Liquidity Mining Strategy

[overanalyser]

A further update:

V3 work team analysis can be found here:

Uniswap V3 - research and recommendations

authors: @verto0912 @jdcook @overanalyser @catjam @Matthew_Graham @Pepperoni_Joe Summary With the introduction of concentrated liquidity, Uniswap increased capital efficiency for LPs and unlocked better trade execution for users. Same execution, in terms of price impact, can now be achieved with liquidity pools that are, on average, 4 times smaller. This has significant implications for liquidity mining incentives, which are the biggest expense for Index Coop. We looked at the impact of Uni V…

and I did some number crunching on uni v2 and v3 liquidity pools for DPI:ETH

DPI:ETH Liquidity on Uniswap v2 and v3

DPI liquidity on Uniswap v2 and v3 warning, long and technical (and probably littered with errors), I would put this in my blog, but it’s not fully formed… Ok, a few members of the PWG has been looking at Uniswap v3 and how the coop can use it to improve matters for users, LPs and the coop [Forum post coming soon]. When we started, I was aware that we had ETH2-FLI liquidity on v3, but I wasn’t aware that there was a DPI:ETH v3 pool running. So I decided to do some digging: The basic process …

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With the end of the 90 liquidity mining campaigns for both MVI and DPI, my attention is turning back to two things:

1. What do we need to do to maintain liquidity through July?
2. What is the best solution for the new products (BED and SMI)?
3. How do we better manage liquidity moving forward?

And let us not forget that liquidity mining is expensive (we currently spend 20,296 INDEX over 30 days) = $300 k @ $15 INDEX, or $1.2 M @ $60.

There are lots of moving parts/interdependencies on this (which I think is why I find it so fascinating) and we are still learning:

• Sector products (DPI & MVI) are very different to the FLI products.
• Uni v3 allows more depth with less liquidity (but need more active management)
• We are in a Bear market - volume / fees and APY’s have dropped so old framework assumptions don’t hold.
• L2 trade volumes have taken off and having L2 liquidity will reduce costs for smaller traders.
• Others are providing liquidity mining incentives on L2 (Sushi, Matic, Quick)
• L2 adds friction/delays to Arbitrage between pools.
• INDEXcoop.com and Tokensets.com buy flows use Uniswap v2 liquidity (until exchange issuance becomes cost-effective).
• Issuance and redemption arbitrage for DPI happens via uniswap v2.
• With the diversification of the coop treasury, we can consider direct liquidity provision of some smaller products to produce the desired trade depth.

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Over the next couple of days I’m going to do some digging and will be sharing my thoughts on a number of areas around liquidity mining and our different products. The objective is as follows:

• Attempt to share insights.
• Provoke discussion and fill the gaps in my analysis (which there will be),
• Build consensus on what the coop should be doing for Liquidity mining.
• Draft some IIP’s for liquidity mining so we can maintain what Liquidity mining programmes we want to continue.

please get involved, share your thoughts and challenge me where you think I’m wrong.