RFC: EUL liquidity (third time lucky)

Title: EUL liquidity (third time lucky)

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

  • Option 1: full range
  • Option 2: 90% down and 1000% up
  • Option 3: do nothing
0 voters
2 Likes

Ultimately, the DAO should not be primarily concerned with fee generation at this point and thus I, River0x (alongside the Euler DeFibrillator Unit consisting of Knightsemplar, Takeabreath, Cioppino Dog) support full range liquidity on grounds that it does not require further adjustments down the line. This will prove to be a significant obstacle and may cause needless overhead, something DAOs are known for. There is a reason that many DAOs do not actively manage liquidity and it is not in our best interest to buck that trend.

The inefficiency (in terms of lost fees) of full range is less expensive than the inefficency of a quarterly liqudity range review.

While I like the idea of active MM with 90%,1000% options it usually needs someone to actively manage these positions to take advantage of volatility. Perhaps an automated contract such as arrakis or offchain strategy maker via sommelier could be options for the DAO to consider.

1 Like

team should spend zero time on this. i vote for full range

Given the positive reception this has received, I’ll finalize the RFC in two days!

The formal submission can be viewed here eIP 58: EUL Liquidity