Curve Transition Plan - Securing funds for liquidity

Author: Maxicrouton#1596 GotchiID: 24877

Discourse links: https://dao.aavegotchi.com/t/dao-curve-transition-team/4676

INTRODUCTION

Hello Frens !

The proposal to close the curve is in progress and the vote for a 25/25/25/25% split is likely to pass. One of these 25% was voted by the DAO to be used as liquidity to allow new entrants not to suffer from high slippage and to have a nice and smooth price discovery.

At the moment the liquidity on the DEX is quite low. We have about $2 million in liquidity in the GHST-USDC Quickswap pool and we can assume that if we do nothing it will drop drastically because the 8% APY coming from the GLTR is not enough incentive compared to the risks impermanent loss when the curve will close.

We have a liquidity target of around $5 million, as this could allow new entrants to trade $50,000 with less than 2% slippage.

LIQUIDITY PROVISION Together with the curve transition team, we would like to secure enough funds that will serve directly as liquidity to DEXs. We are thinking of two DEXs: Quickswap and Balancer, we are in discussions to secure rewards from these projects. We have a maximum of 957,000 DAI available in the DAO treasury pre-curve closure (1.067M DAI - FArmy's 110k). To add the liquidity, we thought of 3 types of pool, either Balancer pools with pools of type 80(GHST)-20(Stable) or 75(GHST)-25(Stable), or usual pool type 50-50. Since we have a lot more GHST than DAI in the treasury, the Balancer pool looks quite interesting because it would allow the DAO to provide more than $2M worth of liquidity pre-closure. If we were to use 950k DAI in a weighted balancer pool we would need to match it with the following amounts of GHST if valued at 1.30: 75-25 pool: 2,192,000 (3,800,000$ pool total) 80-20 pool: 2,923,000 (4,750,000$ pool total) 50-50 pool: 736,000 (1,900,000$ pool total)

LIQUIDITY MINING PROGRAM To achieve the $5M liquidity target, we believe that a possible option could be a liquidity mining (LM) program in addition to the direct provision of liquidity by the DAO. Here is a chart of LM reward costs. The X-axis is clusters of different target APRs for different amounts of goal external liquidity provision. The Y-axis is the LM reward expense.

This is the calculation of potential DAO Impermanent Loss. The highlighted column assumes the DAO provided $2M in liquidity and highlights the IL at different GHST values.

We are targeting $3 million in external liquidity from this program. We believe that an APR of 50% for 2 months would be enough to incentivize the liquidity provider. This would require $250,000 in LM rewards. The GHST must stay above $3.75 for the LM program to be cheaper than the IL incurred for the DAO. This liquidity mining program is expected to begin shortly before the curve closes. These numbers are only indicative, maybe we can go up to $500,000 in LM rewards at the beginning to give the project an impulse and have a nice price discovery ?

SUMMARY So to summarise, we would like to secure $4M ($3M5 for the liquidity provision depending on the type of pool used and about $500k for the LM program). These numbers are obviously subject to adjustments but these $4M would be a maximum used for the liquidity provision at least for a pre-curve program.

As an indication, there is 27M of DAI in the contract of curve, which gives $7M of DAI which must be used for increasing liquidity.

We're asking for your feedback and we will be happy to discuss the numbers presented by the CTT.