TIP 07: Update POL allocation split

Summary This proposal aims to modify the allocation split of TLX protocol owned liquidity (POL) from the current 50:50 (wstETH/ETH1S and TLX/WETH) to a 35:65 ratio. This change reflects the need to react proactively to market conditions and leverage the protocol's ability to adjust POL allocations effectively.

Abstract Leveraged tokens that are bonded in exchange for stTLX become protocol owned liquidity. This liquidity is then allocated according to a predetermined allocation split via recurring rebalances. Currently, during each rebalance, newly received funds are evenly allocated between the wstETH/ETH1S and TLX/WETH pools. This proposal is to change this allocation split from 50:50 to 35:65

Motivation As of July 30th, 2024, TLX has already successfully implemented one skew adjustment. It is suggested that the protocol remains active in this regard, using its ability to adjust the allocation split swiftly and easily to respond to market conditions for several strategic reasons:

More Aggressive Growth of Liquidity: Increasing the allocation to the TLX/WETH pool will accelerate the growth of liquidity for the TLX governance token.

Reduction in Selling Pressure: Higher liquidity in the TLX/WETH pool helps stabilize the token's price by providing a stronger support base, which is particularly important during market downturns.

Support at Key Long-term Levels: This allocation strategy can help maintain critical support levels, making TLX more attractive to new investors who see stability and growth potential.

Rationale The current 50:50 split balances TLX POL building and generating fees for stTLX holders. However, increasing the skew towards the TLX pair would be more beneficial in the long term by instilling confidence in new investors for several reasons:

Increased TLX Governance Token Liquidity: This helps ensure the long-term viability of the TLX protocol by making the governance token more attractive and liquid.

Enhanced Market Stability: A larger liquidity pool for TLX/WETH reduces volatility, providing a more stable environment for investors.

Proactive Market Response: Adjusting the allocation based on market conditions demonstrates the protocol's flexibility and responsiveness, which can build investor confidence, especially if the protocol chooses to acquire more TLX for the long term.

Treasury Funds: As the TLX protocol matures and liquidity grows, a portion of the POL acquired now could be directed towards a TLX treasury in the future. These funds then can be used to support platform growth in various ways, one example being marketing.

Specification The proposal does not require any changes to the underlying mechanisms of the protocol. It only requires adjusting the allocation percentages during the recurring rebalances.

Implementation

Adjust Allocation Split: Change the POL allocation from 50:50 (wstETH/ETH1S and TLX/WETH) to 35:65.

Monitor Market Conditions: Continuously assess market conditions and the impact of the new allocation on liquidity and staking yields.

Future Adjustments: Be prepared to introduce new proposals to adjust the allocation split again if market conditions change.

Test Cases Not applicable.

Conclusion The proposed allocation split of 35:65 reflects a strategic shift towards building stronger liquidity for the TLX governance token and reacting proactively to market conditions. This approach aims to provide more stability, reduce selling pressure, and support key long-term levels, all while building future TLX treasury funds, ensuring the TLX protocol's sustained success and growth for the long term.