Looking at BTC2-FLI liquidity from a product point of view.
TLDR
- BTC2-FLI enjoys liquidity mining incentives from Sushiswap
- This has resulted in a single pool of ~$5.6 M which includes ~50% of the tokens issued.
- From a product point of view, I don’t see a need for INDEXcoop to start liquidity mining BTC2-FLI liquidity on L1.
OK, BTC2-FLI is next. This launched almost at the peak of the bull market with liquidity on sushiswap (which behaves just like uni v2).
Unit supply climbed rapidly on launch and has been largely flat since then:
AUM shows a similar trend with the drop in prices resulting in AUM being lower than it was 2 weeks ago.
BTC2-FLI liquidity
Looking at the sushiswap pool, we see the following:
| 27jun21 | Unit | Sushiswap |
|---|---|---|
| Liquidity AUM | Million $ | 5.66 |
| 14 day average trade | Million $ | 0.90 |
| 14 day average fee | $ | 2,689 |
| Annualised average fee income | % | 17% |
| Annualised Sushi rewards | % | 24% |
| Total rewards for LP’s | % | 41% |
| BTC2-FLI in pool | # BTC2-FLI | 115,800 |
| wBTC in pool | wBTC | 90 |
| BTC2-FLI in pool | $ M USD | $2.8 |
| BTC in pool | $ M USD | $2.8 |
| Sell BTC for 1% price impact | $ | $31,300 |
| Buy BTC for 1% price impact | $ | $31,300 |
| Sell BTC for 2% price impact | $ | $62,900 |
| Buy BTC for 2% price impact | $ | $62,900 |
Overall, ~50% of the total supply is in the liquidity pool available to trade:
Comparing the BTC2-FLI with the ETH2 liquidity a few things stand out:
- We haven’t seen any liquidity being placed in uniswap v3
- A higher proportion of the BTC2 is in the liquidity pool.
- BTC2 LP’s are receiving ~41% which is close to that seen for ETH2 LP’s.
I think that these are all related to the provision of $SUSHI rewards for the pool. This also leads me to think that:
- The market for x2 FLI products liquidity is currently ~40% (While DPI and MVI is probably closer to 25%).
An interesting question is whether a Uni v3 pool would result in more trading as arbitrage could open between the pools)
The Sushiswap Onsen programme is currently allocating 572.3 SUSHI per day to this pool ($3,800 or equivalent to 6,800 INDEX over a 30 day cycle).
Comparison with ETH2-FLI
| 27jun21 | Unit | ETH2-FLI | BTC2-FLI |
|---|---|---|---|
| Market cap | $ M USD | 29 | 5.5 |
| DEX liquidity (pair) | $ M USD | 11 | 5.6 |
| trade volume | $ M USD | 4.7 | 0.5 |
| Volume / liquidity | % | 43% | 9% |
While ETH2 is ~6 times larger than BTC2 in total AUM, it enjoys ~x10 more trade volume.
The smaller pool for BTC2 means that price impact becomes a consideration much sooner. The current range of $31 to $62 k for 1 to 2% impact is probably sufficient. However, if the pool shrinks further (e.g. due to ONSEN rewards stopping), then improving the depth (liquidity minining or encouraging uniswap v3) will need to be considered.
(note, I’ve not done a full review of trade sizes on Etherscan so I don’t know if large high price impact trades are happening)
Do we need to do liquidity mining on BTC2-FLI?
With the continued support from sushiswap, I see no immediate need for INDEXcoop to provide rewards for this product on L1.