Create a Secure UniswapV3 Oracle for STG with Arrakis PALM

Summary Deploy Arrakis PALM to create a secure Uniwap V3 oracle and get deep, concentrated liquidity on UniV3 STG.

Introduction to Arrakis Finance and Arrakis PALM Arrakis Finance is Web3's trustless market-making infrastructure protocol that enables sophisticated algorithmic strategies on Uniswap V3.

Since launch, Arrakis has achieved:

• Around $1.7b in TVL at its peak (currently around $460m), across Ethereum, Optimism and Polygon
• More than 25% of Uniswap V3s total TVL
• More than 80 projects have their liquidity managed via Arrakis vaults

Arrakis PALM - Protocol Automated Liquidity Management is a novel market making product sitting on top of UniV3.

In essence, PALM helps protocols bootstrap their base asset inventory (ETH, DAI, etc.) as well as attain deep and sustainable liquidity. The major advantages of using PALM include:

• Zero incentive: no LM incentive needed, liquidity bootstrapping is done solely via market making.
• No biased price impact: PALM conducts market making by setting up ranges / limit orders, no swaps involved.
• Trustless: Stargate DAO retains the ownership of the liquidity and can withdraw at all times. PALM only autonomously manages the liquidity but can never remove it.
• Highly customizable: PALM can be adjusted for various asset types and purposes beyond just liquidity bootstrapping.

PALM has been deployed for a growing number (15) of protocols and is performing exactly as designed. To see a thread explaining these metrics and the performance of the GEL vault, you can have a look at this thread: https://twitter.com/ArrakisFinance/status/1623319923559636994

You can also read about how this vault has performed in extremely volatile situations here: https://twitter.com/ArrakisFinance/status/1630632476178776064

Background & Motivation: Recently, the Stargate team has expressed the intention to integrate STG into other DeFi protocols, namely Radiant and other lending protocols such as Euler Finance, where STG can be used as collateral on the lending platform. The UniV3 TWAP oracle is one that is accepted by various permissionless systems. In order for this oracle to be healthy it requires a liquid UniV3 market, the more liquid the less manipulatable it is. A good bench mark of the oracle risk can be calculated as the cost of moving the TWAP by 20% both on the sell and buy side. Using this system, the current minimum cost of moving the UniV3 TWAP of STG by 20.89% is about $24k over 1 block, which makes it easy to manipulate.

The primary cause of the low cost of attack is the Uni pool's low liquidity and liquidity distribution. For instance, CAW, a random token just for comparison purposes, has less liquidity than STG on UniV3, but a significantly higher cost of attack due to the structure of the liquidity.

For this reason, we propose that Stargate use Arrakis PALM to manage its liquidity on UniV3, which will help STG create a secure oracle, and also bootstrap deep liquidity for STG on Uniswap.

Specification Stargate DAO creates a 1% fee tier UniV3 pool for STG/USDC. Arrakis then deploys a dedicated vault managed by PALM for the pool. Stargate DAO deposits $500k worth of STG and $500k worth of USDC into the vault. PALM will allocate 50% of that liquidity towards a full price range and utilize the other 50% in a concentrated and fully active market making strategy. The primary objective is to create a robust UniV3 oracle for STG.

Yield Estimating yield from LPing is very difficult since it depends on volumes, volatility and the amount of liquidity, which are all impossible to predict. What we can do is to backtest how PALM would have done historically if it had been actively market making. We have backtested PALM with the amount mentioned above and compared it with holding. Value of Holding being if the DAO would just hold the 50% STG and 50% USDC over the same time period. As we can see, PALM outperforms holding while the price is going down, and is on par with the holding on the way up . A small note, this excludes all of the fees that the vault generates.

For the services provided, Arrakis charges the following fees: Management fee: 1% AUM fee on a yearly basis Trading fee cut: 50% of trading fees the vault generates

Reference For more information regarding Arrakis and Arrakis PALM, feel free to have a look at our docs and join our community. I’m also more than happy to respond to any comments here from the Stargate community about this proposal! Website: https://www.arrakis.finance/ Docs: https://resources.arrakis.fi/ Twitter: https://twitter.com/ArrakisFinance Discord: https://discord.com/invite/arrakisfinance Telegram: https://t.me/arrakisfinance