[Polygon] Ricochet Protocol Liquidity Network (REX-LP)


This is a proposal to establish a network of liquidity pools on Uniswap V3 that Ricochet protocol will use for swapping. It proposes allocating 5000 USDC to bootstrap the network, 1250 USDC of which would be used to buyback RIC for the initial pools. The primary purpose of this proposal is to make a LP that can be used to upgrade the ibAlluoX markets to V3 REX Markets. This is also a research experiment that tries to improve the performance of Ricochet DCA using a novel method.

Background

Creating a Ricochet Protocol Liquidity network is motivated by these ideas below: 

• Keep swap fees within Rex Economy: RIC holders will be the get the swap fees collected from users using Ricochet. Protocol swaps will be processed through the REX-LP. Any swap fee paid will go to a RIC holder because they hold RIC indirectly through the REX-LP. 
• Be more gas efficient: Using Supertokens in REX-LP means we skip unwrap, withdraw, swap, deposit, wrap steps in the process and instead do a single swap. This method will use less gas and that means a lower overall fee.
• Unlock liquidity from Sushiswap V2: The DAO had to step in to provide WBTC-DAI liquidity on Sushiswap after all the other LPs withdrew their liquidity. This proposal would allow the DAO to recover that liquidity.

Furthermore, this is the second experiment involving creating “liquidity networks” on Uniswap V3. The first experiment used RIC, rexSHIRT, rexHAT, and USDC tokens to build a network. The network was monitored using Revert.finance. You can see the performance of this network here: https://revert.finance/#/account/0x9C6B5FdC145912dfe6eE13A667aF3C5Eb07CbB89

Call to Action

One way to upgrade ibAlluo markets is to make a path on Uniswap to swap ibAlluoX to ibAlluoY. REX-LP will make a liquidity network to support the ibAlluo tokens, starting with the ibAlluoUSDC>>ibAllouoBTC REX market. Once the ibAlluoBTC REX Market is moved to V3, the DAI-WBTC liquidity that the DAO has provided can be recovered from the Sushiswap pool that was made to support V2 ibAlluoBTC market. If this proves to work, then the model can be replicated to get the ibAlluoETH REX Market moved to V3.

Implementation

REX-LP is made of several Uniswap V3 pairings that together form a network with RIC token at its center. This is a similar design to what Thorchain does with RUNE token. Below is the specifications for the network of LPs to make using this network.

Proposed Liquidity Pairs

• USDC — ibAlluoUSDx
• WBTC — ibAlluoBTCx
• RIC — ibAlluoUSDx
• RIC — ibAlluoBTCx

Proposed Markets

• ibAlluoUSDx >> ibAlluoBTCx

How the network works

This network connects ibAlluoUSDx and ibAlluoBTCx to the larger network through USDC and WBTC respectively

ibAlluoUSDx - USDC -> other liquid tokens
ibAlluoBTCx - WBTC -> other liquid tokens

RIC is then paired with ibAlluoUSD/BTC to create a path ibAlluoUSDx >> RIC >> ibAlluoBTCx

other liquid tokens -> RIC - ibAlluoUSDx - USDC ->  other liquid tokens
 other liquid tokens -> RIC - ibAlluoBTCx - WBTC ->  other liquid tokens

The connection of this network to the larger Uniswap network through USDC/WBTC means that arbitrage bots will work on keeping the prices in these pools balanced. This was what I’ve observed in prior experiments with RIC, rexSHIRT and rexHAT liquidity network.

Usage

RIC token is used as a common pair for all the supported Supertokens. Paths to swap all go through RIC, for example:

ibAlluoUSD >> ibAlluoBTC: 
path = [ ibAlluoUSDx, RIC, ibAlluoBTCx]

This skips the downgrade, withdraw, deposit, and upgrade transactions currently required. The idea here is that reducing these steps will reduce the overall cost to execute a swap. This can lead to better prices for users (less gas required to trigger).

Funding The Network

Token	Proportion of Network (%)	Amount (USDC)
RIC	25	1250
ibAlluoUSDx	25	1250
ibAlluoBTCx	25	1250
USDC	12.5	625
BTC	12.5	625

Metrics for Success

Liquidity Pool Metrics can be pulled from Revert.finance once the network is up. On the LP the metrics to watch are:

1. Pooled Assets: The value in USD of the liquidity pool position
2. Total PnL: This measures the total amount of gains on the LP compared to when it was created, it accounts for the LP principle and the fees earned
3. Total APR: This measures the impermanent loss, APR above 0 means no IL, APR below 0 means some IL.

REX Market Metrics need to be monitored to make sure this network does not impact the performance of the DCA. The metric to watch here is:

1. Slippage: measure in % of how much slippages is experienced each swap, the slippage should be calculated using the Chainlink price oracle as the reference price

REX Market slippage is best monitored by plotting the Chainlink price along side the price emitted during the swap in Ricochet. The difference between the chainlink price and the swap price is the slippage, it can be positive (better price than Chainlink) or negative (worse price than Chainlink).