AMM liquidity improvements II

Summary

A proposal to discuss improving the IDLE liquidity on Ethereum.

References

AMM Liquidity Improvements post - Jul 2023

Background

Back in July 2023, @Davide shared a detailed analysis to improve the IDLE liquidity. Based on these inputs, the DAO agreed to launch an 80/20 pool on Balancer (80IDLE - 20USDC pool, 0x158e0fBC2271E1dCEbadD365a22E2B4dD173C0DB).

During this period, Leagues have also started incentive quests on Paladin to collect BAL and AURA rewards and boost the yield offered on the 8020 pool.

The third step listed and voted on in Davide’s post, i.e. applying to the Balancer 8020 Grant, has been delayed due to the need to adjust the IDLE staking model and the need to have already a live 8020 integration in place.

Rationale

Launched in July 2023 after the IIP-38, the 8020 pool on Balancer offers interesting returns to LPs, generated some volumes, and brought some liquidity. The pool had an average liquidity of $50,000, with a peak of $100,000 (see the Balancer pool analysis tool on Dune, where the IDLE pool ID is 0x158e0fbc2271e1dcebadd365a22e2b4dd173c0db0002000000000000000005a5). Monthly volumes reached the highest level during December 23 and January 24, with an average size of $785. The fees collected were negligible, but this was expected due to the very low swap fee of 0.5%.

Leagues also noted that the Balancer 8020 wasn’t always considered by major DEX aggregators, such as 1inch, 0x, and Kyberswap when swapping IDLE on Ethereum. This seems to be driven by the nature of the weighted pool itself as confirmed by the Balancer team.

Proposal

To improve the IDLE liquidity in the markets, Leagues advise the following steps:

• Migrate the Balancer 8020 liquidity to Uniswap v3 where the DAO controls two positions in the IDLE-WETH pool (a full-range deployment, and a concentrated position).
• Decide whether to launch a new stable pool on Uniswap, i.e. USDC - IDLE or swap the USDC balance into WETH.
• Add liquidity concentrated around the current value and adjust the range through time.

The choice to pick Uniswap v3 is driven by the fact that the Uniswap pools currently route the majority (~76%) of IDLE swaps on mainnet (source IDLE DEX metrics on Dune).

Additionally, Idle Leagues suggest using part of the forthcoming treasury to increase the size of the pool. The DAO is invited to share his ideas about the size of the deployment, but we could think about something in the range of $75,000 to $150,000. A deposit in this range should ensure enough size for the IDLE pool, without divesting too many funds from the operations.