (i.e 56%).
  • All of the POOL redeemed by this army of bots was sold. An additional 54 of the tokens were bonded by one other address that has completed 3 round-trips of bonding, redeeming, selling half the POOL and bonding again. These two actors alone account for 80% of the bonding.
  • Between those two actors, 85% of the POOL redeemed in the process was sold, instead of being transferred to long-term holders interested in participating in the protocol.
  • Acknowledging that our fixed cost of 3.3% to participate in the program only goes up with bond discounts, which at minimum subsidize gas costs, it seems unlikely that the PRO setup can compete with other methods of converting POOL to ETH.

For this Reason and more (Impermanent Loss Protection, and Single-Sided Staking) I think we should pursue increasing our treasury investments into Bancor rather than OHM Pro but I am open to any other suggestions.

3 Likes
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I think a few projects created their own bonds, like QiDAO for example, so maybe we could make our own too, we would remove the 3.3% fee

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Indeed this could be discussed, considering the bonds could be used both for capturing PSP liquidity and to purchase CVX tokens. It will require additional development though.

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Following some great discussion I had over at the Discord, I wanted to discuss allocating a relatively small amount of $PSP to a potential way of having ‘true’ protocol owned liquidity: Pairing the $PSP with Tokens acquired from Positive Slippage ( A topic previously discussed in the forums Positive Slippage Income )

Compared to other protocols, one advantage Paraswap has is the inevitable acquisition over time of tokens accumulated from positive slippage. Looking at the linked wallet, some of the most saved tokens, such as WETH/ETH and USDC would make for great asset pairs, all without even having to sell any $PSP.

While I still think that other ways of acquiring POL are worth considering to have a significant amount of pooled volume acquired, the advantage of adding this to the budget would be adding sell-pressure-free liquidity to the DAO, which at the same time would slowly grow thanks to DEX fees. The only disadvantage of this could be impermanent loss, but that is not as relevant as having truly DAO-owned liquidity, in my opinion.

Doing some quick napkin maths, assuming we only do USC and ETH pools, the allocated budget would be between 350k and 1M PSP , depending on whether we decide to use ~30% of this slippage pool or 100%, which I would not recommend as we could use those assets for other purposes as well.

What do you all think, would it be worth permanently acquiring some LP for the DAO, even if the amount is relatively minor?

5 Likes
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I don’t think pairing the assets with PSP would be a great Idea since we are opening up ourselves to IL. When you LP something you are essentially betting that PSP will not outperform or underperform that asset and if it does you open yourself up to Impermanent Loss. Let’s say for example PSP does a 10X from here and eth does a 2x, we would end up with remarkably less assets over all. To illustrate this here is the performance of different assets in uniswap vs Bancor (IL Insured).

If we assume that PSP will outperform its paired asset, as PSP price rises the treasury will bleed out it’s value.

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Thanks for your input, this is why I wasn’t sure about introducing such an idea :slight_smile:

I was aware that IL might be devastating, but was hoping that with high enough split of protocol fees this might be mitigated, but seems this is not the case!

I still think that we could use some of that positive slippage to permanently own some liquidity, but maybe using PSP pairs might be best saved for chains that don’t have single-sided IL-proof staking? It might not be as profitable as farming some of it, but having a DAO owned liquidity floor will definitely help in the long term.

2 Likes
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I like the idea !
From what I understand we could only pool 500K PSP with 50% of this wallet ? so it would represent around 170k$ liquidity at the current price right ?

If yes, i think it’s good start, and it might help us reduce the POL budget a little, but we’ll still need to do a POL program imo

1 Like
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As far as the LP is concerned, I share the concerns expressed above.
But I really like the idea of using positive slippage to build up the treasury by making it work, but didn’t we prevent this possibility with the vote on PSP-IPΔ8: Fee Sharing with Referrers which already uses positive slippage?
Or at least reduced its impact as the protocol should only be 50%?

Edit : I see in the doc that the positive slippage returning to the protocol was already 50% of the positive slippage. So I remove my comment above.
My mistake!

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Hello and thanks to all for your contributions, especially @Tenzent for the data regarding previous Olympus Pro programs.

I’d agree that an alternative bonding solution might be interesting to avoid Olympus’ Pros fee and other concerns associated with it. However, it would require additional development.

To provide more insight on what the transition to POL might look like, I just shared a research on the topic:

Cheers

4 Likes
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hi @tokenbrice , its not better to looking at liquidity-as-a-service model (LAAS) ? exactly something provided by fei protocol ?

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Hey all,

Chiming in from OlympusDAO on the Olympus Pro team here. I wanted to address two of the raised concerns (PoolTogether and Olympus Pro Fees) as they lack context in how they were presented.

PoolTogether

Launching a successful bond program requires community engagement and co-marketing efforts to drive awareness to the bond program and conversion to bonding activity. After initial discussions, the governance proposal to launch POOL bonds passed in the last week of October. Unfortunately, the timing could not have been worse and a lawsuit against PoolTogether in the Eastern District Court of New York caused a general token price decline after the bond launch. OlympusDAO suggested measures to increase subscription, but periods of sustained sell pressure are not optimal for a bond program. Essentially, community members were unwilling to bond given the price uncertainty during that period of time.

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In retrospect, OlympusDAO should have recognized that the PoolTogether bond program needed to be halted. Instead, we attempted to increase awareness by suggesting implementation of a “bond bot” in Discord or a link to our Bond Marketplace on their front-end. Given the issues going on at the time, however, the PoolTogether team did not adopt our suggestions. A lack of onboarding efforts and low community awareness, combined with a price decline, produced an unfortunate, albeit predictable, result that is outlined in their forum.

Olympus Pro has since implemented changes to our partner qualification approach in 2022 to emphasize Partner Success & Retention:

In addition to screening potential partners with a low likelihood of bond program success, we provide:

  • Partner analytics services (alerts, bond bots, queries)
  • Tokenomics consulting (beyond just OP)
  • Assigned Onboarding & Success Manager
  • Custom bond contract development

We do not flag ParaSwap as being at risk of adverse effects and are confident that our teams will work together to properly implement a Bond Program. Extrapolating PoolTogether’s story into a broader issue with Olympus Pro, which currently sits at 50 Partners with a 93% logo net-retention rate, is an unfair generalization.

Olympus Pro Fees

Yes, Olympus Pro charges a 3.3% fee for Partners participating in our bonding program. As with any “as-a-service” model, this is justified to cover operating cost and the value provided by our service. Rather than apply engineering resources to building an internal solution (labor cost, re-allocation of resources from other initiatives), OlympusDAO provides bond and treasury contracts, configured to ParaSwap’s emissions targets, “out-of-the-box”, which ParaSwap would fully own.

We will work closely with ParaSwap to benchmark Bond Program performance against peers and provide recommendations for continued success. We want Olympus Pro to be part of a holistic “Liquidity Solution” for ParaSwap, where we can help taper current PSP LM incentives to reduce token inflation and ensure sustainable treasury growth.

If you don’t believe us, we can provide testimonials from our current Partners such as Alchemix, Keep3r Network, Angle, mStable, TreasureDAO… among many of our other 50+ and growing Partners who continue to work with Olympus Pro. We welcome all feedback from prospective and current Partner communities on how we can make our product offering better! Also looking forward to engaging the ParaSwap community to build a Partnership beyond Olympus Pro.

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Hi guys,

Marh from Unslashed here, Unslashed ran and is gonna continue running an OP bond until the protocol owns 50% of the Uniswap liquidity. This is something that we should probably have implemented earlier, we had about 2 months of discussions and debates in the community before pushing it for a vote and implementing it.

Liquidity incentives over long periods of time tend to hurt projects; in a context where mercenary capital is being deployed using sophisticated strategies - ie. IL can be offset and farming + dumping is the name of the game -, it is more rational to focus on having enough liquidity at the lowest cost possible rather than trying to pay extremely high APYs for that same liquidity. In my experience OP and POL allows to do that, reducing emissions should be a priority; PSP is the only asset that the DAO holds and it should be spent wisely.

4 Likes