Liquidity Solution C - Direct Liquidity Provision

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Governance Proposal 1

Silo Liquidity Solution C

Authors: Chutoro

Related Discussion: Discussed on Discord

Submission Date: 16/12/21

TL;DR
In this approach we will provide liquidity directly by swapping treasury funds for SILO-ETH LP Tokens and depositing them into a decentralised exchange. It is a highly flexible solution that can be implemented immediately - however, it runs the risk of impermanent loss and may not provide adequate exposure to other DeFi protocols that could be future collaborators. This will provide Silo with protocol-owned liquidity which is Silo DAO controlled, reducing our reliance on external liquidity providers.

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 direct liquidity provision via treasury funds will provide price stability to SILO and allow retail and other investors to invest efficiently without worrying excessively about price impact.

In this approach, the treasury will match 50:50 SILO-ETH and exchange for SILO-ETH LP Tokens on a decentralised exchange. This will be used to provide liquidity and generate transaction fees which will be paid to the treasury and can be used in future governance proposals.

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 transaction fees paid in SILO and ETH.

SPECIFICATION & RATIONALE

Specification
To explain the process, we will use an example of $500 SILO and $500 ETH from the treasury funds:

  1. $500 SILO and $500 ETH is exchanged for $1000 SILO-ETH LP Tokens which are deposited into a DEX
  2. Silo treasury will receive transaction fees in the form of SILO and ETH depending on trading volume and its share of the total SILO-ETH LP pool

In this scenario, $500 SILO and $500 ETH is exchanged for $1000 SILO-ETH LP Token. The Silo treasury will also receive revenue in the form of SILO and ETH from transaction fees.

Rationale
Technical: N/A

Social: N/A

Financial: Provides $1000 liquidity in exchange for $500 SILO and $500 ETH ($1000 total from treasury funds). Creates a new revenue stream in the form of SILO and ETH from transaction fees.

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. Creates a new revenue stream in the form of SILO and ETH from transaction fees
  3. Can be initiated immediately
  4. Highly flexible as LP Tokens can be withdrawn or redirected with minimal restrictions

RISKS

  1. Community treasury is exposed to impermanent loss
  2. In the absence of a future governance proposal, doesnot give us exposure to other protocols (e.g. Tokemak, Olympus) which could be a source of collaboration in the future

Voting

Yes – You are in favour of the Silo treasury using 50:50 SILO and ETH to form SILO-ETH LP Tokens to be deposited directly to a decentralised exchange to provide liquidity.

No – You are not in favour of this proposal.

See below for other governance proposals:

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