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: