Degenerative.Finance: Move liquidity pools to Balancer Exchange

Current situation:
All synths that are minted need to be pooled in a 50/50 Uniswap pool, in order to earn rewards. The idea is that minters create these synths for others to buy. On top of the rewards, minters will generate transaction fees from trading activity (altho these fees have been close to nil so far).

Degenerative.Finance is built for minters: These are the first class citizens in our system and we need to tweak components to maximize rewards whilst minimizing risks.

Pain point: 50/50 Uniswap pools

  • These pools are not optimized for capital efficiency or impermanent loss
  • In a 50/50 pool, minters need to match their synths with an equal amount of ETH
  • Uniswap-pools all run on ETH
  • Uniswap’s fee structure is rigid

Solution: 80/20 (synths/quote asset) on Balancer Pool

  • Minimize IL for LPs . See this article for a comparison of IL in 50/50 vs 80/20 pools 80/20 Balancer Pools. One of the main motivations behind… | by Fernando Martinelli | Balancer Protocol | Medium

  • Maximize capital efficiency: Reducing the quote asset from 50% to 20% of pool weight is a 60% reduction (20/50= 40%). This will boost rewards APYs. Lower quote asset weight also means more available capital to mint synths, which will increase synths market cap.

  • Set pool trading fees to the lowest possible (0.0001%). This helps lowering tx costs = friction for anyone wanting to buy degenFi synths for the first time. There are hardly any tx fees in the Uniswap pools at the moment, hence it’s unlikely any LP expects any profits from this in the near-term. These pool fees can be increased once we have more traction. The uGAS-JUN21 synth expires by the end of June and thus we need to open a new pool for the next quarter synth anyway. 80/20 pools have slightly higher slippage than 50/50 pools. This low tx fee would compensate for this drawback.

DegenFi synths have unique characteristics that give us much more flexibility in these choices compared to a protocol token.

I am currently checking with the UMA team if they are any concerns. A number of UMA synths (Zelda, Mario Cash) have been running on 95/5 Balancer pools. The below questions are supposed to signal community feedback.

Please yay or nay:

Move to Balancer Pools
  • Yes
  • No

0 voters

Create pools with 80/20 synths/quote asset (quote asset = collateral asset)?
  • Yes
  • No

0 voters

Set the pool trading fee to the lowest possible (0.0001%)?
  • Yes
  • No

0 voters

My personal opinion on what would be best for Degenerative.Finance.
Sushiswap w/ Onsen rewards for uGas > Balancer > Uniswap

Also this requires updating the UMIPs which at at minimum 1-2 weeks and then updating contracts and liquidation bots. The process would likely only be applied to future synth contracts and none of the current ones.

I’m a Balancer community contributor (a Baller) and for what it’s worth, I think @nonstopTheo’s idea makes a ton of sense. You My Chic Fil A’s projects have done really well on Balancer – boosted liquidity, low IL all with high capital efficiency.

@feddas I recognise the shout for Onsen rewards, but want to point out the in this case, minters will also receive BAL, a very natural portfolio complement to UMA.

Happy to help answer any questions on behalf of Balancer and help make this happen!

Understood re timing . Would imply we can launch it for the new synths in sync with v2 website (early April).

Sushiswap Onsen: What do we need to do to get our synths qualified for rewards?

How do we get our synths pools whitelisted for $BAL rewards and what’s the rewards likely to be?


This is how pools are whitelisted

Further details here: Exchange and Reward Listing - Balancer

WRT how much can be earned, let me do a little analysis of some comparable pools to let you know!

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With regards to $BAL rewards, this pool of STAKE/WETH is worth looking at. It has a comparable asset ratio (90/10) and a much higher swap fee than you’re proposing. These are the 2 main factors for your pools in determining rewards.

This year the pool is set to earn ~12,660 BAL on ~$10m pooled liquidity. That comes out to 12,660 x $38.10 (current CoinGecko price of BAL) = $482,346 or ~5% per year.* Not 100% yet, but I think your pools would yield higher than this, given the low fee.

In my opinion the rewards here are a nice additional bonus, particularly when stacked with UMA rewards. The real benefit from using Balancer would be the confidence you give minters by eliminating impermanent loss and boosting capital efficiency – those should obviously be factored into the calculation!

*just ask if you’d like to see the calculation here!

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I’m a huge fan of Balancer and always look twice at any incentivization that allows me to earn $BAL on top of any other yields I might receive.

@nonstopTheo @Oaksprout how realistic is it to get our uGAS and uSTONKS synths whitelisted to this end? I’m assuming that we’d have to get re-whitelisted each expiry since it would be a different contract address per expiry token?

Short update on this:
Looking at uVOL-BTC as the first product to deploy to Balancer pool. uSTONKS and uGASJUN21 already in launch process, so we couldn’t pivot away from Uniswap.

  • Can also use 95/5 pool instead of 80/20 to minimize IL. Should be easier/quicker in terms of price feeds and bots. Still checking with UMA team.
  • Balancer community has received UMA KPI Options and is now interested to push UMA TVL. They’d promote it even more if it’s on Balancer.

FWIW - Sushi community also received KPI Options. But would have the 50/50 drawback. If we qualify for Sushi Onsen, can pick another uSYNTH to launch there for wider marketing reach. Luckily, our product range gives us flexibility here.

Correction: UNI pools can also have non-ETH quote assets. uSTONKS pool works with USDC.