Liquidity Solution C (interim period liquidity)

Archive
1

Governance Proposal 1

Silo Liquidity Solution C

Authors: Chutoro and Wchood

Submission Date: 12/16/21

TL;DR

In this approach we will provide liquidity directly by swapping treasury funds for SILO-ETH LP Tokens and depositing them into a decentralized exchange(Uniswap). 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 utilizing 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 decentralized 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(Uniswap)

  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: Solves the short term liquidity uncertainty around Silo

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

Community treasury is exposed to impermanent loss

In the absence of a future governance proposal, this does not give us exposure to other protocols (e.g. Tokemak, Olympus, Visor) which could be a source of collaboration in the future

Exact Specification of the Proposal

  1. We use 200 ETH from the treasury and pair it with Silo from the treasury at a 50:50 ratio to create the SILO-ETH LP tokens which will then be deposited into UNI V3 SILO-ETH liquidity pool until we have determined a long term solution for liquidity.

  2. Once we have voted and implemented a longer term liquidity solution the SILO-ETH LP tokens will removed and the tokens will be returned to the treasury

Voting

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

No – You are not in favor of this proposal.

3 Likes