Liquidity review - Jul 2021

I’m going to write a series of replies to this message on our products current liquidity. This is intended to capture the information I posted a month ago in replies to the liquidity strategy post:

My goal is to try and capture some data, and my thoughts around the different product liquidity and server as an input / draft for my slide deck for Thursday’s call.

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A quick comparison with June:

Price Units AUM ($ m)
27Jun21 $52.56 524,623 $27.6
26Jul21 $84.59 713,687 $60.4
ETH2-FLI Unit 27 Jun Uni v2 27 Jun Uni v3 26 Jul Uni v2 26 Jul Uni v3
AUM Million $ $4.7 $6.3 $5.4 $15.9
14 day average trade Million $ 1.96 4.26
14 day average fee $ 5,867 12,765
Annualised average fee income % 46% 74%
24 H volume Million $ 1.2 11.6
Annualised average fee income % 24% 80%
ETH2-FLI in pool # ETH2-FLI 43,375 97,530 32,998 115,998
ETH in pool ETH 1,269 530 1,170 2,783
ETH2-FLI in pool $ M USD $2.4 $5.3 $2.8 $9.7
ETH in pool $ M USD $2.3 $1.0 $2.6 $6.2
Sell ETH for 1% price impact ETH 9.0 20.0 8.3 136.0
Buy ETH for 1% price impact ETH 9.0 24.5 8.3 47.8
Sell ETH for 2% price impact ETH 22.2 54.0 20.5 264.0
Buy ETH for 2% price impact ETH 22.2 51.0 20.5 179.4

On v3, even at -50% of the current price, there is 19 ETH per tick (so ~32 ETH per 1% price impact).

Overall, we have deep liquidity for ETH2-FLI, and as in June, I see no need to consider Liquidity mining it.



Comparison with June 2021.

Price Units AUM ($ m)
27Jun21 $24.39 220357 $5.4
26Jul21 $35.42 200425 $7.1
Sushiswap Unit 27jun21 26Jul21
AUM Million $ 5.66 7.13
14 day average trade Million $ 0.90
14 day average fee $ 2,689
Annualised average fee income % 17%
Annualised Sushi rewards % 24% 29%
Total rewards for LP’s % 41%
24 H Volume Million $ 1.43
Total rewards for LP’s % 47%
BTC2-FLI in pool # BTC2-FLI 115,800 88,052
wBTC in pool wBTC 90 80
BTC2-FLI in pool Million $ $2.8 $3.1
BTC in pool Million $ $2.8 $3.1
Sell BTC for 1% price impact $ $31,300 $22,000
Buy BTC for 1% price impact $ $31,300 $22,000
Sell BTC for 2% price impact $ $62,900 $54,000
Buy BTC for 2% price impact $ $62,900 $54,000

Sushi LP’s are benefitting from reasonable trade income and Onsen rewards of $Sushi. So they are all averaging better than the Uni v2 LP’s for ETH2-FLI.

As in June, I see no pressing need for Liquidity mining this product at this time.



The MVI:ETH uniswap v2 pool continues to be the main source of liquidity from MVI.

~13th July the coop liquidity mining contract was topped up with a further 3,286 INDEX inline with IIP-52.

Since then we have seen the pool AUM increase in value with the gains in both MVI and ETH price with the pair returning to $5.3 m:

Looking at the supply of LP tokens we have seen an 18% increase since the 1st July :

Even so, there has been a significant growth in unincentivised units with < 30% in the Uni v2 pool.

V3 pool

There is a small v3 pool that has seen occasional use by LP’s and some trade volume (including my unsuccessful attempt). The most recent “large” LP has deployed ~$50 K over +/- 25% and captured $ 426 in the last 60 hours (~122% if annualised with no fees).

However the overall liquidity on v3 is still very lumpy.

There is also a pool on polygon, however, this currently has no liquidity.

Overall the v2 (inc historical) and v3 pools look like this:

MVI:ETH Unit Uni v2 (01Jul21) Uni v2 (27Jul21) Uni v3 (27Jul21) Ratio v3 /v2
Pool AUM Million $ $3.09 $5.37 $0.07 1.3%
MVI in pool MVI 41,139 35,285 386
ETH in pool ETH 727 1,209 18.3
MVI in pool $ M USD $1.54 $2.69 $0.03
ETH in pool $ M USD $1.54 $2.65 $0.04
Sell ETH for 1% price impact ETH 5.15 8.65 0.8
Buy ETH for 1% price impact ETH 5.12 8.58 0.69
Sell ETH for 2% price impact ETH 12.58 21.1 1.9
Buy ETH for 2% price impact ETH 12.35 20.72 1.8
4 day average volume $ $121,975 $852,435 $39,635 4.6%
4 day average fee $ $366 $2,557 $119 4.6%
Annualised fee return (at current AUM) % 4.3% 17.4% 62%
INDEX rewards (on day) % 26% 18% 0.0%
Combined rewards % 30% 36% 62%

So, with the recent improved market we are seeing more liquidity in terms of both LP tokens and $, and more trade volume. Even so, the INDEX rewards are contributing ~50% to the v2 LP income.

How much liquidity do we need?

Exchange issuance:
An recent exchange issuance abritrage of MVI used 1,700 k gas. So a gas price of 50 gwei will cost 0.086 ETH ($171 @ $2,000).

A uniswap trade is ~100k gas, so ~ $11 at 50 gwei / $2,000 ETH.

My understanding is that the available value in an arbitrage = 50% of the premium to NAV * the trade size required to being the price back to NAV. So for MVI on v2:

  • 8.5 ETH at 1% premium to NAV ~ 0.043 ETH ~ $85 value
  • 21 ETH at 2% premium to NAV ~ 0.21 ETH ~ $420 value

As the additional gas costs ~$160. Arbitrage looks to be start becoming cost effective at premiums of between 1 to 2% to NAV.


Main chain AUM ($ M) Liquidity ($ M) Volume
MVI $9.4 $5.4 $930,203
PLAY $2.0 $2.1 $186,104
NFPT $1.2 $0.3 $ 58,566

Looking at this information, I think some form of liquidity mining is required for MVI after the 13th August. With v3 and polygon pools available, there are many different approaches we could use.



Previous research in June is here:

In the discussions on MVI July LM campaign I commented:

Exchange issuance
For DPI, Exchange issue uses ~1,800 k gas, so 50 gwei would be 0.09 ETH, ~$180 at $2,000 ETH.

Uniswap v2 swaps are ~ 100k gas, so ~$11 at 50 gwei and $2,000 ETH. So exchange issuance costs ~ $169 more than a simple swap.

My understanding is that the available value in an arbitrage = 50% of the premium to NAV * the trade size required to being the price back to NAV. So for DPI on v2:

** $18,000 at 1% premium ~ $90 MEV*
** $36,000 at 1% premium ~ $180 MEV*
** $18,000 at 2% premium ~ $180 MEV*
** $36,000 at 2% premium ~ $360 MEV*

So exchange issue arbitrage should become profitable when there is > 2% premium to NAV and the liquidity needs > $18,000 to impact the price by 2%

*Likewise, a 1% premium to NAV, and liquidity deep enough to need > $36,000 trade to give 1% price impact should allow profitable arbitrage.

Onchain Liquidity
There are at least 5 on chain DEX liquidity pools that contain DPI and ETH:

  • Uniswap v2
  • Sushiswap
  • Balancer v1 (With USDC and wBTC)
  • Balancer v2 (with wBTC)
  • Uniswap v3

Figure 1 shows the AUM in each pool (Balancer v3 since 19Jul21)


Current DPI:ETH trade sizes required to produce a 1% price impact:

Uniswap v2 Sushiswap Balancer V3 buy V3 Sell
$134,538 $18,406 $17,571 $27,859 $63,900

(note these are all collected by manually checking the trade size required to produce a 1% price impact using the different protocol trade UI’s the Balancer UI could be using either pool. However, I think it’s using v2 as it’s the larger pool).

Figure 2 presents the on chain pool depth to produce a 1% price impact for each pool;

Note, I don’t have balancer or uni v3 historical data due to the complexities of the UI / liquidity.

Combined the pools have been allowing> $150,000 trades without impacting the price by 1%. This implies that if using a DEX aggregator, very large trades can be made without significant price impact.

Trade volume:
Combined the 5 pools have averaged $2.4 m daily volume with significant variation:

Univ 2 normally dominates the trade volume, however, there have been times when both v3 and Sushiswap have taken a large % (Figure 3):

Capital efficiency
As expected, the v3 pool with the ability to concentrate liquidity can achieve larger trade volume to AUM ratios (Figure4)


Figure 5, On average v3 is capturing 28% of the trade volume on v2 (with 5% of the AUM ~ 5.6 fold increase in capital efficiency):

LP income
Comparison of the fees and staking rewards for the different pools:

Uniswap v2 Sushiswap Balancer v2 (3 tokens) v3
Average volume to AUM 4% 6% 2% 24%
Free to LP 0.30% 0.25% 0.50% 0.30%
Annualised Fee 4.7% 5.2% 3.4% 26.2%
LM rewards (27jul21) 9.7% 11.3% 18.5% 0.0%
Average total fee 14.4% 16.5% 21.9% 26.2%

Note, This analysis does not include pools available to some aggregators. Multiple Stable coin: DPI pools available for large trades. Figure 6 shows a large (800 dpi → 102 eth) trade with would allocate 20% of the total value to the Uniswap v2 pool:


Comparison 22nd July 2021:

Main chain AUM ($ M) Liquidity ($ M) Volume ($m)
DPI $115.90 $42.64 $2.56
BDI $11.60 $16.80 $0.16
DeFI 5 $8.20 $4.40 $0.61
DEGEN $6.00 $1.60 $0.18
CC 10 $3.20 $1.80 $0.08

Overall DPI:

  • Dominates AUM at 10x our nearest competitor and 4x all other DeFi products.
  • Uniswap v2 pool is double the nearest competitor and >10x the others.
  • Has 2.5 x the volume of the other for funds put together.

Liquidity mining

IIP-53 allocated 12,578 INDEX to a 30 day campaign between 13 July and 12th August. At $25 this is $315 k or $10,481 per day.

This is entirely focused on the Uni v2 pool which contains 14% of total units issued ( ~$17 m).

What next for DPI:ETH liquidity?

There are a number of options:

  1. Maintain similar incentives on v2 to ensure we dominate DBI in terms of liquidity
  2. Reduce v2 LM and allow the pool to shrink and the other pools take more volume.
  3. Stop v2 LM and use the v3 staking contract to encourage migration to v3 (See discussion here)
  4. Stop rewards for DPI:ETH entirely.
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OK, this is a little embarrising :roll_eyes:

While digging into this data I realised that the v3 trade UI didn’t really make sense, so after consulting with a few people (Thanks to @jdcook @afromac and especially @Deep :pray:) I think I have a better idea of what they are showing.

The Error

Basically, I’ve mixed up cost to the trade and the price impact :roll_eyes:

Cost of trade includes LP fees & Price impact is what happens to the underlying pool. Market behaviour and arbitrage are related to the price impact (and ignore the LP fees).

Both are important!:

  • Cost to trades is what traders typically care about.
  • Price impact / depth influences when arbitrage becomes effective which then leads how close we trade to the Net asset value (NAV)

For all the manually collected data I’ve been taking the % value from the UI as price impact.

V2 and Sushi
For v2, I’ve been taking the “Gold %” as price impact

While I should have been looking at the little (I)

This shows that the trade value I’ve been using for 1% is actually 0.7% price impact and 0.3% fee to the LP’s.

Likewise, the sushi interface shows a % value that matches the change in $ values (i.e. it includes the LP/sushi fees).

This means that for both pools, all my 1% data is effectively 0.7% price impact. i.e. the pools allow trades ~30% larger to generate a 1% price impact.

v3 is doing something similar, but it’s not always = to the LP fee:


Same 1% cost to the trader, but 0.67% vs 0.73% price impact.

Overall, the end result is similar: the v3 pool allows trades ~30% larger than I’ve recorded for 1% price impact.

Balancer actually displayed the “Price impact”. However, recently looking at the $ values sold and received it’s 2% different (for a 0.5% fee pool).


So, compared to the other pools, I’m assuming that the balancer trade size is correct for the reported 1% price impact. However, Balancer is still somewhat of a mystery for me (and including wBTC in the pool means it’s never been a perfect comparison).

Impact on analysis
I don’t think that this makes a huge amount of difference. For most pools, the error has been similar (~30% underestimation of the depth) and it means we actually have more depth than I thought (When we are looking for deep pools)

In addition, the trade volume ratio between pools gives a second source of data on the markets activity.