Optimise ACX Liquidity Strategy on Velodrome

Author(s): 0xmethodic, taowatts Status: Proposed Related Discussions: https://forum.across.to/t/velodrome-liquidity-program-extension/1752

Summary:

Across Protocol's initial pilot program on Velodrome ended in Q4 2023. This proposal aims to reduce total ACX tokens deposited as incentives by 70% whilst introducing a Protocol Owned Liquidity (POL) position to ensure a more cost effective and sustainable strategy long term. The POL position will enable Across to start building veVELO votepower for 0 net cost whilst being eligible for incentive matches in OP tokens through the Tour de OP Program.

Motivation:

L2 adoption continues to gain significant momentum with Across Protocol taking a leadership position in supporting cross-chain activity. Building ACX liquidity on Velodrome - the largest DEX and native liquidity layer of the Superchain - will further strengthen Across’ presence in the growing ecosystem and allow L2 users to trade and hold ACX at a low cost.

On Velodrome’s pilot program, Across protocol attracted nearly $600K in liquidity by directing ~2X in VELO emissions per ACX incentive to ACX/WETH, following an uptick in incentive efficiency.

Across can leverage this attractive incentive efficiency ratio by introducing a POL position to build a veVELO position for little to no cost during its subsequent program.

Specification & Implementation:

Across will extend its initial program for another 16 weeks while strategically reducing incentives from $5K worth of ACX tokens to $1.5K per week. These will be deposited weekly to attract votes for ACX/WETH. After each epoch is completed on Wednesday at 23:59 UTC, the resulting $VELO emissions from votes will flow to ACX/WETH LPs.

1. Risk Labs will swap $100K worth of ACX to WETH for the POL position
2. A $200K ACX/WETH LP position will then be staked on Velodrome
3. $24K of ACX tokens will be sent to Risk Labs multisig (0x8180D59b7175d4064bDFA8138A58e9baBFFdA44a)
4. Risk Labs will then be responsible for depositing the $1.5K worth of ACX incentives every week for a period of 16 weeks
5. Every 4 weeks, VELO emissions from the ACX/WETH pool will be claimed and locked into veVELO to build Protocol Owned Votepower
6. Once Risk Labs has locked its first veVELO it will for the ACX/WETH pair for the duration of the program

Rationale:

On Velodrome, $VELO emissions are directed to liquidity pools based on the number of votes by veVELO (vote-escrow VELO) holders. Protocols such as Across can use veVELO or voter incentives (bribes) to attract votes and emissions for their liquidity pairs. DeFi protocols such as Yearn, Lido, Synthetix as well as Bridge service providers like Stargate and Connext all leverage Velodrome’s mechanics to maintain deep liquidity on Optimism in a capital-efficient way.

With a combination of voter incentives and Protocol Owned Liquidity, Across can support liquidity on Velodrome and build a Protocol Owned veVELO position that will earn trading fees in perpetuity for Across.

Downside (Cons):

Across Protocol will deploy $1.5K weekly incentives for 16 weeks which totals USD $24K. However, this is $11K less than its pilot program which cost $35K. In addition, assuming incentive efficiency remains constant at 2X, Across would capture $1.5K in VELO emissions per week at a 40% APR through its $200K POL position. In other words, Across could receive 100% of the value of its weekly incentives in VELO, allowing the protocol to sustain $390K worth of TVL for effectively zero net cost.

Voting:

Yes - move forward with optimised program No - do not move forward optimised program Abstain - no vote