TMP-5 : Migrating Liquidity to TraderJoe

Title: Migrate Liquidity to TraderJoe Author: Avicenna Created: 3/14/2023

Summary

Migrate all BNB chain liquidity from PancakeSwap to TraderJoe and enable liquidity book, in addition to listing JADE on Avalanche liquidity book pending governance approval from TraderJoe’s community.

Disclaimer

Jade Protocol is a decentralized autonomous organization, which means that all treasury management proposals are discussed with the community and voted on as a collective. No single member of the DAO shall be held responsible for the positive or negative outcomes of the TMP should it pass. This proposal put forth by the author(s) was synthesized in good faith as a result of due diligence and community discussion on Jade Protocol’s governance platform. There are no guarantees of financial gain and the DAO collectively assumes responsibility for both the positive and negative outcomes that may result from executing this proposal. This proposal does not constitute investment advice, but rather presents opportunities available to the DAO.

Should the community vote to pass this proposal, then the DAO and its contributors are authorized to carry out the suggestions set forth in this proposal. If the proposal represents an investment opportunity, the community accepts the risk that the DAO may lose the entirety of its deployed funds. If new information comes to light prior to the execution of this proposal (i.e. a change in the investment thesis) then the DAO reserves the right to not deploy funds even with the successful passing of this proposal, as it may pose an outsized risk to the DAO and its collective community.

There are risks associated with modifying token economics, moving funds across blockchains, yield farming, investing in seed stage projects or liquid tokens, including but not limited to: complete loss of funds, counterparty risk, de-peg risk, economic exploits, smart contract exploits and/or the risk of impermanent loss. Due diligence is meant to mitigate these risks, however the DAO must still acknowledge and accept that these risks exist.

Abstract

The DAO has a Pancake Swap LP (750k) deployed on BNB Chain and Trader Joe LP (120k) deployed on Avalanche. These LPs are traditional AMM LPs, meaning that we are providing liquidity across all price ranges (infinite liquidity). While this has served us well for the past year or so, there are now new DeFi innovations that will allow us to be more capital efficient while minimizing slippage. Concentrated liquidity on TraderJoe’s liquidity book platform would allow for capital efficiency and the return of some funds to our investment treasury to supplement our investment allocations.

Motivation

The DAO could benefit from having concentrated liquidity in addition to a traditional LP pool for a few reasons.

1. Given the unique nature of the floor price, the DAO will benefit from having concentrated liquidity that deepens liquidity around that specific price. This means we could maintain current slippage rates on the BNB Chain with less capital.

2. The DAO will generate fees in both JADE and BUSD/USDC for both liquidity book pairs. The DAO can decide how to utilize these fees, options include: 1) re-compounding the fees into the LP, 2) claiming the stables for the treasury and burning the JADE, 3) or simply claiming and holding both the stables and JADE tokens. This can be decided in another governance proposal, or built into this proposal prior to it going live.

3. A base layer of liquidity will need to remain in a traditional v1 LP (minimum of 100k recommended by TraderJoe) to serve as a buffer if price ever migrates outside the bin ranges set on the liquidity book. This allows the DAO time to re-set bin ranges without having to worry about being illiquid when doing so.

The TraderJoe team is one of the most reliable shippers of code on Avalanche, and are now rapidly expanding their product to other EVM chains (Arbitrum/BNB Chain/etc.).

As a result of this new partnership with TJ, we can work closely with them to coordinate the launch of new token pairs on Liquidity Book anytime one of our seed investments wants to launch or expand liquidity. This will allow us to provide further value to our seed investments, while also providing a pipeline for TraderJoe to onboard new and innovative projects.

Pros

• Capital efficiency
• Strengthen our relationship with a premier project that is expanding its reach

Cons

• Migration of funds will take some time
• Addition of JADE on Avalanche to the liquidity book is not guaranteed, and must pass TraderJoe governance first.

Next Steps

A high level summary of how the investment strategy will be implemented:

• 150k of LP withdrawn from PCS and added to TJ v1 pool on BNB Chain.
• 200k of LP withdrawn from PCS and added to the TJ Liquidity Book on BNB Chain with bin ranges set to +/-15% of the floor price. These bin ranges will ensure deep liquidity at the floor price while also minimizing IL.
• Remaining LP withdrawn from PCS (~400k), LP tokens are unpaired to yield JADE (200k) and BUSD (200k). The Jade tokens can be burned, and then the BUSD can be held in the treasury or swapped to USDC. Given the concentrated liquidity from liquidity book, removing the remainder of PCS LP will not have a negative effect on slippage. In fact, there should be less slippage now that we have both a traditional LP and supplemental concentrated liquidity.
• Adding JADE to Liquidity book on Avalanche does require our DAO to go through TraderJoe's governance process.
• If approved, bridge over 100k of USDC and 100k of JADE to Avalanche and then add liquidity to LB on Avalanche with bin ranges identical to BNB Chain.
• Anytime the floor is going to change, the DAO will need to adjust the bin ranges on both Avalanche and BNB Chain to reflect the new floor price. Prior to floor changes, the DAO will remove the concentrated liquidity, and allow the price to naturally fall to the floor via the underlying v1 LP. Once the floor is reached, arbitrageurs will begin to keep the price steady while we re-deploy the concentrated LP.

Voting

This is a Core Proposal that was presented to the community via 3/14/2023 on. After a 10 day community discussion, the proposed edits were incorporated and consensus was reached. This vote will be subject to a 24 hour warmup period, followed by a 3 day voting window.

If you agree with this proposal, a [YES] vote would confirm the implementation of all next steps highlighted above.

If you disagree with this proposal, a [NO] vote would result in the continuation of operations as is.

Copyright

Copyright and related rights waived via CC0.