Context:
One of the most recurrent demands the Paladin community has is the deployment of liquidity on L2s in order for smaller holders to access PAL at a lower transaction cost.
The main blocker for this has been the lack of depth on Ethereum which disincentivized us to focus on growing other chains.
However, several recent coincidences have pushed us to re-evaluate our move in the form of a Balancer 80-20 PAL/OHM pool
Rationale:
Combining Protocol Owned Liquidity (PoL) with Quest in order to distribute PAL at a benefit for the DAO (ie: paying less in emissions than what is received in farm) has been one of Paladin’s greatest success.
Since early April, Olympus has been conducting incentives on Quest that have been yielding us 2000$ of OHM per week. Opposite to most fee tokens, OHM has proven to be extremely stable since the inception of RBS.
Instead of swapping it to USDC, we are considering pairing it with PAL to grow our liquidity on Arbitrum. Here are the following reasons:
We want to grow our ties with Olympus, and being on of the first pairs live as they deploy OHM on Arbitrum is a great way to deepen the relationship;
OHM is one of the tokens that has the best routing optimization, which means that as long as OHM is liquid on Arbitrum (which is almost guaranteed considering their POL) PAL will be proportionally liquid;
I am in favour of this proposal, this strategy will will create financial value for Paladin while deepening the DAO’s ties with Olympus, currently looking at this, I do not see a downside to pursuing this strategy.
Taking advantage of these incentive schemes has proven to be an important part of Paladin’s growth.
This is definitely a much needed deployment that we need to be able to “conquer” the L2s as they are getting bigger and bigger and more in collaboration with the Ethereum DeFi ecosystem.
I also think that it is in our best interest to just go step by step so 50k pool at the start looks very good in my opinion.
The only point which I partially disagree is that we need to make money on each pools with liquid incentives.
In my opinion, being able to bootstrap liquidity and making the PAL token more accessible is a necessity and it could makes more people buy it, hold it and the token price should rise.
I also have one question but why choose arbitrum instead of optimism, polygon POS or any other L2 ?
I’m also in favor of this creating PAL liqudity on Arbitrum, very excited to finally start expanding on L2s.
This is very interesting, agree that this additional incentives layer should help make the strategy more attractive for the DAO.
The main potential issue is that since Olympus does not hold any PAL, they will most likely not LP and as the two assets are volatile, not many ppl will be interested to LP, leading the DAO to be the main (only ?) liquidity provider. This will be hard to boost even for Aura.
However considering the parameters proposed (80/20) the amount of PAL to acquire would be minimal for the Olympus DAO, was there any discussions about it ?
This point is a bit concerning tbh, not sure if creating an additional Quest expense for this pool makes sense if the Olympus DAO is neither creating additional vote incentives on it, nor voting / adding LP (Not aware if there were initial discussions about creating votes incentives from both projects ?)
Considering their voting capacity and treasury, I believe Paladin could reach out to Olympus (if not done already) to explore:
If they would be interested in bribing (does not need to be the same amount since the weights are different)
and/or
If they would agree to allocate some voting power on it each week (which would allow to maintain a higher base APR & to accumulate some PAL which can be LP later for Olympus DAO)
This also includes deploying a new multisig on Arbitrum for the Paladin DAO
(Side note: Once the Arbitrum Msig is created and if the goal is to grab some ARB with low risk, we could also consider bridging & depositing the USDC - or other stable if changed by this time - on Aave, since they will also most likely distribute some ARB to bootstrap the market: Snapshot)
There will be large incentives from Balancer in ARB
In any case, we should at some point be on other L2s too.
Boosting is irrelevant if no one else farms it, the LP will get all the rewards.
We haven’t discussed a token swap, but I would rather not massively scale our sale of tokens in this current market. We can discuss co-incentives, but what I had in mind was more like reducing the current PAL-USD budget to make some space for this new pool
Since the Olympus’ Range Bound Stability (18th November) and then at the current parameters (9th December), $OHM is more like a ++yield bearing stablecoin than a volatile asset since the backing value come from their treasury with a lot of POL & Stablecoin and only few volatile assets (see Olympus dashboard)
Hello everyone! Extremely bullish on this proposal.
Totally agree on this, here’s my 2 cents on why I think the pairing is a good idea:
As previously mentioned PAL/stable pairs have huge IL and they can’t work at all without incentives.
More exotic pairings can create additional volumes for the pool, because it can be used to route OHM trades thorugh it.
The aforementioned point creates additional arbitrage opportunities which give even more volumes to the pool
Also one issue that may arise from PAL going crosschain is that the staking module will only be available on mainnet, have you considered creating some sort of whPAL (wrapped hPAL) in a wstETH/gOHM fashion to let people on other chains not get diluted by stakers and have access to PAL’s voting power?
I didn’t mentionned a token swap, agree that better to avoid it.
However yes co incentives are worth exploring, and also negociate some Olympus voting power on the PAL-OHM pool (leading to Olympus accumulating PAL which could be LP)
Interesting I missed this, if most of their POL is still in DAI-OHM, agree that its mostly stable.
If OHM is relatively stable, you might get some IL too, at least more than PAL-ETH
As mentioned above, since OHM is relatively stable, this won’t fully avoid IL.
Also, most pools can’t work without incentives, wondering why you think it would be different with this one ?
The way to avoid spending incentives on Balancer is using strategic assets to create treasury strategy, otherwise you have to pay voters.
Considering that PAL-OHM will be the only pool on Arbitrum while others are on mainnet, and taking into account the low liquidity, not sure if there will be many lucrative arbitrages because of slippage & bridging costs
Totally agree on this, I was just saying that OHM would be slighlty less impacted by IL compared to a traditional stablecoin. Sorry if I wasn’t clear.
Not suggesting that there should not be voting incentives. Of course this is not possible as of now. But a pairing like this in a future were PAL has greater volumes would be quite interesting to:
Keep exposure to both the ecosystems
(slightly) reducing IL
Not having to trust a centralized stablecoin (this is also a personal preference towards more exotic stablecoins/flatcoins, I know LUSD could also be an option)
Better volumes compared to a stable/PAL pair.
On a very personal and debatable note, a pairing like this might work well enough on a Concentrated Liquidity AMM (like univ3, traderjoe or algebra) just with the fees. That’s why I was suggesting that at some point it could be self sustainable without voting incentives. Of course fees on balancer will proably never be enough without incentivization.
Again these were some long term considerations in a future were PAL has deeper liquidity across multiple blockchains.
I totally agree with both of these statements because from one side according to defillama, arbitrum have 2.4B TVL and with the recent airdrop a lot of protocols are distributing their share which should brings a “defi summer”
