KIP 15,000 ROOK Liquidity Provision; APY roll into ROOK

KIP-TBD 15,000 ROOK Liquidity Provision; APY roll into ROOK

kip: TBD
title: 15,000 ROOK Liquidity Provision; APY roll into ROOK
author: lapras <lapras@keeperdao.com>
status: draft
created: 2020-10-06

Preface

Proposal

Provide 15,000 ROOK and equivalent wETH to provide liquidity on Uniswap V2, Uniswap V3, Bancor, and Sushi at a 30/40/15/15 split respectively. Send ROOK to the treasury. Use Eth yield to buy and send ROOK to the treasury.

Background

It is no secret, that despite continued fundamental strengthening within the DAO (inclusive of the launch of governance), the ROOK token has faced inclement price action. There are various causes of such, but they are all underlined and exasperated by a lack of token liquidity.

The most natural solution to this illiquidity is to use treasury assets (ROOK and wETH) to provide this liquidity.

Olympus Pro offers a related resolution to this illiquidity worth discussing. That said, it is oriented for bootstrapping, whilst our protocol has matured past this phase and can be taking steps to diminish emissions.

Due to our war chest of ROOK and wETH, we do not have to offer discounted ROOK or bonded ROOK. We also immediately receive full APY, which I recommend we use to buy back ROOK and send to the treasury, or allocate for future stakeholder rewards.

In short, this proposal entails an Olympus Pro model, ran in house by our sizable treasury, and instead of offering discounts, we get full APY immediately and use it to buy back and use ROOK in the future.


Definitions

LP Tokens refer to the set of liquidity providing tokens from Uniswap v2 (30%), Uniswap v3 (40%), Sushiswap (15%), and Bancor (15%). They will be comprised of ROOK and wETH.

Analysis

Using DAO Treasury ROOK and wETH will provide us sustained treasury-kept liquidity.

Ultimately, owning income-earning liquidity with the treasury is a scalable, multi-beneficial adjustment.

Lastly, the yield from LPing can be used to support ROOK price action.

Benefits

• Permanent liquidity floor supports investors and minimizes down side risk
• Token liquidity is an important factor that many Price Oracles require
• Significant APY
• ROOK-side of APY can be sent to the treasury
• Eth-side of APY can be used for periodic buy backs sent to the treasury

Downsides & Risks

None identified (beyond normal SC risks)

Input & Output

The proposed allocation would be 15,000 ROOK. We have ~101k ROOK to date, which is ~$15m. We also have ~$50m of Eth and $35m of stables. We can use about ~700 ETH/wETH and 15,000 ROOK for this proposal.

Given the illiquidity of Uniswap v3 at the moment, which would largely be represented by the treasury, as well as anticipated increases in volume, I expect this to yield very substantial APY via fees/year. We can choose to burn the ROOK yield, or keep it (my preference). We can also choose to keep the Eth yield, or buy ROOK with that (my preference).

With current v2 and v3 liquidity and current volume at current price, we are looking at a floor of ~5% APY. There are also reasons to anticipate a substantial increase in volume; we are also taking a naive look at Uni v2/v3 distribution. This is to say, it is extremely likely this is a deep underestimation of the APY yield (eg ~20% is more probable).


Specification

  1. Add 15,000 ROOK and an equivalent amount of wETH to LPs. This will yield us ROOK:wETH liquidity to support long term price stability and health, while also generating yield.

  2. Use this yield to buy back ROOK.

9 Likes

I think this proposal should be top priority. Highly agree!

7 Likes

We should put the Uniswap V3 portion with an active manager like Visor (https://www.visor.finance/). This will create more liquidity and possibly higher APY.

3 Likes

This is interesting. For sake of getting this out the door ASAP, I’d like to make visor a subsequent KIP. Seems like a great idea! Great find :slight_smile:

2 Likes

I think this proposal is an excellent idea - a good way to support the health of the token through deepening the liquidity in a committed way.

I have LPed ROOK on UNI v3 on a couple of occasions. The yield on UNI v3 is highly dependent on volume and the LP position range. With a range of around 120% (bottom to top), I was earning well over 75% APY. Using smaller ranges, I was able to get APY well into the triple-digits. Suffice it to say I think the floor estimate is very conservative.

Olympus DAO’s ethos of prioritizing protocol-owned liquidity has worked very well for them and the growth of their community/mission. We’ve even seen other high-visibility, innovative projects (see: KLIMA DAO) adopt this strategy and find their own success with it (though admittedly many of these projects are still quite early).

Therefore, I think this will be a great way to utilize the treasury to further KD’s mission not just right now, but well into the future, regardless of how much “inclement” price action we undergo.

A healthy, liquid market for tokenized MEV is an exciting proposition. I hope to see this KIP adopted by the DAO.

1 Like

Cross-posting from KIP-4 post, would read through Stop Burning Tokens – Buyback and Make Instead — Placeholder

Managing 4 LP positions and coordinating yield-use is complex, any reason why wouldn’t start with 2 protocols? Or am I missing something wrt. advantage of diversifying.

I have updated this KIP to reflect convincing sentiment to use output ROOK in a productive manner. Therefore, the KIP is now for rolling the Eth into ROOK and keeping it.

I will have another update related to this KIP within the next few days.

Thank you for the great thoughts and read @azazello and others.

1 Like