KIP-94: Partition of Protocol Owned Liquidity between Uniswap (30%) and Velodrome (70%)

Simple Summary

Kwenta will allocates POL between Velodrome and Uniswap pools (70% Uniswap & 30% Velodrome).

The Velodrome side (70% of the POL) is important to capture VELO emissions each week, grow Kwenta's Protocol Owned Vote power (veVELO), and strengthen the protocol's incentive programs.

Building a veVELO position will significantly reduce Kwenta's reliance on liquidity incentives over time by giving the protocol control to direct VELO emissions in perpetuity while capturing voter rewards weekly.

In addition, the release of Velodrome V2 allows liquidity pools to self-incentivize by capturing higher fees that attract veVELO votes.

The Uniswap side (30% of the POL) will be used to create deep liquidity for the Kwenta/wETH exchange pair and those that are derived from it. Specifically, Kwenta DAO reserves the right to use third-party infrastructure & strategies that allow to create deep liquidity on Uniswap V3 (as is currently the case with Arrakis).

In the meantime, the TC will reserve necessary time in order to study better solutions to Arrakis.

Abstract

This proposal aims to change the KWENTA/WETH Protocol Owned Liquidity (POL) in the following ways:

• Move (up to 70%) KWENTA’s Protocol Owned Liquidity (POL) from Arrakis to Velodrome.
• Use KWENTA’s veNFT to vote for the KWENTA/WETH pool.
• Compound the VELO emissions from the POL into the KWENTA veNFT, increasing the share of bribes it receives every week.
• Compound the WETH/KWENTA fees & bribes in the POL on Velodrome.
• Study better Arrakis competitor. (This is a mission statement for the TC) Motivation

Velodrome is an optimal platform for Kwenta to create a sustainable liquidity incentive program. Protocols can lock veVELO or deposit incentives to attract veVELO votes to direct VELO emissions to their liquidity pools. Protocols often direct 2-3X as much value in VELO as they deposit in incentives.

By deploying POL on Velodrome, Kwenta can capture a portion of the VELO emissions directed to the KWENTA/WETH pool. This leverages Kwenta's existing incentive program to return VELO rewards to the protocol and allow Kwenta to grow its veNFT position to continuously direct VELO emissions to KWENTA LPs, thus enhancing its ability to provide free liquidity incentives in the future.

Splitting the POL between the two protocols we will have a diversification of liquidity and Market Making methodology that would generally make the overall liquidity strategy more efficient, as well as diversifying POL management risk by protecting it from exploits & SC risk.

Specification

For more information, visit the: Kwenta State Log