Looking at MVI liquidity from a product point of view.
TLDR:
- Liquidity, as measured in $USD, has dropped in line with the price decline.
- MVI:ETH liquidity in terms of LP tokens is much stickier than I previously suspected.
- Maintaining uni v2 liquidity is recommended based on the Uniswap v3 review.
- I’m recommending a further 30 days liquidity mining campaign with unchanged rewards ( 3,286 INDEX over 30 days) but I want to hear others thoughts.
OK, MVI is 80 days old, and we launched with a 90 day campaign of liquidity mining rewards.
So, it’s time to look back at what we did, what happened, and look forward to whats next:
What have we done, the Liquidity mining campaign:
| Days | Target MVI:ETH AUM | Actual AUM at end ($ M) | INDEX rewards over 30 days | Change in # INDEX | TWAP price at start | cost at starting price |
|---|---|---|---|---|---|---|
| 1 to 30 | $ 5 M | 6.4 | 3810 | n/a | 36.68 | $139,751 |
| 31 – 60 | $ 5 M | 4.1 | 2743 | -28% | 37.81 | $103,713 |
| 61 – 80 | $ 5 M | 2.6 | 3286 | 20% | 35.8 | $117,639 |
What happened:
Looking at JD’s MVI dashboard. we can see the value of MVI available as liquidity (note total liquidity will be twice this value) and that this has dropped significantly since the start of May.
At the moment, we have ~$2.5 M liquidity ($1.26 M x 2). Which is significantly less than we have been targeting since MVI was launched.
Looking at the change in LM rewards (above), there could be a decrease in liquidity (in USD terms) associated with the cut in Rewards in early May, but little sign of an increase in liquidity when INDEX tokens were increased in Mid June.
However, when we look at the number of LP tokens, which represent people actually adding or removing liquidity from the pool. LP’s appear largely insensitive to the changes in the number of tokens issued:
i.e. neither cutting # INDEX by 28% nor increasing by 20% resulted in significant addition or removal of liquidity (~10 May and ~10 June). In addition, the wide range in INDEX price between ~$60 in mid-May to ~$15 currently seen appears to have minimal impact on the number of LP tokens.
My thoughts on this is:
- MVI LP’s are much stickier than I had thought.
- Yields have dropped across the board, so many farmers are accepting lower yields from the pools they are in.
Based on this, I think that the moderate changes in INDEX rewards (+/- 30%) are unlikely to change the number of LP tokens we have for MVI:ETH.
How much Liquidity do we need:
In the past we have looked at $ value required to get a certain price impact on the pool.
| Impact | Trade size | Trade size (ETH) | Trade size MVI (@$30) |
|---|---|---|---|
| 0.8% | $6,190 | 3.55 | 206 |
| 1.0% | $8,780 | 5 | 293 |
| 2.0% | $21,000 | 12.2 | 700 |
So our 2% depth is ~ 50% of what we had at the end of May.
Trade volume was massive in April, but has been much lower for the past 60 days:
The last 30 days look like this, with the average day being maybe $100 k of total volume:
Looking at the pool data from etherscan since the 27th of April, we have 2022 transactions and I’ve done a very rough manual analysis.
Of the 2,022, I’ve noted 5 trades over 700 MVI (with the largest at 2,114 MVI). and a further 15 between 500 and 700 MVI.
Personally, I would describe this fraction of trades that could have large price impacts as acceptable
Overall,
- I see the MVI:ETH LP’s as being pretty sticky in both ways. So unless we make significant changes in the rewards in either direction, I don’t expect major changes to the number of LP tokens (AUM will track the ETH and MVI price)
- I think that the available pool is pretty well sized for the individual trades and overall trade volume.
As a result, I don’t see a strong reason for increasing or decreasing the number of INDEX tokens allocated for the next 30 days (i.e. 3,286 over 30 days starting ~ 10 June 2021).
However, I’m looking forward to hearing other people opinions on this matter.