Summary

After reviewing the risk of impermanent loss and fragmented liquidity by introducing a SushiSwap V3 pool, it is instead proposed to:

(1) remain on SushiSwap V2 and continue optimizing liquidity incentives by reducing the V2 rewards by a third (1/3) to 142,222 RADAR per day and a total of ~25,599,960 RADAR over a period of six (6) months,

(2) utilize V3 on other chains to execute our multichain strategy and

(3) review at a later stage the feasibility of moving from V2 to V3 on Ethereum, when the market dynamics are in better conditions and liquidity is consolidated on the other chains

Motivation

The motivation for this proposal stems from our strategy to have RADAR and its products available on the chains where our users are while managing liquidity costs across multiple chains by transitioning to more cost-efficient V3 pools. It attempts to balance the cost implications of liquidity incentivization and the risk of impermanent loss (IL) that Liquidity Providers (LPers) face. The objective is to ensure optimal liquidity provision while aligning our ecosystem with RADAR at its core.

Abstract

Introduction

An essential component of our RADAR liquidity strategy is to scale RADAR’s presence and products on popular chains – aligning with user preferences and optimizing liquidity allocation for cost-effectiveness. In our previous liquidity proposal, DCP-13, we discussed our ambitions and vision to reduce liquidity costs by transitioning to V3 on all of our chains beginning with SushiSwap V2.

Over the past months, we have been in contact with various liquidity managers for V3 pools and tokenomics experts to get the best advice on how to execute this strategy. Based on our discussions with these experts, our analysis suggests that launching a V3 pool on SushiSwap, at the moment, may not align with our long-term goals.

Challenges of Sticky Liquidity and Impermanent Loss

Although, (1) launching on a new chain can attract more liquidity to support RADAR price and (2) utilizing a V3 pool could reduce liquidity costs – there could be increased impermanent loss and fragmented liquidity risks on our current SushiSwap V2 pool.

Impermanent loss is a well-recognized concern for LPers. As commented by community members, the majority of the LPers joined during better market conditions, and therefore IL could result in permanent losses if they make the shift. The sticky liquidity, seen in our SushiSwap V2 pool, typically doesn’t migrate well due to the above-mentioned issue of impermanent loss at RADAR’s current prices, and we may end up with fragmented pools with low liquidity and higher APRs.

To address this, we have allocated substantial rewards to LPers, and these rewards create selling pressure on RADAR which is currently balanced by the sticky liquidity and protocol-owned liquidity (P.O.L) that we have built through incentives. The need to expand our services to various chains introduces a dilemma, requiring us to balance further emission costs (inflation) on token price.

Adjustment of SushiSwap V2 rewards and extension of rewards duration

Through our analysis, reducing the rewards is a reasonable cost reduction as our LPs have enjoyed high APRs for over a year and a half, currently standing at 64% APR. It is proposed that we remain on SushiSwap V2 and continue optimizing liquidity incentives by reducing the V2 rewards by a third (1/3) to 142,222 RADAR per day and a total of ~25,599,960 RADAR over a period of six (6) months. This adjustment aims to reduce operational overhead and provide us with more time to focus on V3 strategies for both BNB and Polygon (a chain that the DAO community previously signaled that we should move to in this poll and this Proposal).

Prioritizing Multi-Chain strategy

To navigate these challenges, our strategy focuses on launching RADAR on other chains exclusively through V3 pools. We will prioritize utilizing P.O.L and incentives in V3 pool deployments on BNB and Polygon deployments, aiming for a positive flywheel effect within our RADAR ecosystem.

This is an experimental phase for us. Our upcoming Cross-Chain solution, utilizing the Connext xERC20 standard, offers a low-technical-debt approach for cross-chain deployment. It is essential to keep the community well-informed throughout this process.

Key Next Steps

• Resuming Bridging Operations: Utilize Connext’s xERC20 framework to resume bridging operations. This framework allows flexibility in utilizing different bridges, providing a robust cross-chain solution for the future as seen in DCP-15.
• Reward Adjustment Proposal: Reduce V2 rewards by one-third to 142,222 RADAR per day and a total of ~25,599,960 RADAR and extend the reward duration to six (6) months. This adjustment aligns with our focus on executing successful V3 strategies on BNB and Polygon.
• V3 Strategy Decisions: Establish Price Ranges, P.O.L and Rewards Allocation and Choice of Strategist for Liquidity Management
• Monitor the execution of the strategy, gather data, and iterate based on community feedback and performance indicators.

Conclusion

Our RADAR Multi-Chain Liquidity Strategy aims to strike a balance between cost-effective liquidity, LP incentives, and ecosystem growth. By extending SushiSwap V2 reward durations, and prioritizing multi-chain launches through V3, we aim to ensure a thriving ecosystem while managing liquidity challenges effectively.

This proposal is a roadmap for adapting our liquidity strategy to the evolving DEX landscape, fostering community growth, and ensuring a resilient ecosystem for RADAR. We invite feedback and collaboration to refine and execute this strategy effectively.

Benefits

• Liquidity Optimization and Cost Reduction: Maintain sticky liquidity on SushiSwap V2 and optimize liquidity incentives for liquidity providers (LPs) while transitioning to a more cost-efficient strategy.

• Due to frequent pool balancing and liquidity management and high gas fees on mainnet, V3 pools can potentially become more expensive than on other chains. The cost reduction by focusing on V3 on other chains can help improve the project’s sustainability and reduce inflation.

• Multi-Chain Expansion: Prioritizing the use of V3 pools on other chains allows for RADAR to expand its presence and products across multiple blockchain ecosystems. This can increase RADAR’s exposure and user base.

Drawbacks

• Reduced Rewards: Lowering rewards on SushiSwap V2 may discourage some LPs, especially those who were attracted by the high APRs. This could result in a reduction in liquidity on the platform, but based on our analysis and the resilience of the pool, this should not have a material impact.

• Fragmented Liquidity: There is a risk that liquidity could become fragmented across different chains, potentially leading to lower liquidity levels on each chain. This could impact the efficiency of RADAR’s services.