IIP-54: BED:ETH liquidity - Direct provision by Index Coop

The following line was added to the body of this proposal, as it is understood IIP-46 is indeed a requirement.

Correct me if this is wrong.

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I like this proposal in spirit, but I have several questions/requests:

  1. I can’t make an informed decision regarding how to best use a portion of treasury assets without an accounting of what’s currently in the treasury overall. I’d like to know what percentage this represents on a vested and overall basis - this would effectively be a loan so knowing what our other commitments are would be useful.
  2. Will IC be launching a bot to keep NAV and spot aligned? I ask this because from my perspective the primary goal of creating a market would be to keep the UX positive by not having spot stray from NAV, with slippage as an important secondary consideration; the seed pool only seems to address the latter.
  3. Do any aggregator or AMM protocols currently plug into Set’s exchange issuance module for any of our other products, and could they easily do so for BED? Meaning can we push people toward the more efficient options?
  4. What is the estimated cost of issuance given that it’s only 3 tokens? (for example, if I’m supplying ETH I’m only swapping for two tokens and wrapping, I cant imagine that costs much more than say 4x a 1for1 AMM swap) - I’m thinking unlike DPI, pushing people directly to the E.I. module at launch may be the preferred marketing strategy.
  5. What are Bankless DAO doing to incent liquidity and how does this strategy align?

I know I’m asking a lot at once, but this seems to be moving quickly. Thanks @overanalyser

  1. Afterthought - would a multi-asset zero-slippage pool of BED and wBTC/ETH/DPI make sense here, or does that not solve the depth problem to the extent we’d need it to?
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@gregdocter @overanalyser @Matthew_Graham why are we pushing this vote so fast when hardly any conversation has happened and BED isn’t even launched yet?

You haven’t even detailed if or how we will be adjusting the liquidity position if it gets out of range which is a pretty important detail because if we aren’t in range this whole thing is useless.

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as an editor, I am following the governance process and the authors’ direction.

unless one of the authors posts publicly here to postpone the vote, it will go forward.

@overanalyser, @Matthew_Graham, please advise.

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We are pushing for a quick vote because we want the liquidity in place before the BED token is announced. Launching a product aimed at people new to DeFi without some secondary market liquidity will risk some people buying at a large premium.

For MVI we launched liquidity mining on uniswap v2 at the time of launch. This approach avoids doing any liquidity mining for BED.

The liquidity will be repositioned when required. The exact parameter used / procedure to be followed have not been fully researched / written. The IIP is intended to ask INDEX holders to grant:

  1. permission to use coop resources ($$$ and peoples time)
  1. A mandate to manage the liquidity on behalf of the coop.

I don’t think that we need to have a fully scoped out implementation to allow INDEX holders to make a considered descision on the IIP.

Hi Mel, you raise some great questions, and I don’t have good answers to all of them, but this is my best shot:

INDEXcoop Multisig (recipient of INDEX from vesting contract, and streaming fees) is 0x9467. and contains $46 M. This is currently controlled by SET team members. Part of this proposal is to transfer the $250 k to the Treasury Operations Multi sig (detailed in IIP-46) which will manage the liquidity.

I’m not sure about whether we will have an arb bot using issuance running for launch.

For MVI, there are bots running that issue and sell / buy and redeem MVI. This recent trade was ~6.25 ETH ( ~$13 K) trade and captured ~ $95 profit. The exchange issue and trade cost 1,706 k gas at 12 gewi ($43 fee).

When MVI launched, I don’t think there was direct arbitrage. However, watcher bots would copy some exchange issuance (including one of mine) and then sell in a single transaction to capture premium. E.g.:

  • This trade minted 118 MVI from 5 ETH. @ 165 gwei
  • Was front run 2 blocks earlier by this trade (@265 Gwei) which burnt CHI, copied the mint (118 MVI from 5 ETH), and did a simultaneous sale to capture ~0.6 ETH profit.

So at launch there was premium to NAV worth multiple ETH at times (I think I saw the uniswap pool sitting at a +20% premium).

Non-copy trade issue arbitrage appears to start with this trade @08:04 on 07APR21 (~1 day after the uniswap pool was created) : which looks like a bot targeting the MVI pool.

Arbitrage bots will only strike when they can make a profit which is related to both the depth, and the % premium to NAV. So we need bopth depth and a premium. If it takes $10,000 to move the price 1% off NAV, then there is less than $100 available to arbitrage. (Actually, I think it it’s linear over short ranges, it could be ~$50 as the first $1,000 of trade will only yield $1 as it’s 0.1% price impact). So, gas costs will make it hard to keep clost to NAV.

Following this logic, I think that a $50,000 trade with 5% price impact (i.e. five x $10,000 per 1%), will have $1,250 profit available.

Not at this time, but getting trade aggregators to include exchange issuance is something the BD team are working on.

Lots of people still use the uniswap interface directly, andI don’t see us ever getting Uniswap to integrate exchange issuance (we have lots of educating to do).

MVI Exchange issue and sale (x15) ~1,800 K
DPI Exchange issue (x14) ~900 k
CGI issue /redeem (x3) ~200 k

V2 Uniswaps are ~100k (and my memory tells me that additional tokens for exchange issuance are ~80 k). So, I would say we are looking at 400 k to 500 k for Exchange issuance of ETH to BED. At 14 Gwei we are looking at $15 to issue.

I’ve discussed liquidity mining with BanklessDAO in their forum, but I’m not involved in the goto market discussions. Hpowever, it’s my understanding that Bankless are planning to provide liquidity via the same Uniswap v3 pool. So what we are proposing should be the minimum liquidity available. If we implemnet this IIP, then I would plan to talk to them to discuss our plans and co-ordinate.

I’m a fan of having multiple liquidity pools available so such an approach is attractive. (There is no reason not to include INDEX and MVI in such a pool). However, I think we need a single main (deep) pool on L1 for the issue arbitrage bots to target (and the other bots trading between pools). The last tiem I looked DPI issue arbitrage was via the v2 pool only, thenthe other pools mathed that pool.

For the moment, everyone looks to Uniswap first so that is the simple route to market.


I should note that this approach does have risks. If the BED:ETH price moves out of range, then we will be holding the lower performing asset, and to reposition we will need to buy the other, so we could easily lose 10% of the value compared to just holding 50% ETH and 50% BED in a cold wallet.

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Chiming in, I think this is crucial for new people to have a good experience with IndexCoop. It is pretty clear that both DAOs want this product to be directed towards new users as an introduction to Crypto investing. If I was to recommend this product to friends and family, I’d like them to avoid technical issues, astronomical fees and high slippage.

I love the spirit of the proposal, thanks to @overanalyser. Just got to find a good implementation.

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Isn’t that the major function of PWG?

Doesn’t sound like you are confident Bankless will provide liquidity either. Isn’t one of the key factors for a methodologist to provide sufficient liquidity?

This is now queued for Snapshot vote that will begin tomorrow, July 12

https://snapshot.org/#/index-coop.eth/proposal/QmU22KuNvzr289Pd5K2wo97hkiE4m24R1D6GF3hQ1tAotJ

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Reposting from the #delegates channel in discord (Index).

While generally supportive of this IIP, will not be voting until either the authors (@overanalyser @Matthew_Graham) or someone from the GTM team (@LemonadeAlpha ?) can give a concrete answer on whether or not Bankless Inc or Bankless DAO will be providing launch liquidity and if they are, what the details are.

This information is essential for an informed vote and I look forward to it being posted here and in the #iip-054 channel in Discord.

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Since drafting this forum post, I have learnt that there is a need to do a bit of home work on the legal front to determine if Index Coop risks attracting regulator attention by being a market maker for its own products.

Neither @overanalyser or I have sufficient knowledge to know if Index Coop by being a market maker of its own products would be an issue or has the potential to be an issue later on.

From my point of view, I don’t know enough to draw a conclusion on the legal ramifications and therefore, I believe it would be prudent to seek some advice before progressing further with this proposal.

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Does this mean that I should delete the proposal from Snapshot? cc @overanalyser

it goes live in a few hours (11:00 am PT // 6:00 pm UTC)

Bankless community does plan to provide between $100k-$200k in liquidity at launch.

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So basically nothing. I provided almost as much initial liquidity for MVI and that’s not even my own product nor do i see a direct benefit from supporting the product. We should be asking for minimum $500k

Hello,

Some notes from the weekly call:

  1. Bankless will also be providing liquidity on uniswap v3. (~$100 to $200 k).
  2. Legal concerns:
  • Not hugely different to the provision of governance token (i.e. INDEX balancer pool).
  • Other protocols provide liquidity for governance tokens
  • There may be legal considerations for the multi-sig signers.
  • Overall, no regulatory clarity.
  1. We don’t currently have a Bot planned, one option would be to contact Flashbots so they can build one.
  2. Liquidity will be on v3, so more effective (but more management) than v2 used for MVI.

@gregdocter based on the discussions in that call earlier, and the notes I’ve put in this reply, I think we have all the information INDEX holders need to continue with the snapshot. Therefore I want to proceed.

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@kiba I know you have been advocating for liquidity minting for a while, and I am a big fan of the idea and am anxious to find the place at the Coop to implement - but in this case wouldn’t it be more profitable to not mint liquidity as the alternative isn’t mining, but rather direct use of treasury which will then be brought back into treasury? I guess it depends on how well we manage the position? Correct me if I am missing something, though.

As far as the general proposal - I am FOR, but we should not underestimate the effort it will take to manage this position, and while this proposal doesn’t require a specific “strategy” per-say, it would be great to start hashing out specifics as to ranges and positions that are getting deployed, what our the triggers for re-balance, how often are we monitoring, who is it that is monitoring, and what is the process for re-balancing…

Thanks for the work on this so far @overanalyser and @Matthew_Graham - please let me know how I can help out here!

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This is the exact kind of direct liquidity provision we need to start moving towards as a DAO. ETH <> BED will be one of the lowest IL pairs on the market and is a good safe place to start.

I would rather have us get a quality rep in with direct liquidity provision for a low-risk pair like this. The majority of the learnings here will come from the actual execution. There will always be open questions here - especially around range management - but I would rather implement and solve than do nothing.

This is a major step away from liquidity mining and IMHO a step in the right direction.

@Kiba is right - we probably don’t have the experience in-house right now to do this perfectly. But the only way to build that experience is through planning and executing. The only way we will become proficient in direct liquidity provision for v3 is to directly provide liquidity for v3 and iterate based on learning.

Regarding regulatory clarity - we could spend months/years trying to get regulatory clarity from lawyers and the best we will get is an “I dont know”. Either we are a DeFi protocol that fully leverages the power of the ecosystem and our treasury or we are not.

We need to move away from this mentality where every time something is innovative or creative the regulatory boogyman rears its head. We are years away from any cohesive or applicable regulatory framework. If we want to drive the discussion on regulations it would be far more valuable for us to develop an internal regulatory/cultural/value framework that ensures the holders of our tokens are protected from bad actors.

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Hi @overanalyser @puniaviision @dylan @ncitron

Currently, the Operations Account holds all the constituents to min BED but is unable to do so via the TokenSet website.

Can we please get an update as to when users can expect to be able to mint BED tokens via a multi-sig transaction using the TokenSet website?

I am conscious we committed to providing BED liquidity some time ago. With other products coming to market that could need seed capital, it would be great to recycle capital from one product to the next minimising the communities exposure to LP positions.

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I am not sure when the tokensets website will be fixed, but if you would like me to guide you through how to mint BED using etherscan (which currently works via WalletConnect), I would be happy to help. @Matthew_Graham

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@dylan is on the multisig, so perhaps he can do the transaction and others approve. Would that be an easier solution ?

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