eIP 58: EUL Liquidity

General Proposal Formal Submission
1

Title: eIP 58 EUL liquidity

Author(s): River0x, an Euler delegate and contributor to Reserve protocol (with input from Emab, Knightsemplar, Seini, Takeabreath, Cioppino Dog and Raslambek
Related Discussions: [RFC] Increase EUL liquidity on Uniswap
Submission Date: 22 Feb '24

Simple Summary

This proposal requests the DAO pairs ETH with EUL (both taken from the treasury) and provide liquidity on this Uniswap V3 pool. There are two proposed options for providing liquidity: $500K at full range or $500K at 90% below and 1000% above (with a 3 month range review).

This is done with the intention of getting liquidity off the ground, with market makers and mercenary LPs taking advantage of increased volume / fees in the future- as opposed to becoming the only solution for liquidity.

Motivation

Many potential participants in Euler’s ecosystem have expressed an interest in becoming stakeholders but are unable to do so due to poor liquidity. This restricts protocol growth and reduces critical decentralization efforts that need to occur if the protocol is to see its ecosystem flourish alongside the protocol itself.

To this end, the DAO should pair ETH with EUL from its treasury in one of two ways:

1. $500K at full range.

This would cover the full range of liquidity and would require no rebalancing by the DAO at any point. It would facilitate relatively consistent throughout at all levels but comes at the cost of generating less fees for the DAO and is provably less efficient than concentrated liquidity in option 2.

2. $500K at 90% below and 1000% above

This would provide cover for a wide range of liquidity for EUL/ETH AND would be the most efficient solution and generate the most fees, but an important downside to this option is that it requires review, which will be scheduled quarterly.

Calculations to estimate efficiency and revenue can be made at the link below. At current volumes, there is a 4% APR (from fees) difference between option 1 (~7%) and 2 (~11%). If EUL becomes more liquid, this difference may increase.

Specification

If the vote meets quorum and option 1 or 2 has the most votes, the Euler Foundation will pair (on the day of execution) $250K in ETH with $250K in EUL, then deposit it into the Uniswap liquidity pool with the appropriate parameters.

If the vote does not reach quorum or option 3 receives the most votes, nothing will happen.

Voting

Option 1 = $500K at full range

Option 2 = $500K at 90% down and 1000% up

Option 3 = Do nothing

Relevant Links

Poolfish - EUL/WETH liquidity tool

RFC discussion on this matter

3 Likes
2

We would support Option 2 since it will be more efficient. Also, we agreed with the problem that many potential participants in Euler’s ecosystem have expressed an interest in becoming stakeholders but are unable to do so due to poor liquidity (including members of our society!).

Alternatively, is there an option to combine options 1 and 2 – in case option 2 goes out of range before the quarterly review?

3

For a combination of option 1 and 2 (I will refer to it as option 4) would you suggest 500K liquidity total or 1M liquidity total? What proportion would be full range versus concentrated?

Please check you’ve read up on the original RFC too just in case! RFC: EUL liquidity (third time lucky)

1 Like
4

These are just rough ideas - we don’t know how much the DAO can afford, but we think a 500k total is enough for a trial basis. We entirely support option 2, but our only concern is that it won’t be effective if the liquidity goes out of range before the quarterly review. Thus, combining could be effective for both cases, perhaps? We would love to hear more comments!

5

Thank you for your comment BristolBlockchain.

I quite like your approach, and prefer it to a 100% concentrated liquidity position (CLP).

But given its limited resources I’m not sure the DAO can manage a CLP if an emergency arises, however unlikely.

What are your thoughts on using Arrakis to manage a CLP?
@jengajojo brought it up and I’m wondering if anyone can chime in on how viable it would be as a solution.

6

Thanks for starting this discussion with the RFC and now this eIP @river0x. While we agree with @BristolBlockchain that the efficiency of option 2 is useful, we question whether the fees generated will be enough to justify the extra time required to efficiently manage the position as opposed to undergoing Option 1 and covering the full range of liquidity. It seems this was also a concern brought up by @patria in the RFC.

Looking forward to hearing thoughts here as we have not had a chance to model this yet, but potentially @BristolBlockchain or @river0x already have and have come to the conclusion that the efficiency and fees of the concentrated liquidity option are sufficient to justify the extra time and work required.

In the end, the goal here is to make sure there is sufficient liquidity for new stakeholders to join the Euler ecosystem–any additional benefits should probably be considered as secondary.

1 Like
7

At DAOplomats, we are very happy to see this proposal finally getting governance approval. Thank you @river0x for pushing this forward.

2 Likes
8

This prop has passed. Looking forward to having it implemented @Euler_Foundation
Thank you to everyone who has provided comments and feedback!

2 Likes
9

Hi all, a quick update on this eIP. The Foundation has arranged the legal documentation and we are in the final steps to implementing this proposal. The Uniswap liquidity will be deposited soon based on the eIP specified parameters. Thank you for your patience and attentiveness in voting. We are excited to move continue with the DAO and will make an update post as soon as liquidity has been added to round off this proposal.

10

Hi all, I can confirm the liquidity has now been added to the Uniswap pool as per the proposal above. Thank you all again for your active participation in the process.