Liquidity Solution A - Tokemak [UPDATED]

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Governance Proposal 1

Silo Liquidity Solution A

Authors: Chutoro, Wchood

Related Discussion: see here

Submission Date: 16/12/21

TL;DR
Tokemak is a platform that will allow one-sided deposits of Silo into a SILO Reactor which will be combined with ETH from other lenders to create SILO-ETH which can be used to provide liquidity. Full deployment of deposited Silo as liquidity requires a sufficient TOKE deposits alongside the Silo Reactor funds. This will provide Silo with protocol-owned-liquidity ( POL ) which is Silo DAO controlled, reducing our reliance on external liquidity providers.

NOTE: Tokemak platform is not currently live, but scheduled to be released by January

Abstract
High slippage is a consequence of low TVL and disincentivizes large players and other interested protocols from investing in or utilising a token. Currently, the largest market for SILO is Uniswap which has a 2% spread of ~$2000, indicating a $2000 buy/sell will shift the price by 2%. Having POL through Tokemak will provide price stability to SILO and allow retail and other investors to invest efficiently without worrying excessively about price impact.

Tokemak allows Silo Community treasury to have one-sided SILO deposits ono the platform in exchange for tTokens which represent the treasury’s underlying stake in SILO and interest that is paid in TOKE. The SILO will be combined with ETH from other lenders and deployed to DEXs. This is under the direction of TOKE holders who deposit TOKE alongside the SILO reactor to determine which DEX the liquidity is provided to – full deployment of deposited SILO depends on the amount of TOKE which is deposited.

MOTIVATION
This proposal aims to solve early liquidity issues for the SILO token. The liquidity will be protocol owned meaning that it does not rely on external LPs.

It also provides an additional revenue stream in the form of TOKE tokens. These can be redeposited to direct liquidity, held for capital gains, or sold to further diversify the treasury and be used to further development of the protocol as a whole.

SPECIFICATION & RATIONALE
Specification
Before going through the process, it is important to understand there are certain caveats that determine the maximum amount of SILO in Tokemak that is actually deployed for liquidity:

  1. 3 times Tokemak’s SILO reserves i.e. Tokemak’s own holdings of SILO
    • If Tokemak has $100 SILO reserves, it can deploy at most $300 SILO even if there is more than $300 SILO in the SILO reactor*
  2. ETH LPs to match 50:50 SILO
    • If Tokemak has $90 ETH deposits but $100 in Reactors, a $30 SILO reactor will only be able to deploy $27 (90/100 * 30 = 27)*
  3. 1.5 times TOKE deposited alongside the SILO Reactor
    • If SILO Reactor has $150 but only $90 TOKE, it can deploy at most $135 (901.5 = 135)

With these caveats in mind, assume Tokemak has a SILO reactor offering 10% weekly returns for both SILO and TOKE deposits. Let us pretend that we deposit funds for 7 days and the first 2 caveats are already met - we will start with $600 SILO and $400 ETH to:

  1. $600 SILO will be deposited into a SILO reactor and combined with $600 ETH from other lenders to form $1200 SILO-ETH LP Tokens
  2. $400 ETH will be sold for $400 TOKE (to satisfy Caveat 3) and deposited into the SILO Reactor which can be used to direct funds to exchanges
    • Since the TOKE is owned by the community treasury, choice of exchange is up to discretion of SILO holders
  3. After 7 days, $100 TOKE returns can be claimed ((600+400)*0.1=100)

In this scenario, $600 SILO and $400 ETH ($1000 total from treasury) is effectively exchanged for $1200 SILO-ETH LP Tokens (note that this depends on satisfying all three caveats). The Silo treasury will also receive revenue in the form of TOKE.

Rationale
Technical: N/A

Social: SILO will have exposure to the Tokemak community and team and may provide opportunity for future collaborations.

Financial: Provides $1200 liquidity in exchange for $1000 SILO assuming that all caveats are met . Tokemak creates a new revenue stream in the form of TOKE tokens.

Governance: Since the SILO is still owned by the community treasury, governance will not be affected.

BENEFITS

  1. Provides liquidity that is sustainable and does not rely on external parties
  2. Tokemak will provide exposure to SILO and has potential for future collaboration
  3. Creates a new revenue stream in the form of TOKE
  4. One-sided deposits of SILO protects from impermanent loss
  5. Under perfect scenarios, provides more liquidity than initial investment

RISKS

  1. Relying on a third party protocol exposes us to smart contract risk outside of our control
  2. Failure of any of the caveats results in inefficient deployment of deposited SILO
  3. Returns are paid in TOKE which may result in overexposure to a protocol other than SILO, especially considering that 60:40 SILO:TOKE is required to satisfy Caveat 3 on our own accord
  4. SILO-ETH LP Tokens are locked in Tokemak smart contract meaning Silo does not benefit from the transaction fees

Voting
Yes – You are in favour of partnering with Tokemak and conducting a 40% swap of funds dedicated to liquidity in exchange for TOKE to ensure maximum SILO deployment from reactors

No – You are not in favour of this proposal

See below for other governance proposals:

5 Likes
2

In favour of this and have a Toke position to assist in securing a reactor (not huge, working on it!)

Securing a reactor is hard to do any hotly contested - would need to gauge how much Toke we have in our community to asses our chances of a successful bid. I feel like we need a huge amount, and the community is still small compared to the competition

1 Like