Summary: Implement an ETH-PAL liquidity pool on Arbitrum, replacing the current OHM-PAL pool.
The introduction of PAL on Arbitrum One has garnered significant interest from liquidity providers and traders seeking more cost-effective access to PAL. This proposal addresses the challenges identified from the existing pool’s deployment.
The Paladin DAO has successfully engaged in liquidity farming through the PAL/OHM pool, gaining considerable benefits. However, the pairing with OHM has encountered issues:
Balancer struggles to efficiently route PAL without requiring users to purchase OHM first, likely due to the pair’s unique nature.
Pairing PAL with stablecoins and ETH on mainnet, while maintaining a unique pairing on L2s, complicates arbitrage and further fragments liquidity.
Despite these challenges, the pool has yielded valuable insights:
The 80/20 balancer pool format is effective, demanding minimal non-PAL token commitment from the DAO, thereby facilitating POL deployment and minimizing impermanent loss for LPs.
L2 Balancer gauges, especially those boosted by Aura Finance, have been highly profitable for the DAO and LPs, aided by consistent Arbitrum incentives.
This is why I propose to replace the existing 80/20 PAL/OHM pool with a new 80/20 PAL/ETH pool, reallocating liquidity from the PAL/OHM pool. This involves withdrawing POL from the current pool, exchanging OHM for ETH, and then redepositing ETH and PAL into the new pool. The benefits include:
Resolving routing issues.
Reducing toxic flow (arbitrage) caused by liquidity fragmentation, as a PAL/ETH pool already exists on mainnet.
Retaining the advantageous 80/20 pool format.
Enhancing PAL’s market correlation.
Increasing the pool’s appeal by eliminating the exotic pairing.
Tapping into the liquidity of what is likely Arbitrum’s most liquid token.
I think it is worth mentioning that I have nothing against the previous OHM pairing, however, it is not ideal to keep it if the routing problems persist.
There are no particular costs aside from the operational ones.
I agree with the core of the proposal, with Olympus slowing down their Arbitrum expansion it makes the whole routing thesis not very efficient anymore.
That being said, Olympus is still cooking, and a great treasury asset to be held.
Instead of unwinding and liquidating the OHM position, my recommendation would be to bridge the $OHM back to Mainnet and deploy it as a cooler loan. This way you will also have instant liquidity available to create the new LP pairs and retain exposure to OHM.
Cooler-Loans are non-liquidateable and have a fixed expiry of 121 days, with a 0.5% interest.
Loans can be extended with the same terms an arbitrary number of times into the future, meaning the borrowed amount does not need to be paid back every 121 days but instead only the accrued 0.5% interest. (In case of loan extension)
You can take out a loan at 95% LTV at a gOHM price of $2892 per gOHM.
One other datapoint for consideration would be the use of gOHM on Arb One verses the OHM that’s used today. OHM liquidity on Arb One is thin but there is 700k of gOHM liquidity available and tied into stable pairs. This may make sense to utilize if an gOHM based pairing is maintained. On mainnet, both ERC20’s are fully liquid.
This proposal has a lot of benefits and of course some risks. Liquidating the OHM may come with some risks to your friendship with them and so may not be ideal.
Whilst the 80/20 option on Balancer is likely to generate some significant returns in the form of incentives, I would think there may be some benefit to increasing the options and spread of your liquidity on Arbitrum more broadly. The 110K on Balancer currently is a small deposit but if you were to consider a 50K deposit on Bal/Aura and a similar sized deposit on RAMSES exchange, it would be instructive to see where the majority of trades route through and how the benefit compare.
The 80/20 model is good, but to be honest, a pool on RAMSES can be set up with the same weights if desired and your users will then have the option of experimenting with concentrated Liquidity pools.
I might also add, that you already have great exposure with BAL/Aura and that this can continue with part of your LP, a matching deposit on RAMSES would open a new community with a friendly protocol who will assist in ensuring that your pool gets attention through options such as bribe matching or partner NFT.
I do think the DAO could think to move some liquidity into Ramses at some point but this feels totally out of scope in this specific proposal. First, splitting it right now would fragment liquidity even more, which is something we’d be better off avoiding.
It also means that we would need an incentive budget for Ramses incentives, which we isn’t under the voted purview. Additionally, Quest isn’t on Ramses yet (but it’s coming) which means we would lose our nudge, and even worse potentially use a competing platform, all while being unable to recoup part of the budget since we will be a new a minority player in the incentive game there.
Imo, better focus on the actual way to enhance liquidity on Balancer now and then once routing issues are fixed and Quest becomes compatible with more AMMs, consider them
That seems like a really efficient solution, as it stays in line with the idea of the DAO growing its treasury in decentralized assets, which will likely become an important aspect of treasury management over the coming years
Yes, but do we have enough OHM for it to be profitable to carry out these transactions on the mainnet? If I understand correctly, we will need to bridge back to the mainnet, take out a loan, send DAI or another stablecoin back to Arbitrum, and every 121 days pay interest on the mainnet. Gas fees will likely increase with the market picking up again.
I think you are correct. The proposal is probably out of scope based on what you have in the proposal above. I would add though, that a relatively small deposit of POL would enable you to compare and contrast trade efficiency with your larger deposit on Balancer and determine if this is an option that the DAO would like to pursue.
More notably, the RAMSES team would be able to provide some starting benefits to enable a deployment there and some co-marketing. I will leave it there. I simply want to leave the door open as I am a big fan of what PAL does and want to ensure that this is successful.
Gm ! Agree that Ramses should be considered, especially if there are some partnership opportunities. Do you have any idea of the veNFT size currently allocated to partners ?
This could help estimate the emission power & the share that Paladin would have according to DeFiWars.
Potentially with a veNFT, it might be enough to kickstart a side pool without bribing at first, at least until Quest is available for ve3,3 designs.
Agree, this looks interesting with important holdings but we have too little OHM imo
Agree but considering the amount, and since the peg is not the only metric to consider, it might make sense to do a specific proposal for it (I thought you were doing it). Otherwise, adding more details such as a CRV price above which we can sell is also important imo.
I support this, looking forward to see the first Paladin Quests on L2