Governance Proposal 1
Silo Liquidity Solution G
Author: DeFi Dave
Submission Date: 12/18/21
Direct SILO Treasury to G-UNI to power SILO/ETH liquidity in Uniswap v3.
According to an academic paper published by the Bancor team, the majority of Uniswap v3 liquidity providers are unprofitable and show that certain active management strategies do not outperform passive strategies when readjusting liquidity. This is why G-UNI has championed a passive wide-fixed range approach when it comes to liquidity so protocols can take advantage of the capital efficiency of concentrated liquidity while minimizing their exposure to impermanent loss.
For those unfamiliar, G-UNI is an easy-to-use, unopinionated framework built by the Gelato team for managing Uniswap v3 LP positions. Through G-UNI, protocols and their users can provide liquidity that is fungible and automatically reinvests back into the pool for compounding results. By creating a G-UNI pool on Sorbet Finance, not only can the SILO Treasury provide the initial liquidity, but members of the SILO community can also participate in the pool as well. G-UNI has been trusted by MakerDAO and Aave as collateral, soon Olympus DAO for Olympus Pro (with the GEL/ETH pair), and Fei, Float, Instadapp, and others for their liquidity mining programs. The APR to measure performance for G-UNI is easily available on the Sorbet Finance UI.
The philosophy behind the G-UNI fixed range strategy is that the community should be the liquidity provider of last resort. Tight ranges and experimental active rebalancing strategies can be done by individual liquidity providers but if the price of SILO were to moon or dump unexpectedly, having only those would cause a given pair to have worse slippage than Uniswap v2. By providing a wide range, a community can assure there is always ample liquidity for people to trade.Taking it one step further, community treasuries can own mulitple G-UNI pools and stack them in a ‘brick-by-brick’ manner based on the average price overtime.
To explain the process of deploying G-UNI with an effective strategy, we will use an example of $500k SILO and $500k ETH from treasury funds:
- SILO creates G-UNI pool with a range targeting the value of $0.32 which would mean current ETH prices the lower tick would be 0.00002 and the upper tick would be 0.00033.
- The reason why this range was chosen is because it is 4x above and 4x below $0.32 which is the
widest range a pair can have while still reaping the benefits of concentrated liquidity. For 4x above and 4x below, concentrated liquidity is 2x more capital efficient than a ‘zero to infinity’ range.
SILO deposits liquidity in the G-UNI pair. Users can deposit their SILO or ETH in the liquidity pair as well
After a period of time, the SILO community can decide to create a new G-UNI pool for SILO/ETH based on previous price action (ex. a new G-UNI pool can target 3x above and 3x below $0.80). By stacking G-UNI pools on top of each other, it makes the SILO/ETH pair more robust long-term. These new pool can further be incentivized by partnering with Tokemak or Olympus Pro.
Pros and Cons
Several advantages of G-UNI include that fees are 2.5% and are only taken when users claim their initial liquidity they provided back. Users who want to provide liquidity without having to deal with Uniswap v3 management can just ‘set-and-forget’ their position as they would in Uniswap v2. Because G-UNI tokens are composable, they can be used as a collateral in lending protocols such as SILO itself. The risk of using G-UNI is the same risk that comes with interacting with all of DeFi, which is smart contract exploit risk.
This proposal aims to solve early liquidity issues for the SILO token. The initial liquidity will be protocol owned meaning that it does not rely on external LPs. Community members will have the option of providing liquidity to the G-UNI pool if they desire to.
The Community-owned G-UNI pool will provide the liquidity necessary for long-term liquidity programs such as Olympus Pro or Tokemak in the future.
Yes - Direct Treasury Funds SILO/ETH G-UNI pool
No - Do nothing