PSP-IPΔβ: ParaSwap Liquidity Ownership Plan

PSP-IPΔβ: ParaSwap Liquidity Ownership Plan

2. Keywords

PSP liquidity incentives, integrations, and synergies.

3. Simple Summary

This proposal articulates several liquidity-related initiatives to transition our main liquidity source into a Curve V2 pool partly owned directly by the ParaSwap protocol.

4. Context

This proposal summarizes and articulates the following ideas previously discussed:

  1. Liquidity Mining incentives on SushiSwap
  2. Olympus Pro to capture liquidity
  3. Lanch+Incentives of the PSP Curve V2 pool
  4. Accumulating CVX to further grow the PSP Curve pool(s)

5. Goals

This proposal articulates several sub proposals related to PSP’s liquidity in one coherent plan aiming to grow liquidity on the PSP token by transitioning the bulk of it to Curve and having the protocol control a third to a half of it.

6. Means

There are several steps envisioned in this proposal, each with a set PSP budget;

  1. SushiSwap PSP/ETH: current incentives are 5M PSP / 3months. We could renew as such to best support the liquidity during this critical transition.
  2. Olympus Pro Bonds: at first glance, allocating 3M PSP / 3months to capture our own liquidity seems ideal. We’ll double-check the metric and pace with the Olympus team.
  3. Curve V2 incentives: To start growing the Curve V2 pool, we could use regular incentives as placeholders before we get the gauge. Budgeting 3M PSP for 3 months just in case seems safe. If unnecessary, the budget planned for incentives can be used as bribes.
  4. PSP Curve Pool Bribes: Once the gauge will be live, we will be able to bribe voting on our pool through Votium. We can start with 2M PSP per month, which amounts to 1M PSP per voting round.
  5. **CVX buying: **Controlling our own stash of CVX tokens would facilitate all the initiatives detailled above. This sub-plan is only mentioned here and will be specified in an accompanying proposal: PSP-IPΔΩ - Entering the Curve Wars.

7. Metrics

This plan will help further grow and sustain the liquidity of the PSP tokens. While they are additional expanses envisioned for this year, on top of the incentives, such as acquiring CVX or PSP bribes, the goal of the plan is to reduce the cost of our liquidity in the long run.

If this plan is successful, the need for liquidity mining incentives will be close to none, allowing the protocol to avoid expanding close to 3M PSP per month currently used to that end.

Besides, while this plans’ main goal is to support the liquidity, it involves the possession of both CVX tokens and the PSP/ETH Curve LP pools by the protocol. This enables us to start diversifying the treasury (currently 100% PSP) and create the first two revenue streams of the protocol:

  1. Curve PSP LP Tokens: trading fees + PSP incentives (if any) + CRV&CVX tokens once the gauge is live
  2. CVX tokens: cvxCRV yield + capturing back a share of the PSP bribes

8. Forward-thinking considerations

The quality of liquidity:

As the recent bearish price action has shown, Uniswap V3 pools tend to fall out of range when prices depreciate quickly, making this liquidity source quite unreliable. SushiSwap pool does not have this limit, because the liquidity is supplied on the full spectrum. However, SushiSwap’s liquidity is less efficient.

Therefore, a Curve V2 pool seems ideal as the main liquidity source: it provides the most effective liquidity per TVL, thanks to Curve’s liquidity concentration. However, because the rebalancing is handled automatically by Curve, such pools do not suffer from being out of range when the price moves quickly.

9. Implementation Overview

This is a five steps plan:

  1. Renew SushiSwap’s liquidity incentives: launched on Dec 18, the current SushiSwap LM plan allocated 5M PSP for 3 months. Considering the pool’s role in the current plan, the incentives must be renewed (as such, or slightly lower?)
  2. Capture SushiSwap’s liquidity: with healthy liquidity on SushiSwap PSP/ETH, we can start capturing some of it with Olympus Pro bonds. Holders of the LP token will be able to bond it for PSP tokens, enabling the protocol to accumulate PSP/ETH SLP tokens in exchange for PSP.
  3. Transfer liquidity for SushiSwap to Curve: pull PSP+ETH out of SushiSwap, (create PSP Curve V2 pool if needed), and supply it. See forward-thinking considerations for reasoning.
  4. At this stage, while the PSP Curve pool will be available and supplied with a healthy amount of liquidity (targeting $1M TVL to start it), there will be no gauge on it yet, meaning no CRV emissions. To make the pool attractive for depositors, we could consider a PSP incentives budget. It will help us to demonstrate good faith in front of the Curve DAO to obtain the gauge.
  5. Finally, with a growing and dynamic Curve pool, we could petition the Curve DAO for the gauge. Once obtained, it will add CRV incentives to the pool, making it even more attractive and enabling the protocol to harness long-term strategies to support its liquidity such as bribes or CRV/CVX ownership.

Note: Once the gauge is live, the ParaSwap protocol will be able to farm the PSP pool on Convex, for additional CVX and CRV tokens.

Let’s not forget about another sub-plan helpful to this one: acquiring CVX to support PSP’s Curve liquidity. It will help get the gauge and support the CRV emissions on the pool once the gauge is live.

10. Voting options

For, Against, Abstain