Summary
This proposal aims to revamp the DAO’s farming strategy to achieve a target of 40% APR on Paladin’s protocol-owned liquidity (POL). The new strategy involves reallocating liquidity across three DEXs: CURVE, AERODROME, and MAVERICK.
Context
Currently, the DAO covers half of the operational costs from Quest fees only, the other half being covered by treasury farms thus far… Historically, farming rewards from protocol-owned liquidity have sufficed to cover costs, but some current farming strategies are proving inefficient. To address this, we need to optimize our approach to ensure sustainability and profitability.
Rationale
Achieving Financial Stability: The DAO needs to double its current earnings from Quest to cover operational costs. By revamping our farming strategy, we aim to achieve a 40% APR on our $620,000 POL, which is necessary to meet our financial needs.
Optimizing Farming Strategies: Current farming yields around 22% APR across six farms (CURVEx2, AURA, AERODROME, LIQUIS). This proposal suggests a more focused approach to maximize returns.
Consolidating Liquidity on L2: Base has emerged as the hottest L2, hosting the majority of the volume. Aerodrome, the largest DEX on this chain, competes with Uniswap across various metrics including TVL, volume, and incentives. With PAL LPs consistently earning triple-digit APRs, Aerodrome stands out as the best option for optimizing our POL. By unifying L2 liquidity on Base to farm Aerodrome, and reallocating funds from Liquis, we make Aerodrome Paladin’s home DEX for L2 and stableswaps.
Maverick Strategy: Since its launch last year, Maverick has demonstrated exceptional liquidity efficiency by processing large volumes with relatively low TVL. With native emissions starting next epoch, we have a prime opportunity to benefit from these initial emissions. Historical examples like F(x) and Aura illustrate the substantial rewards early LPs can reap during first epochs. Therefore, we propose reallocating approximately 15% of Curve’s POL and all of Aura’s POL to Maverick, totaling around $100K in PAL and ETH.
Regarding Maverick farming, there are additional considerations to take into account.
- To qualify for a 6x matching in MAV emissions, incentive providers must distribute incentives in MAV alongside their dedicated asset. Therefore, we are requesting the DAO to purchase $3,000 worth of MAV. This will be a one-time purchase, as future epochs will allow us to utilize the MAV earned from farming.
- Additionally, Maverick’s liquidity shaping through their concentrated liquidity boosted pool will enhance PAL depth and enable larger trades with minimal slippage. This setup will also facilitate positive arbitrage opportunities between Maverick and Curve’s pools.
PAL budget: To fund this new initiative, a weekly budget of 60,000 PAL will be needed. The breakdown would be the following :
- 15k per week for Curve
- 25k per week for Maverick
- 20k per week for Aerodrome.
The Curve budget will remain unchanged, while the Aerodrome budget will be doubled to accommodate our goal of doubling the POL there. For Maverick, the strategy is to capitalize on the minimal competition in voting incentives during the initial epochs to attract substantial emissions afterward.
It is important to note that these budgets represent upper limits and may not be fully utilized. For instance, in the last quarter, around 25% of the incentives for the PAL/ETH Quests were reclaimed and will be reallocated in this new program.
Specifications
-
Liquidity Allocation:
- CURVE: Allocate 70% of POL ($420,000).
- MAVERICK: Allocate 17% of POL ($100,000).
- AERODROME: Allocate 13% of POL ($80,000).
-
Implementation Plan:
- Purchase $3,000 worth of MAV to facilitate the new strategy on Maverick.
- Allow for up to a 50,000 PAL biweekly allocation for voting incentives on Maverick.
- Allow for up to a 20,000 PAL weekly allocation for voting incentives on Aerodrome.
-
New Strategy Deployment:
- Reallocate liquidity from Liquis to Aerodrome.
- Deploy $100,000 in Maverick to utilize their concentrated liquidity and first farming epoch.
- For
- Against
- Abstain
