Create a new 80/20 MIST-ETH pool on Balancer using Alchemist Multisig funds

Advantages tl;dr

1. A capital efficient way to provide Copper launches with the opportunity to use MIST as a collateral token, and enable launch participants to use MIST as a currency.
2. Experiment with a novel liquidity provision mechanism that is meant to better protect MIST liquidity providers against impermanent loss.
3. The reduction of impermanent loss effects within an 80/20 pool could result in a significantly higher number of MIST locked through LP provision by the Alchemist community as a result of pool’s utility (fees generated) in the context of Copper.

Advantages of an 80/20 Balancer pool for Alchemist community members

Increase the utility of MIST by enabling projects bullish on the Alchemist community to launch MIST fund raises on Copper

Copper https://copperlaunch.com is a fair launch platform built by Alchemist. Projects launching through Copper can currently only raise funds in tokens that have liquidity within the Balancer protocol. ETH, DAI, and USDC are currently enabled on the platform. Many Alchemist community members have requested MIST as a collateral currency on Copper. Unfortunately, MIST doesn’t currently have a liquidity pool on Balancer, but the creation of an 80/20 MIST-ETH pool would enable this use case.

The advantages of it being an 80/20 pool is that it can be bootstrapped by the Alchemist Multisig in a very capital efficient way. We would only need 20 ETH and 2450 MIST to bootstrap it with nearly 400K USD of liquidity, and the slippage associated with selling enough MIST to get 20 ETH is negligible (0.6%).

Entice passive MIST HODLers to participate in MIST liquidity provision and further lock up MIST

80/20 pools are a great solution for communities that want to scale because they provide a way to reduce impermanent loss while also seeking liquidity gains. 80% of the pool would be held in MIST, while the other 20% of the pool would be held in ETH.

The 80/20 pools solve the problem of misaligned intentions between community token holders and liquidity providers looking to make a profit. In addition to what has been previously covered on impermanent loss, it should be noted that the “classical” 50/50 pool exacerbates a split between two groups of community’s token holders, which are always present when a project is launched. On one side, there are believers ready to HODL for the long term dreaming about a moon-landing upside; on the other, liquidity providers who cannot stand to have tokens left in a wallet that don’t generate any form of revenue.

Let’s look at a couple of different scenarios that illustrate these realities.

Scenario 1: ETH increases in value after a community member provides LP

In this common scenario, when the liquidity is concentrated in a 50/50 pool, tension might arise within the community. Liquidity providers could view growth as a form of risk, because any sudden price change may produce impermanent loss for their pools. The best outcome for them is that tokens in their pool continue to trade within a tight range.

Scenario 2: MIST increases in value after LP provision

Long term holders are reticent of putting their assets at work, as they expect the token to prepare for lift-off at any time. On top of impermanent loss concerns, they are reasonably concerned that farming with a 50/50 ratio would erase part of their potential earnings.

The main positive effect of the 80/20 ratio is inducing HODLers to pool their tokens. In the case of stagnating price, HODLers benefit from passive pool income, while they would lose less compared to a 50/50 pool in the case of a significant price drop (for impermanent loss). Finally, in usual market conditions, HODLers would not perform much better than 80/20 LPs. 80/20 pools are a lower-risk way to still have a foot in the door for improving liquidity.

Lock more MIST in healthy, profitable LP provision

Given that the 80/20 MIST/ETH pool on Balancer will have immediate utility when it comes to enabling the use of MIST as a collateral and currency on Copper, it could potentially generate a strong amount of fees for LP providers, further increasing the pool’s value proposition.

An additional benefit of having the liquidity on Balancer is that their Vault architecture will result in a considerable amount of gas saved for LP providers. In other DEXs where token accounting is paired with pool logic, multi-hop trading (A->B->C) can become costly since ERC20 tokens must be transferred at each hop. For Balancer Vaults this problem is eliminated.