PSP-IPΔ15 - Olympus Pro Pilot for Protocol Owned Liquidity

Keywords

Protocol owned liquidity (POL), Olympus Pro

Simple summary

Olympus Pro is proposing a Partnership with ParaSwap to pursue a 30-day pilot bonding program, through which ParaSwap can secure Protocol Owned Liquidity (POL). By launching bonds on Olympus Pro’s marketplace, ParaSwap will allocate monthly $PSP emissions to sell to bonders at a dynamically priced ROI in exchange for wETH which ParaSwap will use to boost the liquidity of its Balancer Safety Module.

Through this Partnership, ParaSwap and Olympus Pro believe we can reduce $PSP token inflation, boost liquidity on target chains, generate additional revenue streams through liquidity ownership, and optimize $PSP’s liquidity mining programs.

Context

ParaSwap has released a comprehensive proposal for treasury management and $PSP allocation in 2022, notably a proposal for 11M $PSP ($1.1M) towards protocol-owned liquidity and modifications to its Safety Module.

As currently constructed, ParaSwap is emitting 2.9M $PSP per month in liquidity incentives and 5.4M $PSP per month in staking pool rewards, resulting in 3.5% $PSP inflation per month and an annualized cost of $19M USD equivalent. The Balancer component of the Safety Module sits at $375K in liquidity - far off the $5M target though it is being incentivized with 1.25M $PSP over a 3 month period. Token inflation, sell pressure, missed liquidity targets and non-optimized liquidity incentives are creating a substantial cost burden on the ParaSwap treasury and $PSP token holders.

As a key step towards solving these challenges, Olympus Pro is proposing a 30-day pilot bonding program on Olympus Pro’s marketplace through which ParaSwap will allocate 1M $PSP emissions in return for wETH provided by bonders on Polygon. Polygon is our selected pilot chain as PSP seeks to boost on-chain liquidity on Polygon and gas cost will be cheaper to allow for more efficient bonds. PSP will be given to bonders, at a discount based on demand and a dynamic pricing calculation, in exchange for LP tokens or other assets the ParaSwap treasury looks to acquire. Through owning additional liquidity, ParaSwap can reap benefits such as:

  • Permanent liquidity/DAO control over liquidity
  • Reduction in Token incentives on key pairs (inflation control)
  • Trading fee accumulation
  • Treasury accrues its own LP incentives
  • Mitigation of mercenary capital taking advantage of liquidity mining program

Goals

  • Increase the $PSP liquidity owned by the DAO
  • Establish deeper liquidity of Balancer Safety Module
  • $PSP Token inflation reduction (long-term)
  • Consolidated liquidity strategy on key pools (long-term)
  • Stability in token price (long-term)
  • Liquidity mining cost reduction $19M annualized → $8.9M annualized (long-term)

Rationale

As mentioned above, a bonding program should mitigate the effects of mercenary LP’s taking advantage of liquidity incentives, help establish liquidity on newer chains, reduce $PSP inflation, give ParaSwap control of its own liquidity, and generate additional revenue for the treasury.

We seek to start the 30-day bonding program in mid-March.

Means

1M $PSP emissions over 30 days to support bonders and Olympus Pro’s 3.3% fee. The 3.3% fee is justified to support labor cost, contract development and deployment, onboarding and community engagement, and value provided to partners (POL ROI will far exceed fee).

The 1M $PSP will be pulled from PSP-BPΔ1-5: Protocol owned Liquidity (POL Budget)

Continuation and expansion of the bonding program after the 30-day period will be put to an additional, separate governance proposal and may affect other budget considerations (such as pulling from staking rewards from pools that are removed or disincentivized)

Voting options

  • Accept the Olympus Pro proposal for 1M $PSP 30 day pilot bonding program
  • Refuse the Olympus Pro proposal for 1M $PSP 30 day pilot bonding program
  • Abstain
13 Likes

Hi there!

Thank you for this proposal! I will eventually make a more detailed feedback this weekend, but I noticed several ideas after a first reading :slight_smile:

I agree with the general orientation of this proposal. The goal of consolidating the liquidity strategy on key pools (long-term) seems relevant to me. Also, starting the partnership with Olympus Pro with a 30-day program pilot is an interesting idea: it should allow us to better adjust the proposal in the coming months.

Nevertheless, this proposal must be accompanied by metrics to evaluate the success of the program. How can we measure it? Can we already set targets before the program starts? I think this question should be clarified now to guide our thinking at the end of the pilot period.

I have also identified three issues that are not very important but that need to be addressed:

  • You start with an analysis of liquidity by stating that the staking pool reward distribution is “$5.4MPSP per month”. This figure seems to me to be overestimated (or am I just missing something?). The current state of distribution is $1.5MPSP per epoch, which should bring us to just over $3MPSP per month.
  • The proposal to start the program in mid-March seems hardly feasible given that it is already March 11. Wouldn’t it be reasonable to start it later?
  • The voting options should contain the following option: “Refuse the Olympus Pro proposal for 1M $PSP 30 day pilot bonding program” in addition to the “Abstain” vote. These are not the same options.

That’s it for my formal suggestions. I’ll let the liquidity program specialists answer before I make any further comments!

8 Likes

I like this. But where 1st cex?

look interesting …eager to know what’s other expert opinions

How does this disincentivize people who are down in their bags from seeking exit liquidity?

How will bonders be protected from those seeking exit liquidity?

It makes me kind of want to loot (bonders).

The importance of this proposal cannot be overemphasized as it seeks to address a major problem that has been affecting the price of psp since inception.

I do not have any addition or ideas to contribute as everything seems perfect to me and Disiaque as asked some of the critical questions that should be asked. That said, we might not be able to meet up with the mid March target for it’s implementation since today is 11th of March and we are still at the research stage. Perhaps next epoch start date might be a more realistic target and to meet up with that we need to speed up the discussion here.

3 Likes

How to increase liquidity is not too much, this is mainly good, many aspects are also strengthened.

The main thing here is to address the problems of liquidity rentention.
That’s whats at the core of this Olympus Pro proposal.

The community call about it is really enlightning? If you haven’t already, go check it :

https://youtu.be/_cjYSxaVGZc?t=354

the part about pool2 vs bonding is also really woth seeing imo
https://youtu.be/_cjYSxaVGZc?t=1818

Last but not least, this proposals engages less than 5% of the budget, I think it’s really worth the try.

1 Like

Thanks for the comments! I believe the 5.4M $PSP per month figure reflected the January EOM state when we first started our analysis, so thank you for pointing this out. If I recall correctly, the mid-March target is to to coincide with the expiry of Polygon LM incentives.

Common metrics for identifying bond program success will be the average discount rate on bonds, where successful programs target <10% discount. In addition, wETH accumulated from bonds will be used to add liquidity to the Balancer Safety Module so we can gauge success by the boost in liquidity as well. With current pool value at $235k, adding ~$95k of wETH from bonds should add around $475k to the Safety Module.

2 Likes

Thanks for this proposal, however I think there’s still a few points that needs more information:
As mentioned above, the staking rewards are now down to 3M PSP/month, and we could also reduce the LM budget by focusing on less DEX on each chains, ans by removing all incentives for 80/20 LPs since it didnt worked as good as hoped.
However, this doesn’t mean that we should over increase the Pol budget, as the 1M PSP is defined as a global budget for POL on all chains, not only one, which means that if the DAO were to build bonds on all chains, it would require a much higher amount of PSP to do it:

  • What’s the liquidity goal for 1M PSP/month ?
  • How long should it last to accumulate at least half of the Polygon pools in POL ?
  • How much would it cost for the DAO to build POL with OP on all chains ?
  • How long should it last to accumulate at least half on all the PSP pools in POL ?
  • Why not try to build liquidity owned on Fantom to target the FTM grants instead of Polygon ?

Thanks for the feedback here.

Generally Olympus Pro Partners have allocated emissions “saved” from reduction in LM incentives to the bond program to gradually increase over time. The Olympus Pro team identified the 1M PSP from the POL budget as potentially the “easiest” to pull from to initiate phase 1 of a bonding/POL program with Olympus Pro. We are open to ParaSwap’s guidance on which budgets we can or should pull from in phase 1/month 1.

We wanted to start the program @ 1M PSP (~$100K USD equivalent) as a low-risk trial/pilot before making broader and comprehensive recommendations on expansion to other chains, PSP LM incentives, and budget modifications. Nearing the conclusion of the 1M pilot we’d figure out the phase 2 plan (30-90+ day roadmap) with ParaSwap leaders and community.

Answering some of your questions:

  • What’s the liquidity goal for 1M PSP/month → assuming 1M PSP = ~$100K USD and stability in PSP/WETH price, between $90K-93K USD wETH equivalent (3.3% OP fee + 5-10% bonder discount benchmark). Market price of PSP, ETH (and its correlation) would affect the value of acquired liquidity after 30 days.
  • How long should it last to accumulate at least half of the Polygon pools in POL → Dependent on emissions that can be allocated to the PSP bonding program; we can choose to be aggressive or conservative. There is ~$930K liquidity between Cometh and Quickswap WMATIC-PSP pairs; so it would be ~5 mo @ 1M PSP emissions based on current prices. Worth noting that we are looking to boost wETH reserves/liquidity through the current proposed bonding program rather than targeting Polygon pairs.
  • How much would it cost for the DAO to build POL with OP on all chains → Each bond charges a 3.3% fee to cover contract deployment + labor costs for OP. The cost is dependent on avg bonder discount, 3.3% fee, PSP emissions allocated per bond per month, and market price of principal (bonded token) and payout ($PSP) price. Emissions can be adjusted (increased, decreased, removed) at any time during the program. We would provide a phase 2 recommendation towards the end of the phase 1 30 day bonding program for review by the ParaSwap community.
  • How long should it last to accumulate at least half on all the PSP pools in POL → Again, dependent on how aggressive we want to be with emissions and POL targets; I would anticipate us wanting to do a deepdive later into the phase 1 bonding program to set targets per pair, per chain etc.
  • Why not try to build liquidity owned on Fantom to target the FTM grants instead of Polygon → We chose Polygon over Fantom for phase 1 as the “lowest risk” chain given recent events in the FTM ecosystem. Olympus Pro still fully supports FTM and we can include FTM in phase 2 bond program.
4 Likes

This is up for a vote on Snapshot! Make sure you get out there and vote.

3 Likes