IIP - XY
Title: MVI Liquidity Migration to Uniswap V3 Visor Pool
Status: Proposed
Author: @Matthew_Graham
Created: 26/11/2021
Simple Summary
After INDEX incentives on Uniswap V2 MVI-ETH came to an end, very little liquidity migrated across to Uniswap V3. We now find ourselves with a very small MVI:ETH Uniswap V3 pool, ~$1M TVL and ~$5.4M on Uniswap V2. This proposal presents an opportunity to spend $76K in INDEX and $42k in VISR to reimburse gas costs and provide a short 4 week incentive campaign to grow the Uniswap V3 MVI:ETH liquidity via a Visor pool.
Liquidity will be directed to the Visor’s MVI:ETH pool where deposited funds will be actively managed and optimised to minimise slippage for traders. Visor pools deploy capital into the 0.3% swap fee Uniswap V3 MVI:ETH pool and actively manages the liquidity thereafter. All rebalancing gas costs are paid for by Visor.
Abstract
This proposal presents the Index Coop community the opportunity to offer gas reimbursement payments to those that deposit into the Visor MVI:ETH pool. There are three transactions flows that are reimbursed which as detailed below:
-
Remove their LP token from the staking contract, retrieve their liquidity from the Uni V2 pool and deposit their MVI & ETH tokens into the Visor MVI:ETH pool.
-
Retrieve their liquidity from the Uni V2 pool and deposit their MVI & ETH tokens into the Visor MVI:ETH pool.
-
Deposit their MVI & ETH tokens into the Visor MVI:ETH pool.
This proposal is to directly reimburse gas costs through distribution of the INDEX token via Parcel. Parcel offers free payment transactions. The Finance Nest will perform the appropriate analysis and oversee the distribution of payments.
In addition to reimbursing gas cost, this proposal presents a short sharp liquidity incentive campaign for 4 week duration offering a 20% APR on $5M Visor MVI:ETH pool. Index Coop will send 2,100 INDEX tokens to Visor, Visor will match Index Coop’s contribution of $42K and both INDEX and VISR will be distributed across the Visor MVI:ETH pool.
The total budget for this proposal is $76K, to be paid for with INDEX. All of the financial transactions relating to this proposal are to be performed from the Operations Account. Visor will also be spending $42K incentivising the pool and will incur all the gas costs in setting up and maintaining the pool’s liquidity distribution.
Motivation
Since LM rewards finished around 20th September 2021, around 45% of the MVI:ETH LP tokens have remained deposited in the staking contract. The 45% that remains in the staking contract, makes up 69% of the current MVI:ETH Uniswap V2 pool, or around $3.5M.
Index Coop debated the influence of MVI:ETH LM rewards extensively and it turns out the main benefit of LM is to draw capital into the contract. Once the capital is in the contract, in this instance the Uniswap V2 MVI:ETH LP staking contract, the APR needed to retain the user is low. With 2 months passing since LM rewards ceased, only 55% of the capital has been withdrawn.
We know from trying to migrate liquidity from Uniswap V2 to Uniswap V3 staking contract that incentives are somewhat effective. Reimbursing gas indirectly through liquidity mining rewards is easier to implement but not as effective as directly reimbursing gas cost. LPs that don’t transfer quickly to the new staking contract risk not being able to earn back their gas costs. By directly reimbursing LPs gas costs for moving capital around, we make sure Index Coop’s capital is more efficient by being very targeted.
However, we want to improve the Uniswap V3 MVI:ETH liquidity asap and for this to happen we need to incentivise people to act quickly. In an attempt to get people to act quickly, there needs to be a mechanism for rewarding early depositors. We know that once deposits are in the Visor pool, the trading swap fee APR and the gas costs in exting the pool will be a natural retainer. The swap fee income is greatest when the aggregators are running their trades through the Uniswap V3 pool and therefore we need to grow this pool such that it becomes the most efficient trading pool.
A short burst of incentives should encourage depositors to act quickly. The joining incentive campaign by Visor and Index Coop over a 4 week duration should be enough to attract a target $5M of liquidity into the Visor pool. The APR will start off very high and then will decay as more capital enters the pool. When the pool reaches $5M, the APR should be around 20% and the initial $1M deposited will earn around 100% APR. The high initial APR is a great marketing tool for promoting and encouraging people to deposit their MVI and ETH into the pool.
Visor 2 is an active liquidity management protocol. Concentrated liquidity pools bring increased capital efficiency, but they also bring increased sophistication and management. Visor takes on the overhead of managing liquidity such that it stays effective and continues earning trading fees. Visor takes 10% of earned fees, which get distributed to VISR stakers - the other 90% of earned fees will be automatically invested into the LP position upon each rebalance. Visor covers all gas fees for rebalancing positions and re-investing earned fees.
Funding
In order to implement this proposal, I developed the following cost estimate:
- Eligibility: Depositors in the Index Coop Uniswap V2 MVI:ETH LP contract
- Eligibility: Deposit liquidity in the Visor MVI:ETH pool within 30 days of Index Coop announcing liquidity incentives
- Retrieve Uniswap V2 MVI:ETH LP token from Index Coop staking contract (0.0069 ETH rounded up)
- Remove MVI and ETH tokens from Uniswap V2 MVI:ETH pool (0.0108 ETH, rounded up)
- Approve depositing into Visor Uniswap V3 MVI:ETH pool (0.0074 ETH, rounded up)
- Deposit into Visor Uniswap V3 MVI:ETH pool (0.0282 ETH, rounded up)
Whilst reviewing the various transactions on etherscan above, there is some variance in the ETH spend. The above transactions equate to around 0.0533 ETH and due to the variance in transaction costs, it would be prudent to draw a higher budget estimate of say 30%. Ie: 0.06929, rounded up to 0.07 ETH. Do note this is an estimate and Index Coop will only be reimbursing actual costs up to 0.06 ETH per LP wallet. This provides a cost ceiling per LP depostor and should lead to some funds being unspent.
Based upon my calculations here, there are around 78 unique wallets that hold more than $100 USD in the Index Coop MVI:ETH staking contract. 78x0.07 = 5.46 ETH @$4,300 per ETH, that is $23,478 which is approximately $24K. A snapshot of the eligible wallet address was taken on the 26th November 2021. Ie: see spreadsheet attached for eligibility.
- Eligibility:
- Passive MVI & ETH holders
- Uniswap V2 LPs not deposited in the Index Coop staking contract
- Uniswap V3 LPs
- Deposit liquidity in the Visor MVI:ETH pool within 30 days of Index Coop announcing liquidity incentives
- Remove MVI and ETH tokens from Uniswap V2 MVI:ETH pool (0.0108 ETH, rounded up)
- Deposit into Visor Uniswap V3 MVI:ETH pool (0.0282 ETH, rounded up)
To encourage non Uniswap V2 MVI:ETH LP stakers, who are already providing liquidity or just holding MVI and ETH, we offer a budget of $10K to reimburse gas costs for migrating liquidity from Uniswap V2 and depositing into the Visor MVI:ETH pool. This will be administered on a first come first served basis. LPs who remove liquidity from Uniswap V3 will remove liquidity at their own cost and shall only receive a refund for gas spent depositing into Visor MVI:ETH pool. A refund of 0.039 ETH per wallet is recommended. A snapshot of the Uniswap V2 LPs was taken the 26th November.
In an attempt to accelerate this process of creating liquidity within the Visor MVI:ETH pool and also attracting fresh capital into the pool that isn’t already providing liquidity to the MVI:ETH pair, I recommend a short burst of incentives. A $42K spend provides a 20% APR over two weeks on a $5M pool. The Uniswap V2 MVI:ETH pool is around $5M in TVL.
The total cost is $24K + $10K + $42K = $76K
The first $1M of capital to deposit into the Visor pool will receive a juicy >100% APR. I believe this is sufficient to create hype/interest and get people’s attention with the added kicker it is free to deposit MVI and ETH tokens into the vault.
The Uniswap V2 MVI:ETH LP staking contract started receiving tokens on the 7th April 2021, the peak number of LP tokens in this contract was around 24th April which is a little more than 2 weeks after launch. Two weeks is a lot shorter than the promised runway of incentives compared to the launch promise of MVI. However, the gas cost reimbursement should be very attractive for small token holders in this environment. We will also need to create sufficient visibility around the APR deposits in the Visor vault generated from swap fees and utilising more active liquidity bands.
Pool | Visor MVI:ETH |
---|---|
Decentralised Exchange | Uniswap V3 |
Target Pool Size | $6M on Uniswap V3, $5M in the Visor MVI:ETH pool |
Target APR | 20% at end of campaign |
Total USD Cost | 76,000 |
QTY INDEX | 3,800 (2,100 to be distributed across depositors in Visor pool) |
Success Criteria
Increase the size of the Uniswap MVI:ETH V3 pool to $5M which enables a 11 ETH, ~$43K, trade to incur 2% slippage or 4.6 ETH, ~$17.9K, trade at 1% slippage. The pool SALE:ETH is $5M in size and was used to provide the figures mentioned above.
Specification
- To use the Visor’s hypervisor to actively manage liquidity in the Uniswap V3 MVI:ETH (0.3% fee) pool
- Operations Account to transfer 2,100 INDEX to Visor to distribute across deposits into MVI:ETH Visor pool
- Stakers, Uni V2 LPs, Uni V3 LPs and passive MVI and ETH holders will need to act accordingly
- Finance Nest to monitor transactions and refund gas cost at the end of the 30 day period
Voting
FOR:
DO proceed as detailed above, $76,000 spend, reimbursing gas and providing incentives for depositing capital in the Visor MVI:ETH pool
AGAINST
DO NOT proceed as detailed above, $76,000 spend, reimbursing gas and providing incentives for depositing capital in the Visor MVI:ETH pool
Copyright
Copyright and related rights waived via CC0.