Visor Finance: Liquidity Mining on Uniswap v3 (Revised w/ Poll)

Hi B.Protocol Community,

Based on the responses from the community call on 9/8/2021, we wanted to revise our prior proposal here: B.Protocol <> Visor Finance: Liquidity Mining on Uniswap v3 to include a poll for the community to decide on the amount of liquidity mining incentives.

Simple Summary

The goal of this proposal is to enable better liquidity for the BPRO token on Uniswap v3 as it would arguably attract new users to B. Protocol while also taking advantage of the capital efficiency of Uniswap v3.

Abstract

The proposal aims to incentivize BPRO liquidity via a BPRO-ETH Uniswap v3 pool using Visor Finance to facilitate the liquidity provisioning process. Concentrated liquidity provisioning on Uniswap v3 involves managing price ranges and manually re-investing earned fees. The advantages to using Visor Finance include automated adjustments of price ranges and automated re-investment of fees. Price range adjustments and fee re-investments are done according to top-of-the-line strategies developed by Gamma Strategies (www.gammastrategies.org), which is a research organization funded by Visor.

Visor Finance takes 10% of earned LP fees, which get distributed to VISR stakers. 90% of earned LP fees will be automatically re-invested into the LP positions. Visor Finance will cover all gas fees for rebalancing positions and re-investing earned fees. LP costs include a 1-time gas fee for minting an NFT vault and gas fees related to depositing/withdrawing the base assets (BPRO & WETH) into the Visor interface. No separate gas fees for staking/unstaking LP tokens or adjusting LP positions are required. Additionally, there is no need to provide the assets on Uniswap v3 either, given that the assets are simply deposited onto the Visor interface. Those assets are provided to the Uniswap v3 pool in accordance with the strategy developed by Gamma Strategies.

Liquidity Provisioning Tradeoffs:

Providing liquidity in a narrower price range can lead to earning higher fees, but can subject the liquidity provider to greater impermanent loss as prices of the underlying assets diverge. Conversely, providing liquidity in a wider range will earn less fees than a narrower one, but are accordingly at lower risk of suffering impermanent losses when there is price divergence. See here for a calculator that allows you to explore how impermanent loss can be affected by the width of price ranges. https://defi-lab.xyz/uniswapv3simulator

Specifications:

  1. Visor Finance will match up to $10,000 in ETH to bootstrap initial liquidity in the BPRO-ETH Uniswap v3 pool at the 0.3% fee tier

  2. Quantity of BPRO as liquidity mining incentives for 591300 blocks (~ 3 months) to be emitted through Visor Phantom

  • 40,000 (~3,333 BPRO / Week)
  • 60,000 (~5,000 BPRO / Week)
  • 80,000 (~6,666 BPRO / Week)
  • 100,000 (~8,333 BPRO / Week)

0 voters

New Poll:

Quantity of BPRO as liquidity mining incentives for 591300 blocks (~ 3 months) to be emitted through Visor Phantom

  • 10,000 (~833 BPRO / week)
  • 20,000 (~1,667 BPRO / week)
  • 30,000 (~2,500 BPRO / week)
  • 40,000 (~3,333 BPRO / week)

0 voters

To see an estimate of how these emissions can affect APRs, see here:

1 Like

From the discussion in the community call I understand this as a poll simply to select the amount. You will then use this to submit a proposal with all parameters defined as a “Yes”/“No” vote. Is that correct?

The last LP incentive for Uniswap and Sushiswap (BIP-1) seemed to not reach the desired goals, and as far as I can tell spent around 75,000 BPRO. With that in mind, my vote will always be for the lower value, and probably not for a LP incentive overall. I think incentivizing users is better than incentivizing LPs.

4 Likes

I agree with @TragedyStruck. My opinion is that Bprotocol is greatly undervalued and it is likely that the price of BPRO tokens will grow at a higher percentage rate relative to the paired asset. This means that DAO pays a very potentially large amount for LP.
I think that in this situation we should not ask which strategy carries a higher and more constant fee, but which is the optimal LP strategy for protocol with low mcap and high growth potential?
The strategies offered by Visor Finance are a far better solution than the previous LP program, but what if BPRO grows 5-10x compared to ETH? What effect will this have on the Bprotocol DAO?

4 Likes

Thanks for the responses, and I agree that the purpose of this program is to incentivize more adoption of BPRO as well as to increase liquidity for the token.

First, the strategy:

The optimal LP strategy for a small market cap, but high growth potential coin is to use wide ranges that drift up as the price does as well. Wider ranges reduce the impermanent loss (IL) that is suffered by the liquidity provders (LPs), while the fees generated from the liquidity provision position as well as the liquidity mining rewards should make up for that and reduce risk.

When there is wide price divergence (i.e. the price of BPRO rises 5x-10x against ETH), the DAO would benefit from incentivizing LPs to keep their liquidity in the pool, thus maintaining low slippage for potential new BPRO holders. This is due to the fact that a 100% HODL of BPRO could outperform a BPRO-ETH LP position, and that is simply due to the tradeoffs of being an LP when there is wide price divergence.

Second, the objective:

The objective of this program is to spread the use of B.Protocol and the distribution of the BPRO token. We believe that a liquidity mining program can help both of these, as a more liquid token can attract potential holders who don’t want to suffer significant slippage from taking a position in BPRO, as well as diversify the current BPRO holder set, decentralizing the protocol, broadening the community, and potentially improving governance.

2 Likes

Yes, that is correct. This is mainly to choose the parameters for the amount, and the actual proposal, when up for a vote, will be simply “Yes/No”.

Also due to the capital efficiency of Uniswap v3, we may not need as much BPRO as the prior LP incentive (BIP-1).

Using a wide price range of 50% above and below current BPRO price would give you a capital efficiency of approximately 4.16x what you would get on Uniswap v2. In other words, with only ~24% of liquidity in Uniswap v3, you can have the same slippage as you would have on Uniswap v2. See here for the calculation: BPRO Capital Efficiency Calc - Google Sheets

3 Likes

Tx for answers

I have the opposite opinion about this statement (maybe I am wrong).
In the case of Bprotocol, with given LM program, I think BPRO holders can be divided into two categories:

  1. Token holders
  2. Token holders + Fund Holders (protocol users)

Given the goals set by DAO I think the second category of holders is key to protocol development.
I do not currently see the significant slippage as a problem for long-term holders, but only for traders who will be able to enter and exit positions faster and cheaper.
It is questionable how much the increase of the first category of users will increase the degree of decentralization, expand the community and improve governance.
I even think it will potentially lead governance into problems (i.e. Compound - unalignment of interests between the first and second categories of users)

2 Likes

I do not currently see the significant slippage as a problem for long-term holders, but only for traders who will be able to enter and exit positions faster and cheaper.

I take your point that traders tend to care more about slippage and we should reward users of the platform itself.

However, I do believe it can prevent people who have conviction in B. Protocol from acquiring a larger position in BPRO due to the slippage.

image

Based on a purchase of just 10 ETH of BPRO on Uniswap v2 would suffer 8.12% slippage. That is quite high for purchase of that size. The total liquidity of BPRO on Uniswap v2 is slightly less than $800,000.

Conversely, CVX-ETH has only $582,000 of liquidity on Uniswap v3 and would only suffer 3.82% slippage for the same size purchase on less liquidity than BPRO-ETH has on Uniswap v2.

It may not be too high of a price to pay to get the requisite amount of liquidity onto Uniswap v3. We wouldn’t need as much liquidity on Uniswap v3 as we would on Uniswap v2, so the liquidity mining rewards may not have to be too much. If you wish, I can alter the poll to include smaller amounts of LM rewards.

1 Like

If DAO members vote for incentivise LP with BPRO then active LP management is definitely a better option.
I wonder why a 0.3% fee tier was offered? Why is a 1% fee tier not a better option in this case?
Is there an option to not reinvest all trading fees, but to put part of it in Bprotocol DAO treasury? Especially if a 1% fee tier will be applied.

2 Likes

There’s actually a good amount of liquidity on Uniswap v3 right now. Slippage is now lower than Uni v2 when purchasing 10 ETH. In the past 2 days more than $100K in liquidity was added to the Uni v3 pool at the 1% fee tier. It’s significantly reduced slippage! The capital efficiency of Uniswap v3 is pretty awesome. Perhaps a treasury management angle would be more ideal than a liquidity mining campaign at this point, where the treasury can be grown in an optimal fashion using Visor Phantom.

3 Likes