SPS Governance Proposal - Restructuring DAO LPs
Purpose
After the most recent DAOn Hall, I ran a series of polls in an attempt to determine what proposals the SPS DAO would like to see related to its ongoing DeFi strategy. Please note that this proposal is going to require multiple steps in order to provide a clear and actionable set of instructions for the SPS Treasurers in the event that this proposal passes.
Proposal
If this proposal passes, the SPS DAO will make the following changes as soon as the SPS Treasurers can be organized to do so:
- Close the existing targeted range DEC:USDC v3 position on Pancake Swap (#1250953)as well as the existing SPS:ETH v3 position on Pancake Swap
- Create a new DEC:USDC v3 position with a range of 0 to 0.00101 on Pancake Swap with 100,000 USDC and an equivalent amount of DEC. The pool fee will be 0.05%
- Swap the extra USDC for 20,000 USDT, $20,000 worth of BTCB, $20,000 worth of ETH and $20,000 worth of SOL on the BSC chain.
- Create a new SPS:USDT v3 infinite range position on Pancake Swap with 20,000 USDT and an equivalent amount of SPS. The pool fee will be 0.05%
- Create a new SPS:USDC v3 infinite range position on Pancake Swap with 20,000 USDC and an equivalent amount of SPS. The pool fee will be 0.05%
- Create a new SPS:BTCB v3 infinite range position on Pancake Swap with $20,000 worth of BTCB and an equivalent amount of SPS. The pool fee will be 0.05%
- Create a new SPS:ETH v3 infinite range position on Pancake Swap with $20,000 worth of ETH and an equivalent amount of SPS. The pool fee will be 0.05%
- Create a new SPS:SOL v3 infinite range position on Pancake Swap with $20,000 worth of SOL and an equivalent amount of SPS. The pool fee will be 0.05%
- Add 200,000,000 DEC and an equivalent amount of SPS to the DEC:SPS pool on Hive Engine.
If any additional funds are needed for the creation of these pools then the SPS DAO treasurers may convert BNB into the necessary tokens to create the pools.
Notes
If this proposal passes, it should make the DAO's DEC:USDC pools more efficient while providing full range coverage for DEC up to the soft peg value. The new pools should help to encourage triangular arbitrage through the SPS and DEC tokens which will hopefully create a healthier overall token economy and DeFi strategy. The more liquid our tokens are and the more volume we can capture the better.
It's important to understand that more exposure to different tokens carries potential risks. These include impermanent loss and counterparty risk of third party tokens and assets. For example, we don't control the ETH or BTC wrapper for the Binance Smart Chain.
The other two issues the polls aimed to address will be handled separately. I am looking into bridging to BASE and will be discussing this with the Validator developer in the near future. There is a separate proposal to allow the SPS DAO to vote on whether or not it would like to end all LP incentives.
As always, thanks for your time and consideration on these issues.
This is all great news. I'm voting yes for both of these Proposals. Please make sure to keep details updated on @coingecko and CoinMarketCap on all the changes. Most investors are not very aware of the internal workings of HIVE projects and there is a lot of volume on our DEXs that are not being tracked due to various reasons.
Best of Luck!
What happens when the price is above the high end of the range?
Does it mean that if DEC is above peg then this entire liquidity pool is unavailable for routing?
Won’t that result in larger slippage near “soft peg” if there is large buying demand, and this liquidity isn’t available? It also prevents the DAO from selling any DEC when demand pushes the price above the soft peg, so the buyer pays more and the DAO misses an opportunity (at which point all the PnL will be captured by arbitrage bots)
Maybe I’m not thinking of this correctly, but to me it seems like infinite liquidity would potentially serve better than range liquidity
It means that to get DEC over peg you'd have to buy everything in the position. If demand pushes the price of DEC beyond that point, then you'd need to be buying SPS to burn for DEC. You'd then have about $200k in buying power for the people burning SPS and selling it into the position.
I discussed this at length with several people familiar with defi over the last week or so and they all agreed this was the way to proceed.
There's also still the .00083-.00104 position as well. So realistically DEC would have to go 4% over peg to run out of DEC to buy, and then like I said if that happens people will be buying SPS and burning it for DEC to sell into these positions for the 1-4% gain.
Thanks for the reply and trying to explain.
It sounds like the swap math completely changes above the limit, I’m curious how the LP continues to price both tokens once it keeps selling DEC at soft peg and it can’t keep both assets in equilibrium balance anymore?
Say we have $100 in each asset at peg.
Dec increases and someone buys $25 in DEC - normally that would push the LP’ DEC price up to equilibrium but you are saying that doesn’t happen - instead the LP keeps $25 of DEC at peg and $125 of USDC. I’m just guessing either it keeps buying/selling both assets at the limit price, or maybe the pool shrinks automatically (withdrawing USDC proportionally)
How does the LP revert back from the 125/25 imbalance when Dec demand abates and people start selling back into the pool at soft peg?
https://debank.com/profile/0xdf5Fd6B21E0E7aC559B41Cf2597126B3714f432C
You can check the pool in question at the link. #1250953
What happens is it only has one token when it goes beyond that range. This actually happened with the other DEC:USDC pool when DEC fell below peg. We had a position with millions of DEC and no USDC. In short, it could only sell DEC, not buy.
We have a pull that can only buy DEC (for 0.00083) right now. It has no DEC to sell.
Having a pool from 0-0.00101 means that it has liquidity to buy or sell DEC all the way up to 1% over peg, then it can only buy DEC. You end up with 200k buy pressure which makes it harder to drop far from peg.
Good context and appreciate your time explaining. Looks like I have some more learning to do :)
good work clay, got my vote for
Another great proposal Clayboyn. Looking forward to the SPSDAO managing all these new PancakeSwap contracts with the different BSC-based BEP-20 tokens.
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so is that a 5% fee written in a weird way or basically 0%?
if you have a token paired between multiple other things that change in value, the swap fees are the only mitigation to the constant decay of arbitrage from volatility.
I'll give an example in-case charity was not the goal:
let's say you have a simple setup like [BTC:SPS] / [SPS:ETH]
in this case,
-if BTC price increases you are selling it at a discount
-if BTC drops in price you are selling ETH at a discount
-if ETH price increases you are selling it at a discount
-if ETH drops in price you are selling BTC at a discount
any arbitrage profit comes from somewhere - where does it come from?
pool fees are a way to make arbitrage trading benefit trader and LPs.
honestly idk anything about garbage-chain EVM pools with TX fees but if the pool fees are literally "0.05%" then all other things being equal I would expect your funds to decay over time and never truly reflect any gains from BTC/ETH/SOL price movements.
hive engine fees being 0.25% is already borderline insanity if you think about it.