Protocol owned liquidity (POL), Olympus Pro
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.
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
- 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)
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.
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)
- 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