IIP-63 MVI Liquidity Mining - August 2021

Governance Proposal
1

Title: IIP-63 - MVI Liquidity Mining - August 2021

Status: Proposed

Author: @overanalyser

Created: 29th July 2021

Simple Summary

Fund MVI:ETH liquidity mining for a further 30 days with a total allocation of 3286 INDEX

Abstract

Replenish the current staking contract for MVI:ETH Uniswap v2 LP tokens so that the current campaign is extended for a further 30 days (current staking contract term).

This is intended to support a sector leading liquidity pool to allow MVI to be traded with acceptable price impact (~8 ETH at 1%).

Motivation

$MVI launched ~110 days ago with a 90 liquidity mining campaign targeting $5 M Liquidity in the Uniswap V2 pool. This campaign has been largely successful, although liquidity AUM dropped as low as $2.48 M in June, recovering to $5.5 M as of the time of writing.

The Uniswap v2 pool is the main market for MVI, The current $5.3 M pool size allows 8 ETH [~240 MVI] trades with less than 1% price impact. LP’s in this pool are currently receiving (the annualised equivalent of) ~17% from trading fees and ~18% from INDEX rewards.

The current liquidity pool contains ~30% of all MVI issued.

Significant cuts in INDEX rewards (without an increase in trade volume / fees) are expected to result in a significant reduction in the liquidity and so result in larger price impact for any given trade. In order to maintain the current liquidity (in LP token number and/or $ terms) continued liquidity mining is required.

See also here for further research into MVI liquidity.

During the call on the coop liquidity strategy on 29th July 2021 we agreed that it was not the best time to migrate MVI to a more concentrated liquidity option (e.g. Uniswap v3) due to concerns that the liquidity may become fragmented. Maintenance of the current liquidity, while we monitor and consider future options, was the preferred option.

Specification

Extend the current LM campaign for MVI:ETH Uniswap pair for 30-days using the existing contract (as outlined in IIP-24) for an additional 3286 INDEX (~110 per day).

No action would be necessary for existing liquidity providers.

FOR

  • Extend the mining incentives for the MVI set according to the parameters above.

AGAINST

  • Allow the incentives from MVI liquidity to stop at the end of the current campaign (~12 August 2021).
8 Likes
2

Will be supporting this. I hope we can carefully study the V3 migration of DPI to develop a plan to move MVI over to V3 and hopefully reduce future rewards.

1 Like
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I’m FOR this. I believe once we have a better understand of v3 via DPI… then we can migrate MVI to it. As of now… I’m comfortable with v2 for MVI. :blush:

1 Like
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Hi @overanalyser

I am FOR LM incentives on MVI. I do however think that we should be tying to grow this product more rather than settling for a $5M pool size. If we are seeing the quantity on LP grow over time, this tells me LM is successful at creating on-chain liquidity.

The key for me is quantity of LP tokens, if that has grown recently then LM is somewhat effective. I don’t think we see this on DPI. I am therefore more encouraged to push harder on MVI to attain growth. I still have my thoughts on how efficient LM is but we only have a hammer atm so this looks like a nail :wink:

I honestly believe we should try grow MVI by targeting a larger pool size. Why not $10M now ? We launched with a $5M goal, that feels like ancient history now. Let’s grow this product so we can start pushing for integrations.

I guess the main think I am challenging here is not if we should do LM, but why target a $5M pool. I want to see this product grow and grow significantly before we turn LM rewards off.

With a large reduction in DPI LM rewards in August compared to July, we now find ourselves able to allocate some of that capital to MVI whilst still improving Index Coop’s overall financial position. I want to see PWG grow MVI and get it established within DeFi. I believe the community wants meaningful growth from MVI and on-chain liquidity can certainly unlock avenues to drive growth. I don’t think we have sufficiently liquidity on-chain to enable things like lending protocol listings.

5 Likes
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For the extension. However, where would the 3226 INDEX be reallocated if incentives ended?

6

Thanks Matt,

I think you have some good points, and similar were made during the call. (I even took off my Product ha and expressed a preference to try and boost MVI as I think the metaverse is pretty hot at the moment).

We are building more tools to try and avoid using our expensive LM hammer :hammer:

The video from the call can be found here:

https://drive.google.com/drive/u/0/folders/1xNUU0GdchSnVt3DklXqkz8aymTQ0Hmhf

Rough times:
00:00 Dylan on v3 Contract work
05:00 OA overview of liquidity
05:00 ETH2-FLI
06:00 BTC2-FLI
06:40 BED
08:45 MVI
12:20 DPI
27:30 Polygon
36:20 v3
37:00 Delegated liquidity management
38:00 Next steps Discussion

1:05:00 DPI conclusion
1:31:42 MVI wrap up
1:34:00 Wrap up

1 Like
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If not allocated to MVI liquidity mining they would stay in an INDEX treasury account until needed elsewhere.

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@Pepperoni_Joe can this IIP be given a number and scheduled for snapshot next week?

I’m not expecting any edits but I can explicitly confirm on Monday morning if you want to schedule to start Monday Afternoon.

9

I have updated this as IIP-63.

Creating a discord channel next :+1:

2 Likes
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Agree with Matt here. Would love to see us grow MVI liquidity more. Based on DFC’s numbers we have spent just over $260k on MVI LM up to this point alongside a ~$100k Q3 budget. For an index with a $10 million market cap built by community methodologists (not earning methodologist bounty) this seems to be an awesome return on investment.

MVI is clearly well on its way to finding a deep product-market fit. If we take the time now to really invest in growing MVI liquidity we can dominate the metaverse space for years to come. Based on the strong growth this product has already seen it seems like we can aim to be more ambitious here. $20 million of on-chain liquidity seems like a very reasonable medium-term target IMHO and would unlock tons of opportunities when it comes to money markets.

2 Likes
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Hi @overanalyser

Could we hold back on the IIP snapshot vote and do a poll here to see if we want to target a larger MVI-ETH pool size ?

$5M
$10M
$15M
$20M

These pool sizes seem like good options to have a vote on. We can have multiple voting options on Snapshot, so it doesn’t need to be a FOR or AGAINST vote.

1 Like
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To be honest, I would strongly prefer to run the snapshot as a simple Yes: NO based on the $5M that was agreed in the call on the 29th.

I’m a big fan of keeping things (particularly snapshot votes) simple and securing the same LM rewards for August on Wednesday gives the coop and LP’s knowledge of what’s happing.

As such, I’m planning to run this IIP as written on the 29th.

That said, given that the current LM ends on the 12th, The new LM rewards will not be deposited into the smart contract until the 13th / 14th August. This means that there is time for any community member who feels strongly about it to draft a new IIP that supersedes this and request a vote that closes before the 12th.

13

That makes perfect sense @overanalyser and let’s go forward with this vote. This IIP will set the floor for MVI rewards during August.

I think we can pitch the idea of trying to grow MVI through LM. Looking at the chart below, we did see some un-incentivised liquidity emerge and then disappear, so tells me there is some flow going into the pool. Without a chart that shows the total number of LP tokens against time, it is challenging to draw a conclusion.

Would you like to help develop an additional IIP that targets a $15M pool by doubling the rewards to 220 INDEX per day?

We are still down from 535 INDEX per day on DPI & MVI in July, to equivalent 287 per day on DPI & MVI in August. Still a decent drop in LM.

My thinking, if we do it and the number of LP tokens or circulating MVI supply doesn’t change we will have gathered some pretty important information.

The metaverse is a hot space just now, so if increasing LM rewards as a strategy is going to work then this experiment will be a defining one. To the contrary if nothing happens, then well we then know the initial phase of LM is far more important that tweaking it some months later which will be valuable insight into how we launch future products. We would then need to give LM on MVI a lot of thought next month.

Screenshot 2021-08-01 at 21.13.48
Screenshot 2021-08-01 at 21.13.483288×996 213 KB

2 Likes
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At $10m AUM the product makes us ~$70k a year and is costing ~$98k/mo so far.

I’m not sure I understand the willingness to burn more to grow this product.

Moving to v3 and doing a way smaller single-sided (non LP) incentive program is so much more cost-effective than throwing more money at a v2 LP pool.

2 Likes
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A very great point and this does sound a lot more capital efficient.

I wonder if we can do this for MVI and use it as the basis for future LM campaigns.

1 Like
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Hi @Matthew_Graham

Looking at Liquidity review - Jul 2021 - #4 by overanalyser

In July we LP’s were receiving ~ 30% income from a combination of Fees and INDEX rewards and we were spending 3,286 to secure ~$5M.

At the end of the Month, this was about 18% from Fees and 18% from Rewards. If we are targeting $15 M, and trade volume is unchanged, then fee income will Drop to ~6%. So we will need to boost the INDEX rewards to ~24% of the $15 M, so we need ~ 4x the number of rewards to give a 3x increase in liquidity. i.e. 13,144 INDEX (or 438 per day) for $15 M liquidity

Note, there are lots of assumptions:

  • MVI price changed (affects liquidity AUM)
  • ETH price unchanged (ditto)
  • INDEX price stays at $25.
  • Trade volume is unchanged
  • LP’s respond to the changes in rewards (If anything, I think we have seen them pretty insensitive to the level of rewards)

If INDEX appreciates quicker than MVI or ETH, then we may well see even more LP tokens added to capture the income…

A quick spot check indicates we currently have $6 M liquidity, and INDEX rewards are paying 20% annualised @ $30, so we might get $15 M without doing a full x4.

1 Like
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This vote is now live:

https://snapshot.org/#/index-coop.eth/proposal/Qma9WtQvnCFriA6X2KZ8tsbvJGpqnSKVbGhsu9rYy1Jyvx

[just the messenger :mailbox_with_mail:]

1 Like
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I agree with you.
Let’s see what happens DPI at Uniswap v3.

1 Like
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Confirming this IIP has successfully passed :ballot_box_with_check:

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Would like to point out that this hasn’t been updated on the website

Still shows the Liquidity Mining program as ending 12 August.

Many Liquidity Miners may not be aware of the IIP and could be planning to remove liquidity and move elsewhere. To maximise the return on the INDEX incentives distributed I suggest updating the website with the extended date as soon as possible, and in future as soon as the IIP has been reached.

This was also noted last month here
https://gov.indexcoop.com/t/liquidity-mining-clarity-on-the-website/1972

1 Like