DPI
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 $2.4 m daily volume with significant variation:
Univ 2 normally dominates the trade volume, however, there have been times when both v3 and Sushiswap have taken a large % (Figure 3):
Capital efficiency
As expected, the v3 pool with the ability to concentrate liquidity can achieve larger trade volume to AUM ratios (Figure4)
Figure 5, On average v3 is capturing 28% of the trade volume on v2 (with 5% of the AUM ~ 5.6 fold increase in capital efficiency):
LP income
Comparison of the fees and staking rewards for the different pools:
| Uniswap v2 | Sushiswap | Balancer v2 (3 tokens) | v3 | |
|---|---|---|---|---|
| Average volume to AUM | 4% | 6% | 2% | 24% |
| Free to LP | 0.30% | 0.25% | 0.50% | 0.30% |
| Annualised Fee | 4.7% | 5.2% | 3.4% | 26.2% |
| LM rewards (27jul21) | 9.7% | 11.3% | 18.5% | 0.0% |
| Average total fee | 14.4% | 16.5% | 21.9% | 26.2% |
Note, This analysis does not include pools available to some aggregators. Multiple Stable coin: DPI pools available for large trades. Figure 6 shows a large (800 dpi → 102 eth) trade with would allocate 20% of the total value to the Uniswap v2 pool:
Competitors
Comparison 22nd July 2021:
| Main chain | AUM ($ 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:
- Maintain similar incentives on v2 to ensure we dominate DBI in terms of liquidity
- Reduce v2 LM and allow the pool to shrink and the other pools take more volume.
- Stop v2 LM and use the v3 staking contract to encourage migration to v3 (See discussion here)
- Stop rewards for DPI:ETH entirely.