PSP-IPΔ3: Adding Bancor liquidity pool

link: https://gov.paraswap.network/t/psp-ip-3-bancor-allocation-addendum/107/11

2. Keywords PSP liquidity incentives

3. Simple summary The PSP-IPΔ3 seeks a PSP deposit into the Bancor Liquidity Pool to help grow the protocol liquidity depth and help further diversify the liquidity sources. The proposal does not cost the protocol anything as all liquidity would be fully protocol owned (= “POL”). The liquidity deposited in Bancor will also accrue risk free fees creating another revenue stream for the protocol.

4. Context In PSP-IPΔ2, PSP governance discussed the need to create a more sustainable and more balanced liquidity source through SushiSwap. In this perspective, the Key Performance Indicator (= KPI) was fixed with an ojective of 10M PSP + ETH equivalent supplied, two months after the launch of the program. This proposal be likened to an addendum to help achieve this goal.

5. Goals The PSP-IPΔ3 seeks to fulfill 5% of the liquidity goal for SushiSwap in PSP-IPΔ2 at no cost to the protocol right off the bat and would generate a return for the treasury long-term. The Bancor protocole currently has two main advantages that are of great use for DAOs:

Single-Sided Staking. Since deposits on Bancor are purely single sided this means the treasury can greatly increase it’s liquidity depth without having to provide a counter asset like ETH. Impermanent Loss Protection. Other AMMs are hard to garner liquidity naturally due to the great cost liquidity providers incur through impermanent loss (when price diverges liquidit providers lose out profits to the Market and Arbitragers). For this reason Liquidity Mining (= LM) is a must for DEX like SushiSwap or UniSwap, but Bancor doubles as an insurance company completely negating this risk by arbitraging it’s own token as well as paying out any extra loses in it’s native token back to liquidity providers. Typically for space to be opened single sided in a Bancor Pool there has to be equal amounts of BNT on the other side staked single-sidedly but this can also be achieved via a BancorDAO co-investment. Such a proposal has already passed and details can be read here :

Bancor Governance Forum – 17 Nov 21

Proposal: Whitelist ParaSwap (PSP) + 100K BNT Co-Invest Proposal: Whitelist ParaSwap (PSP) + 100K BNT Co-Invest This proposal is expected to appear on Snapshot for voting on November 21, 2021 4:00 AM . TLDR; This proposal seeks to Whitelist the PSP Token. There are no apparent security concerns. There...

Reading time: 1 mins 🕑Likes: 8 ❤ This Bancor proposal opened up enough space for 800 000 PSP at current market prices to be staked single sided but due to our own inflationary single-sided rewards being incredibly high the pool has not had enough liquidity to grow naturally. A deposit should allow for the pool to begin reaping more fees from aggregators while still allowing for room for more community liquidity providers to join.

6. Means The financial means associated with this proposal are the main issue. Several parameters are to be considered :

The PSP Bancor pool can currently support an 800 000 PSP deposit single-sided. A budget over this amount can be allocated, to account for potential further single-sided BNT deposits. A budget below this amount can be allocated, to leave some space for community members should volume pick up and/or staking rewards lower on Paraswap natively. 7. Metrics PSP governance should monitor the volume of transactions processed by the pool to measure its effective contribution to PSP’s overall liquidity. 8. Forward-thinking considerations The initial budget will be committed for three months (when deposited on Bancor up to the space available) to benefit from impermanent loss protection. Once the initial commitment period clears, it can be adjusted by further DAO votes. BancorV3 is coming and should provide additional benefits: a migration tool will be provided. 9. Implementation overview The ParaSwap DAO multisig will supply liquidity on the PSP Bancor pool, up to the amount decided by the community and within the limits of the space available for single-sided deposits. If necessary, the deposit will be split into several smaller operations. When BancorV3 goes live, the migration will be conducted as soon as safe and possible. The team/community will work together to figure the best options to enable easy tracking of the DAO’s treasury assets and their performance. 10. Voting options “Allocate 1.5M PSP, fill 800 000 PSP and wait on a BancorDAO vote for an increased BNT co-investment.” “Allocate 700 000 PSP, fill 700 000 PSP” “Do nothing” “Abstain”