LAAS for potential LM

This is not posted in #governance-proposals because GEL/ETH G-UNI Liquidity Mining Proposal is yet to be voted on. The core idea of this post is to propose a way to attract more liquidity if/once the LM starts.

I’ve been trying to find a way that can attract more liquidity to reduce the volatility once the LM takes off. Currently there are mainly 4 ways (perhaps more, please comment if so) to thicken the liquidity of a pool2:

  1. High APY as incentive
  2. Treasury participating LP as well
  3. Engaging centralized market makers
  4. Utilizing a LAAS (Liquidity As A Service) platform

The shortcoming of 1) is the constant sell pressure by large LPs during the LM, of 2) is the regression on the token distribution, which is actually the point of conducting an LM, and of 3) is the high cost. So the less explored alternative now is 4).

There are very few projects that provide LAAS at the moment. The most notable one perhaps is Tokemak. Looking into their liquidity reserve, Tokemak seems to have relatively deep liquidity to be deployed. However, there are at least two obvious foreseeable drawbacks:

  1. The project onboarding process is unclear and time consuming
  2. Eventually the GEL reward will go to Tokemak treasury instead of individual LPs

Another platform that can be considered as an LAAS provider is a newly launched one called AladdinDAO, which has a clear path for project onboarding but also uncertainty in how much liquidity can be provided. A project will have to be proposed to the DAO and the DAO council (a group of elected “reputable” DeFi individuals, e.g. DeFi Dad, vfat, Adam Chocran, etc.) will then review and vote on it. If passed, the LM will be integrated into their platform and everyone who trusts the council’s judgement is free to participate. There is a down payment for a proposal.

I personally think that LAAS can be a quite interesting approach. If we were to take this route, I’d prefer AladdinDAO over Tokemak, mainly because of Tokemak’s economic model, where the protocol would absorb all the GEL rewarded to the liquidity from Tokemak’s LP participants. As to AladdinDAO, it’s a rather mild alternative with an unknown prospect of how much more liquidity can be provided. On the other hand, there isn’t any obvious downside to it, and Gelato might gain some exposure because of AladdinDAO’s council. Besides, I can volunteer to be the proposer for Gelato and pay the proposal fee out of my own pocket (it’s not an awfully large amount).

Any suggestion and feedback is highly appreciated.

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Having a read over the introductory LAAS Medium Article and playing around with the supplied worksheet generates some pretty good results which looks like it could be a viable approach.

One thing that is important with executing a Liquidity Mining Incentive Program is ensuring that it is encouraging, adaptable and generally flexible but also rewarding. The main purposes behind the LM Program should be established here with a majority consensus agreeing to the approach, instead of the basic incentivizing of liquidity provision through GEL rewards, there should be more open discussions as to what the LM will aim to achieve and structure the model around those goals.

Some ideas should include, however are not limited to: experimenting with the distribution of GEL rewards, incentivizing new Gelato participants to the network by promoting Growth in GEL Holders, etc - whilst documenting the process for feedback and evaluation.

Although I would definitely keep an open outlook to different LM models, I strongly feel like a ‘test run’ in a relatively short time frame is necessary, ultimately providing a breakdown of the results from the LM program through a retrospect, highlighting the overall success of the program before establishing a longer term approach.

I think that we are certainly able to get really creative here and there are extremely interesting concepts brewing behind the scenes of ideas where G-UNI is utilized to both provide a LM program and significantly grow the aforementioned metrics including TVL whilst implementing G-UNI alongside the program.

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Thanks for the insight @Dan !

At the time when my post was set up, the LaaS option from Fei+Ondo was not announced yet, and now it seems that it’s another viable path we may consider. I also didn’t include Olympus Pro because from my perspective it doesn’t fit one of our main objectives which is to test out the rebalancing strategies for G-UNI.

Two obvious upsides of utilizing LaaS are:

  • Less liquidity demanding for the team at the initial stage
  • If we opt in a model where we can keep the rewards from our own LP, then it’s more for the treasury and less for whales (relatively)

Also because of the above two points, we may need to review how much an LaaS would change the incentive model of the LM, since in theory we don’t have to incentivize as much as if there were no LaaS, at least for the time of using it. If this can save some of the reserve planned for LM, then it can be allocated to other areas of promotion and growth in a more organic and sustainable way.

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I am having a call with the Fei team today to discuss their LaaS model, I will revert back with my findings in here. In the long run, I think we need sustainable governance owned liquidity as well as some LM strategies to be able to sustain high volumes and get GEL as liquid as possible.

One important questions I am currently thinking about is one WHICH NETWORK we should be focussing our liquidity on? The problem with Ethereum these days is that only whales will be able to really benefit as both LPs and buyers / sellers, because transactions fees these days are just eating up any LM rewards or the reduced slippage that results from our potential liquidity generation schemes.

What we could do to circumvent this is to try to focus making GEL liquid on another network with cheaper fees where also smaller player can start participating. There are a couple to choose from, it would be great if we could discuss the following options:

  1. Polygon
  2. BSC
  3. Fantom
  4. Arbitrum
  5. Avax

I am currently tending towards 1) Polygon as Gelato itself has been around on this network the longest, transaction fees are the cheapest and it definitely has some decent, real user base. The latter might hold true also for BSC though I am quite concerned about centralisation on there. Fantom is definitely also an option and we have established relationships with Spookyswap that we can utilize for maybe some joint LM scheme on their platform.

What is great about Arbitrum is that e.g. users will feel more secure as it is a L2 and Uniswap v3 is live on there, meaning we could use G-UNI for deep LM schemes. However, I am unsure about the actual usage on Arbitrum and whether there is a sufficiently sized user base which will be able to participate without too much friction. What do you guys say @btt @Dan ?

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The way I look at it now, there are 3 aspects that I’m concerned of the most:

  1. Who owns the liquidity;
  2. How, and maybe even more importantly, whether we should even have an LM;
  3. Where the liquidity is deployed

I agree that protocol owned liquidity (POL) seems to offer the best long term prospect in terms of sustainability. It’d be great if we have enough in treasury to kick it off, instead of having to rent through any external provider. Olympus pro could be an option, but from what I heard, the cost can be very off putting, relatively to the cost of deploying a conventional LM to bootstrap liquidity.

Then we will have to touch upon the subject of LM. If we can provide sufficient initial liquidity and come up with a way to own as much liquidity as possible, then I think we can reduce the allocation for LM significantly, if not canceled all together. This is mainly to limit mercenary whales, especially the sniper from the sale. Although, this indeed may also undermine the distribution purpose of an LM, but I personally would rather see that achieved via other incentive programs.

If we decided to conduct an LM, I think it’s absolutely critical that it has to be ONLY with G-UNI with pre-imposed strategies. Otherwise, no matter it’s on Uni V2 or V3, the whales will take the most advantage of the LM, but it is particularly bad in V3. The recent Ribbon Finance LM is a classic case study for this. Whales have very narrow liquidity concentration to eat up as much trading fees and reward as possible, and then constantly dump the reward for adding more liquidity or rebalancing. This creates a constant sell pressure, which effectively makes whales to move down to the next tight price range and repeat, while the other small retails are forced out of range and take a hug IL, without being able to earn any reward or afford to rebalance.

Regarding where to deploy the liquidity, my opinion is that if it’s not on the mainnet, then I would look at

  • Network security
  • The total TVL, or total network activity level
  • The easiness of bridging funds between mainnet and the network
  • The easiness of deploying the liquidity the way we intend to

I haven’t used Arbitrum yet. Based on my personal experience, except for BSC, the other are all good alternatives, but I lean towards AVAX a bit more because of the bridge and the increasing activities there.

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