Reallocate Funds from PLS/USDT to PLS/ETH Pool to Optimize Positioning for Expected PLS Price Movement

Abstract:

This proposal aims to strategically reposition the protocol's current farm holdings by transitioning from the PLS/USDT farm (APY: 42%) to the PLS/ETH farm (APY: 33.3%). The primary rationale is to mitigate impermanent loss risks associated with stablecoin pairing, especially during anticipated upward price movements of PLS, while maintaining exposure to yield farming opportunities.

Motivation:

Impermanent Loss Risk:

When paired with a stablecoin like USDT, any significant upward movement in PLS price leads to heightened impermanent loss due to the stable nature of USDT.

Pairing PLS with ETH reduces this risk because both assets have correlated volatility, making them less susceptible to drastic pool imbalance in rising markets.

Expected Market Conditions:

The protocol anticipates PLS to experience significant price movement soon. Being paired with a stable asset like USDT in such conditions would likely lead to suboptimal outcomes.

ETH’s strong market presence and partial correlation to PLS price trends provide a better pairing for long-term growth.

Sustainable Yield Generation:

Although the PLS/ETH pool has a slightly lower APY (33.3% vs. 42%), the reduced risk of impermanent loss and potential for growth in both PLS and ETH assets offsets the yield differential.

The strategic repositioning ensures the Treasury remains agile and positioned for optimal growth.

Proposal Steps:

• Unstake and Remove Liquidity:
• Exit the current PLS/USDT farm by unstaking the LP tokens and removing liquidity from the PLS/USDT pool.

Asset Conversion:

• Convert the USDT portion of the removed liquidity into WETH. This aligns with the goal of creating a PLS/WETH pairing.

Liquidity Addition:

• Use the newly acquired WETH and the PLS from the removed liquidity to create LP tokens for the PLS/WETH pool.

Staking in New Pool:

• Stake the newly created PLS/WETH LP tokens in the PLS/ETH PLSX farm to start earning yield at the 33.3% APY rate.

Expected Outcomes:

Improved Positioning for PLS Movement: By pairing PLS with ETH instead of USDT, the protocol minimizes impermanent loss risks during anticipated price surges of PLS.

Sustained Yield Generation:

While the APY is slightly lower in the PLS/ETH farm, the stability offered by this pairing and reduced downside risk during price movement ensures sustainable Treasury growth.

Flexibility and Growth:

The WETH position can be strategically used for other opportunities in the future, aligning with the Treasury’s long-term objectives.

Governance Considerations:

Treasury Impact: The transition from PLS/USDT to PLS/ETH will slightly reduce immediate yield rates but is expected to provide better overall returns by preserving the value of PLS and ETH in the Treasury.

Risk Assessment: This proposal addresses the inherent risks of stablecoin pairing during high-volatility periods, aligning with the protocol’s goal of minimizing losses while maximizing long-term growth.