SIP-2: A proposal to standardize liquidity across the Savvy ecosystem and secondary markets

Summary

This SIP proposes opening pools for SVY-WETH and svETH-frxETH on Uniswap V3 and svUSD-FRAX on Uniswap V3. The pools would be incentivized: SVY-WETH on Uniswap V3 using Bunni; svETH-frxETH on Uniswap V3 using Bunni gauges; and svUSD-FRAX on Uniswap using Bunni gauges. These incentive mechanisms are understood well by users, increasing their effectiveness. New Pools are co-incentivized with FRAX for $500 per pool per week.

Background

Liquidity Pools introduce a new risk to liquidity providers called impermanent loss, which is offset by incentives for liquidity providers. Savvy has been examining LP incentives for possible improvements. On the basis of those findings, the Savvy Improvement Proposal #2 aims to establish a fair distribution of SVY incentives among LP'ers, depositors/borrowers, and stakers.

This call for redistribution allows for co-incentivization with critical partners (FRAX, TRADER JOE) in the ecosystem and helps grow liquidity for the long term. More trading pairs for Savvy svTokens grow the overall Savvy ecosystem and economy while reducing pressure on the first pools. This allows svTokens to act as true DeFi primitives when they create new pairs. Expanding SVY to a new DEX has a similar effect as visibility is enhanced. We preemptively began the reduction in preparation of the new pools and increased demand. Opening new Pools with Concentrated Liquidity Managers (CLMs) or Concentrated Liquidity Market Makers (CLMMs) protocols designed to deal with the new challenges of concentrated liquidity.

Details

Savvy launched the Market Making Campaign (MMC) on Wednesday, June 14th, 2023, using Trader Joe DEX. Since then, Savvy's only pools have been on Trader Joe alone. Retaining liquidity is very hard when the protocol token is on one DEX. This ultimately leads to the need to decentralize SVY to more than one DEX pool across the Arbitrum ecosystem.

Current Pool Setup & Current Emissions + New Pool Emissions

SVY-WETH Liquidity Pools

• Current: SVY-WETH Liquidity Book V1 (Not Incentivized)
• Current: SVY-WETH Liquidity Book V2 (Incentivized): 34.33%
• New: SVY-WETH Liquidity Book V2 (Trader Joe Incentivized): 13.64%

svUSD-USDC Liquidity Pools

• Current: svUSD-USDC (Incentivized): 27.67%
• New: svUSD-USDC (Trader Joe Incentivized): 12%

svETH-WETH Liquidity Pools

• Current: svETH-WETH (Incentivized): 27.67%
• New: svETH-WETH (Trader Joe Incentivized): 12%

svBTC-WBTC Liquidity Pools

• Current: svBTC-WBTC (Incentivized): 10.33%
• New: svBTC-WBTC (Trader Joe Incentivized): 6.88%

New Pools and Incentives

• SVY-WETH Uniswap V3 + Bunni (Incentivized and Vote Gauged): 19.23%
• svUSD-FRAX Uniswap V3 + Bunni (Co-Incentivized with FXS and SVY): 17%
• svETH-frxETH Uniswap V3 + Bunni (Co-Incentivized with FXS and SVY): 17%

Savvy Strategic Deposits (Move SVY to Boosted SVY Pool)

• USDC Deposits, ETH Deposits, and BTC Deposits - 2.25%

Mandate: Treasury shall be authorized to change these emissions weekly to help stabilize the demand and liquidity needs of the SVY Token and the liquidity of the svTokens.

Description of proposed improvement

Several improvements would occur. First, opening pools on Uniswap would help increase protocol visibility and possibly gain more users from exposure. The second benefit of pools being on Uniswap is visibility from DEX aggregators. (i.e., Cannot swap for SVY on KyberSwap or LlamaSwap.) Third, Concentrated Liquidity Market Makers (CLMMs) protocols would help the Savvy LPs gain, retain, and manage liquidity more efficiently. Fourth, svUSD and svETH would have new tokens in the form of FRAX and frxETH, to trade against. Making them more useful.

• Enhanced Visibility: Opening pools on Uniswap increases protocol visibility, attracting more users.
• DEX Aggregator Exposure: Being on Uniswap ensures visibility from DEX aggregates, allowing for broader access to SVY.
• Efficient Liquidity Management: Concentrated Liquidity Market Makers (CLMMs) protocols help gain, retain, and manage liquidity efficiently.
• Expanded Trading Pairs: Introducing FRAX and frxETH as trading pairs for svUSD and svETH adds utility to these tokens and co-incentives from FRAX.

Specific considerations to seeding liquidity: FRAX does not own any Protocol Owned Liquidity (POL) on L2s. Any initial liquidity deployed may come from Treasury, Savvy Sage, Trader Joe LPs, and/or a combination of any of the above sources.

Proposed implementation/transaction

The improvement will be implemented as several transactions are submitted to the blockchain. There will be small changes to the dApp UI/UX to surface yields for users to find. There will be small changes to integrations like defiLlama to ensure the new APRs are provided to third parties.

Impact upon Protocol

We expect this SIP will benefit the protocol by increasing liquidity. Because this proposal simply reallocates current emissions, there will be no impact on emissions schedules.