Liquidity Reallocation from POL-LP to POL-Pools

Background By increasing Stargate POL, Stargate improves its functionality and reduces the need for emissions. With POL growth, emissions or the need for them, is reduced and eventually eliminated as Stargate no longer needs to “rent” liquidity. For every $1 of added POL, the protocol currently reduces the need for $0.07-0.09 worth of STG emissions per year (7-9%). Of course, POL growth allows Stargate to be a reliable source of cross-chain liquidity for everyone. At this stage, the Stargate LP is not the highest use of liquidity and has a higher effective value if deployed in POL. Historically, the Stargate LP has earned an organic APR of less than 3-4%. This is significantly lower than the current 7-9% APR paid for rented liquidity within Stargate. Stargate can save significant emissions (Around 3x emissions saved versus a dollar earned from LP) with the LP stables in Stargate. Stargate is now able to save many hundreds of thousands of dollars in emissions on an annual basis when looking at the data available.

At the same time, the need for the DEX liquidity is not as great as it was at inception. Thus a reallocation of POL from LP to Stargate pool should not materially impact STG trading. The current on chain volumes are significantly less than centralized exchange (CEX) volumes, with a majority of the liquidity sitting unused on a daily basis. STG trades overwhelmingly more volume on centralized exchanges versus on-chain historically.

When Stargate launched on March 17th, 2022, there were two community auctions, raising a total of $29,960,911 worth of USDC to be added for protocol owned liquidity (POL) liquidity pairs (LP). As of today, Feb 26, 2023 there is a total of $42,716,854.99 worth of USDC within Stargate POL LP (there is a total of over $85 million dollars of total POL including STG within the LP). This accumulation has occurred due to trading fees and price fluctuations.

Proposal By having POL within Stargate pool, the protocol is in a significantly better position. It reduces significantly more emissions than it earns in native yield while helping the protocol rapidly approach zero emissions. With the passing of the recent proposal to hire a market maker for Stargate (https://snapshot.org/#/stgdao.eth/proposal/0x82586192cf58f438cfee7101afde68df11ab3be071a6f7c05d1a3e8506836ee2), centralized exchange liquidity will become even more robust. As CEX volume makes up a majority of STG volume currently, this will only help the STG market flow freely, complimented by the on-chain POL LP.

An ideal adjustment would mean removing $10,000,000 worth of POL from LP into Stargate pools while dramatically reducing the need for STG emissions within Stargate. At current emission rates and prices at time of writing, this would result in a reduction of over $700,000 to $900,000 worth of STG per year. This reduction would drastically increase the path to Stargate being able to turn off all emissions and be fully self-sufficient, owning 100% of the liquidity within the protocol.

Execution Stargate will remove $10,000,000 worth of LP from the various POL LP pairs on Ethereum, adding the equal amount into Stargate pools to support transfer liquidity.

Summary Stargate removes significantly more emissions from the protocol by having liquidity within Stargate instead of LP on-chain. By redirecting $10,000,000 of POL from LP to Stargate pools, this will allow Stargate to dramatically reduce emissions (over $700,000 to $900,000 per year) and strengthen the protocol. This change will result in Stargate saving over three times the rate of yield on the LP in protocol emissions. This still ensures there is robust on-chain liquidity while optimizing Stargate POL for the optimal outcomes.