Sustainable Liquidity for UP Token with ICHI and Apebond

Unlock DAO Proposal: Establishing POL and ICHI Vault for UP/ETH Liquidity Pool on Uniswap (Base)

Overview This proposal recommends establishing a sustainable liquidity pool for the UP token on Uniswap (Base) using an ICHI single-token deposit vault. The ICHI vault will protect the ETH from overconversion to UP and increase the amount of ETH in the pool. The approach aims to create long-lasting liquidity and generate recurring revenue for the DAO through trading fees. Problem Statement The current $16,000 liquidity incentives provide only a short-term solution for attracting liquidity providers (LPs). Once incentives are exhausted, liquidity may leave, leading to an illiquid and volatile market for the UP token, which could hinder adoption. Proposed Solution: Liquidity Bond Sale We propose a liquidity bond sale of $80,000 worth of UP tokens. This will help the DAO raise protocol-owned liquidity (POL), creating a liquid market for the UP token and ensuring a sustainable revenue stream from trading fees. Key Points Liquidity Bond Sale: Sell $80,000 worth of UP tokens via a bond sale to raise approximately $68,000. The raised funds will be used to provide liquidity in the UP/ETH pool on Uniswap. ICHI Single-Token Deposit Vault: The ICHI vault will help manage impermanent loss for ETH and focus on attracting ETH liquidity. This will ensure stronger price support for the UP token. Sustainable Revenue and Liquidity: POL ensures the DAO retains control of liquidity and reduces reliance on external LPs. The pool will generate trading fees, providing a recurring revenue source. Incentivization Flexibility: If liquidity rewards are preferred, ICHI vaults can direct incentives toward 100% ETH, improving incentive efficiency. Implementation Plan Liquidity Bond Sale (Details can be changed - I am using real numbers to make the example more concrete): Execute an $80,000 bond sale of UP tokens. 45 Day Vesting Period Promote the sale across community channels to encourage participation. ICHI Vault Deployment: Deploy the ICHI vault for the UP/ETH pool on Uniswap (Base). Deposit the $68,000 raised into the vault, ensuring liquidity support. Liquidity Management: Monitor vault performance for liquidity depth and impermanent loss. Adjust pool parameters as needed based on market conditions. Ongoing Reporting: Provide regular updates to the DAO on performance and revenue. Adjust strategy based on community feedback. Factors to Consider: UP token price - if the token price is lower during the bond sale than when the token sent to Ape.Bond for the sale, the proceeds from the sale will be lower. While $USD terms were mentioned above for simplicity sake the main metric for the bond sale should be ROE (Return on Equity). Unlock DAO should target a ROE of 85% for the bond sale. Timeline Weeks 1-2: DAO approval and bond sale preparation. Weeks 3-14: Execute liquidity bond sale. Week 14 and Beyond: Monitor and report on liquidity pool performance. Benefits to the DAO Sustainable Liquidity: POL ensures long-term liquidity for the UP token. Reduced Risk: ICHI vaults mitigate impermanent loss for ETH. Revenue Generation: Trading fees provide a recurring revenue stream. Strategic Flexibility: ICHI vaults allow easy adjustments based on market conditions.

Summary of Response to Questions Asked by Unlock DAO Community

What are the security mechanisms for large withdrawals from ICHI vaults? Answer: ICHI vaults are permissionless smart contracts, so there are no limits on withdrawal sizes or delays. For additional security, it is recommended to use a multisig wallet controlled by the DAO to interact with the vault. Can liquidity exist outside of CHI vaults? Answer: Yes, liquidity can exist outside of the ICHI vault. The vault is built on top of the liquidity pool, and some liquidity may not be managed by the vault but still deployed in the pool. Has the ICHI smart contract been audited? Answer: Yes, ICHI has undergone 8 audits. The reports are publicly available on the ICHI documentation page. This streamlined proposal ensures clarity, focusing on the main points and addressing concerns raised by the Unlock DAO community.

https://docs.google.com/document/d/11nOYg0_B70GzX4YN5p8KV03gjarO14WpOrG9o745SSI/edit#heading=h.86ef7aeny2dj