When Empty Set V2 was initially developed Uniswap V2 and Curve were chosen as the vehicles for bootstrapping ESS and DSU liquidity respectively. These are both sub-optimal liquidity pools from a capital-efficiency and a DEX-routing perspective. Now that Uniswap V3 is available, and a standard incentivizer contract has been audited and deployed, we’d like to propose upgrading our liquidity pools to this new protocol.
Strategy
Uniswap V3 incentives are audited, but are not yet in wide use. Furthermore, unlike our existing programs, these cannot be modified or terminated via governance once initiated. With this, we’d like to hedge risk and propose shorter-term programs as a trial run in parallel with the existing ones. If these trial programs prove successful, we recommend a follow-on proposal be submitted extending these programs, while terminating the initial ones.
Incentive Programs
Pool A
Pair: DSU-USDC Fee: 0.05% Contract: 0x3432ef874a39bb3013e4d574017e0ccc6f937efd Incentive: 8,000,000 ESS Period: 90 days (7776000 seconds), start time determined at on-chain proposal
Pool B
Pair: ESS-USDC Fee: 0.30% Contract: To Be Instantiated Incentive: 4,000,000 ESS Period: 90 days (7776000 seconds), start time determined at on-chain proposal
I think this is a great initiative that would help tremendously with integrations as well, both ESS and DSU will benefit from more liquidity as well as TWAP oracles for projects to pull prices from
Can someone explain why the fee structures are different on each pool? I think lowering the ESS fee to match the DSU one will encourage more new USDC capital to participate, given so many current holders are looking to do something with their ESS.
When the pair should essentially be stable (DSU-USDC) fees are typically lower as LPers should expect almost no impermanent loss and therefore don’t need such heavy rewards to make it worthwhile to provide liquidity. As IL risk rises, the fees and rewards need to be better to incentivise the provision of liquidity.
I agree with @freshaspect re: rewards compensating for potential IL, and think it might make more sense to have the a larger share of rewards go to ESS-USDC vs DSU-USDC. Or perhaps 50/50 if we really think this is needed to bootstrap DSU-USDC?
Since Uniswap V3 incentives themselves are already a bit new, I think we should probably stick to the bare minimum complexity for this initial trial run. These position managers would be a good fit to be looked at as part of the follow-on proposal suggested.
APYs tend to equilibriate at whatever the market determines is fair, so we don’t need to consider compensating for IL directly, this should just happen naturally. (we can already see this in the difference in APYs with the current pools.)
The rewards given will moreso determine the quantity supplied to each pool. There’s a clear value in bootstrapping DSU liquidity: this our “secure and stable” proving point for potential integrations. The case for ESS liquidity is less mission critical, but still seems as though it should be non-zero. This was the reasoning behind the 2:1 allocation, but happy to hear other thoughts on this!