@verto0912 would you be in favor of increasing the incentives?
I think I’m inherently biased as a methodologist so a recommendation from me would be biased as well. I will vote for whatever proposal is put forward by the community.
I’m just trying to highlight some data points and my understanding of the market. At the current level, liquidity mining incentives have a limited impact on unit growth. No one can actually buy the product in size and exchange issuance doesn’t work for MVI due to the liquidity of the underlying. So we will continue to see retail demand and slow ramp in unit supply. This is basically what’s been happening.
As OA points out, we’ve seen no meaningful impact on units of MVI in the liquidity pool from the June’s increase in LM incentives. My take on this is that in the current market, 25% APY is not attractive to move the needle and, I believe, that there’s realistically little difference between like 18% APY and 35% APY for the MVI/ETH LP in terms of actually changing the behaviour of LPs.
So, really, it all comes down to what we are trying to do with the product. If we want to grow it, we should consider increasing incentives. If we are happy with where we are at the moment, because we are waiting for the market to turn for example, then we can reduce incentives which I don’t think will make much of a difference to LP behaviour.
The way the current proposal is written, it lacks purpose and a sense of direction for the product.
Got it - this is all very helpful context coming from your perspective as a methodologist. Something I was thinking about now that the Uni v3 liquidity mining contracts are audited and deployed - what if we were more aggressive with a move to v3 with MVI paired with an incentive program on v3? Moving all liquidity there along with the smaller volume we are seeing now by incentivizing could create much more attractive APY in the short term and we could actually start using liquidity to grow this product. I just don’t think we are gonna be able to achieve that as well on v2.
EDIT: For what it is worth - I want to GROW MVI!
I think this would make a lot of sense. But I don’t have much visibility into when using V3 liquidity mining contracts will be possible. If the goal is to wait until that point then I think that actually reducing incentives now could be a better option.
Agreed, not without a meaningful increase in incentives. Although, at this point, the proposal calls for $65k of incentives per month so even another $60k would be meaningful. Would give us circa 50% APY which could be attractive.
@overanalyser what are your thoughts here? Feels like we might actually want to drop the MVI incentives this month with hopes that by next month we can re-purpose those INDEX towards a more aggressive incentives plan on v3 (which might also be a relatively short program). MVI LPs have proven to be very sticky, so it might not affect the pool much…
@ncitron you have looked at the v3 LM contracts closer than anyone most likely, ya? Not trying to put pressure on ENG, but would love your opinion so we can get a sense of whether or not incentivizing MVI liquidity on v3 is within our reach in the short-term (1-2 months) or not. I want to emphasize that I am not asking for a prioritization, but rather how difficult will it be to implement these contracts for the v3 MVI pool.
What is your thinking about trying to boost V2 liquidity and then continue the rewards on V3 as a means of transferring LPs across.
The risk I see is without a known schedule for an automated and battle tested V3 liquidity mining product, we at risk of reducing V2 to then be left waiting an unknown amount of time for the V3 product to emerge. For me personally, I would like to see something battle tested. I am also thinking there are some knock on dev considerations to moving to V3.
I think it just comes down to if we are trying to grow the product now or take a breather, wait for the market to turn, and grow it in the future. If we are trying to grow now then we need to increase the liquidity to make bigger purchases possible.
I suppose there is a risk that as we wait for v3 we remain sort of in limbo for several months. I don’t have the information to judge how likely it is though.
We have just begun the process of speccing out and implementing the required changes to allow for migrating liquidity to V3. I think it is reasonable that we could have V3 LM implemented in a month or so, given that we choose to prioritize it.
I’m very much in favor of this proposal and this thinking.
What’s the situation with the underlying liquidity? I think we should wait on spending on growing until that fundamental barrier to high AUM changes.
Why are the options to only grow or shrink? What’s wrong with simply maintaining? Providing a decent level of liquidity for most retail members to enter the position.
I can tell you what’s happening with the underlying liquidity but I can’t tell you how much we can reasonably push AUM w/out too much impact on rebalances (complexity & costs). We just don’t have the visibility or feedback into rebalances currently. Understandable given the constraints.
Here’s what I know:
The only thing I’ve ever heard about the capacity to grow AUM (from a liquidity perspective) was that we can safely 2x it. That was in May with AUM at around $5m. Since then, units grew about 20% so it seems that we have some room.
@jdcook helped us look at the units, not dollars in the pools for the underlying. From the 15 tokens in MVI, 4 have lower units today than at launch, one is flat and 10 have more. Out of the 4, the fact that we have a V3 adapter that can be used for rebalances addresses 2 of them.
So, basically, based on the information I have, we have some capacity to safely grow AUM. But my information could be out of date or incomplete.
There’s nothing wrong with maintaining. I just think that we can maintain the pool in its current size with a reduction in incentives based on OA’s analysis and my perception of the LP behaviour.
OK, I’ll be honest, and say that maintaining the current level of rewards is mainly due to my not seeing a strong argument in either direction.
At the moment I am becoming more focused on units, and not $ value. We have no control over the $ value of MVI.
This leads to one opinion that I strongly hold:
- MVI unit supply 1st June = 79,278
- MVI Unit supply 1st July = 90,929
- 11,651 growth in unit supply
- i.e. 15% growth in 1 Month during a BEAR market
The is a small uni v3 pool so I’ve done some comparisons [Disclosure - I’m currently LP’ing both 1) to learn about v3, 2) to make some income]
|01Jul21||Unit||Uni v2||Uni v3|
|MVI in pool||MVI||41,139||416|
|ETH in pool||ETH||727||7|
|MVI in pool||$ M USD||$1.540||$0.016|
|ETH in pool||$ M USD||$1.544||$0.014|
|Sell ETH for 1% price impact||ETH||5.15||0.19|
|Buy ETH for 1% price impact||ETH||5.12||0.93|
|Sell ETH for 2% price impact||ETH||12.58||1.01|
|Buy ETH for 2% price impact||ETH||12.35||1.73|
|4 day average volume||$||$121,975||$9,015|
|4 day average fee||$||$366||$27|
|Annualised fee return (at current AUM)||%||4.3%||32.9%|
|INDEX rewards (01Jul21)||%||26%||0%|
So, it’s early days but some initial observations:
- v3 AUM is ~1% of v2
- trade size to 1% slippage varies significantly for v3 depending on direction.
- Trade size to 2% slippage is 8 to 14%
- Trade volume is ~7% of v2. (i.e. a x7 improvement on AUM)
- Total % rewards are comparable
- Divergence loss on v3 is expected to be higher, but I don’t have a good estimate.
Looking at transactions I’m seeing:
- Small sales direct form uniswap
- 1inch splitting trades across both pools.
- Arbitrage between the pools.
Looking an exchange issuance I think the threshold for it becoming cost-effective is about 5.5 ETH (gas currently ~ 10 gwei).
- 1 inch 5.5 ETH → 309 MVI (1% Slippage)
- Tokens sets buy 5.5 ETH → 309 MVI
Finally, I think that the most recent exchange issuance of MVI was an arb trade ~36 hours ago:
- 5.912 ETH → components → 5.97 ETH received → 0.058 ETH profit.
If we are assuming 1% slippage is ~5 ETH, then Arbitrage looks to be profitable around +/- 1% of NAV.
I think that this also supports my observation that Exchange issuance is cost-effective for purchases greater than ~5 ETH.
Is it worth adding a pool to see what the broader community thinks about trying to grow, maintain or reduce incentives?
Perhaps linking this back the number of MVI units in circulation or entering the pool to provide liquidity.
I personally lean towards trying to grow the number MVI units and size of the liquidity pool. I think we should be aiming to push this product for at least a few more months and then reassessing where we are at.
Also conscious there are other products in the pipeline that are competing for capital. Which leads to think tapering DPI to increase on MVI and future products is prudent from a treasury management perspective.
I wonder if we could use options to incentives liquidity. A call option with a strike price of $30 expiry date 6 months into the future. Could be an experimental idea to consider.
I want to move away from a culture of low context polls to inform decision making. Especially this late in the process. Fundamentally, we need to empower certain leaders to make decisions and be accountable to the consequences.
I know OA has mentioned and built alignment around keeping the MVI LM reward levels the same through PWG calls and messaging the MVI methodologists. With that work done, I strongly recommend against adding chaos late game and disempowering the PWG to be effective against our mandate.
Can PWG outline the strategy for MVI? Something beyond 30 days with some structure and planning behind it would be helpful.
What are we working towards here? Because I honestly can’t find conviction reading over this chat. It seems to raise more questions than answer for me.
If LM is PWG, then when will we see a 3 month budget provided for quarterly reporting?
I think the next three or four product launches occur next quarter, when can we expect forecasts for this?
Those all seem important. Which one of those would be the highest impact to answer first?
The idea of PWG being empowered with a budget to do LM with and then held against it sounds right.
I think PWG needs to answer all of them and then, will probably find itself stuck with TWG requesting permission from Set Labs to let Working Groups manage large sums of capital.
We’re getting a lot of different requests from a lot of different places. In order to make progress with you here, I’m trying to identify what the best place to start is.
Note: we are digressing from the aim of this IIP…
My (personal) understanding is that PWG mandate has evolved over time, at the moment I would say that it is two fold:
- Maintain sufficient liquidity to allow trades upto a size where exchange issue becomes cost effective (e.g. for MVI, trades upto 5 ETH have less than 1% price impact, above 5 ETH Exchange issuance is cheaper than market buy).
- Maintain market dominating liquidity for the product.
This is intended to ensure we have good products, and good trader experience and so support the coops north star. However, it does not mean that PWG should be driving growth.
#1 is more about the user experience and we can look at analysis to measure it.
#2 has some overlap with BD and growth as we can debate whether we want 5% more than our competitors, or 300%. But at a minimum we want more.
Until now we have been using liquidity mining xy = k AMMs (uniswap v2) as the only tool, but in the future I see more ways becoming available:
- the current Uniswap v2 staking contracts
- Uniswap v3 staking contracts (with or without 3rd party automation).
- Direct liquidity provision from the coop treasury on Uni v3.
The last one is potentially the most interesting if we can work out the details. My understanding is that $200,000 provided at +/- 10% bounds will result in 1% price impact for $10,000 trades. So, if exchange issuance becomes < 1$ at $10,000 we have achieved the price impact goal.
The coop gets the price impact, but also the divergence loss.
The problems appear when the pair price moves by more than 10% and we have to unstake, exchange issue / redeem and restake using a multi sig.
There was a lot of discussion towards the end of this IIP, which is great and I think will be helpful as we move into the next iteration of liquidity management after this IIP. I just wanted to make it clear that I am FOR this proposal, and look forward to work with @overanalyser, @verto0912 and others on the next iteration!