Summary:
The proposal aims to deploy onchain market making for the MIMO token on Polygon via Arrakis PALM.
Rationale:
Currently, the majority of the onchain MIMO liquidity on Polygon PoS is on Balancer, thanks to the MIMO/PAR 80/20 pool and MIMO/wETH 80/20 pool. In order to build a sustainable liquidity and as voted in MGP-17, the DAO is currently building a Protocol Owned Liquidity (POL) position via MIMO/wETH 80/20 pool which is farming $BAL and $AURA to continuously attract more liquidity thanks to the Balancer & Aura tokenomics.
The use of Balancer has several advantages:
- Reduced impermanent loss for liquidity providers (see here)
- Constant yield with no need for MIMO tokens from inflation (thanks to the vlAURA flywheel).
However, the structure of MIMO liquidity on Balancer has several limitations:
- Increased Protocol Owned Liquidity dependent on Parallel Protocol revenues
- Low Capital Efficiency for users
With the aim of diversifying MIMO liquidity, making it more sustainable, increasing capital efficiency and reducing slippage for users; we propose, in collaboration with the Arrakis team, to deploy MIMO Protocol Owned Liquidity on Uniswap V3, via Arrakis, on Polygon PoS.
Arrakis Finance is a trustless market-making infrastructure protocol that enables running sophisticated algorithmic liquidity rebalancing strategies on Uniswap V3.
Since launch, Arrakis has achieved:
- Over $1.7b in TVL at its peak (currently around $140m), across Ethereum, Optimism, Arbitrum and Polygon
- More than 25% Uniswap V3 total TVL
- 80+ projects have their liquidity managed via Arrakis vaults (Parallel used Arrakis V1 in the past for PAR/USDC UniV3 pool on Ethereum & Polygon PoS)
Arrakis PALM - Protocol Automated Liquidity Management is a novel liquidity bootstrapping mechanism that taps into the organic trading volume on UniV3. It is the first product built on top of the Arrakis infrastructure.
In essence, PALM helps protocols bootstrap their base asset inventory (ETH, USDC, etc.) and attain deep and sustainable liquidity. The major advantages of using PALM are:
- Zero incentive: no LM incentive needed, liquidity bootstrapping is done solely via market making.
- Highly flexible: the initial liquidity can be made of any ratio between the two assets, even mostly MIMO, and then PALM will progressively pull it towards 50/50 to create an equal buy/sell support.
- Highly capital efficient: by actively managing concentrated liquidity, PALM can significantly reduce the slippage for large swaps with limited TVL.
- No biased price impact: no swaps conducted by PALM, instead, it makes markets by setting up ranges / limit orders…
- Minimize or outperform IL: PALM is able to keep the value of the deposit close to that of holding the initial assets, and often outperforms it.
- Non-custodial & transparency: Parallel retains the custody of the liquidity and can withdraw at all times. PALM only autonomously manages it and can never remove it from the vault. All executions can be verified on-chain with full transparency, and the state of a vault can be monitored directly with a dedicated dashboard.
PALM has been deployed for over 30 protocols (e.g Stargate, Gelato, Lido, Connext, Across) and is performing exactly as designed. An example for NEXT/WETH can be found here, where it demonstrates the overall performance of PALM.
PALM can help Parallel establish a deep and sustainable liquid market in the most capital efficient and cost effective way that benefits all parties:
- For the DAO, more resources can be reserved for protocol development & growth rather than providing liquidity, since PALM only needs a fraction of what is typically required. Below is an example of how capital efficient PALM is compared with a much better funded pool but with no active liquidity management.
- For the Treasury, it has the opportunity to consistently pocket a handsome amount of trading fees by allocating Protocol Owned Liquidity for PALM to make markets. For instance, PALM generated $60k over a 4 month period for Stargate Finance.
- For MIMO holders, deep on-chain liquidity can support the distribution of MIMO and therefore the decentralization of the DAO, since people are more willing to permissionlessly trade the token without incurring large price impact.
To start, Mimo Labs, in collaboration with the Arrakis team, is proposing to deploy 5M (5,000,000) MIMO tokens from Parallel DAO Treasury in a MIMO/wETH 1% PALM vault on Polygon PoS during a 3 month test period.
Note: Mimo Labs has already deposited 5M (5,000,000) MIMO tokens in a MIMO/wETH 1% PALM vault on Polygon PoS from its own treasury.
How is it working under the hood?
- Bootstrapping base asset
Parallel DAO Treasury deposits MIMO only into a PALM vault. By setting up limit orders, PALM will first bootstrap WETH to pull the ratio of MIMO/wETH towards 50/50 over time.
Once a certain amount of wETH has been bootstrapped, PALM resets the configuration to bootstrap further while better accommodating the volume
Bootstrapping relies on organic trading volume, where bootstrapped wETH is granularly moved from LP positions to inventory as MIMO purchases come in from MIMO buyers or arbitrageurs. The chart below shows how PALM bootstraps the base asset and pulls the ratio to 50/50.
- Establish deep liquidity
Once the ratio of 50/50 is reached, the focus will be on further increasing the liquidity depth for MIMO, to minimize and equalize the price impact on both buy and sell side.
As indicated in the chart below, the price impact for large trades will reduce over time, especially after the bootstrapping phase was completed
During the deployment period, the Parallel DAO has full visibility into the execution and performance of PALM and retains full custody of the liquidity in the vault, which means that the Parallel DAO can withdraw from the vault or revoke managing access to PALM at any time. PALM can only conduct market-making with the liquidity deposited in the vault and will never be able to remove the fund.
For the services provided, Arrakis charges fees on two fronts:
- Management fee: 1% AUM fee on a yearly basis
- Performance fee: 50% of trading fees generated
You can find more information about Arrakis PALM in their docs.
Means:
-
Human Resources: Multisig signers will need to sign transactions to execute the proposal
-
Treasury Resources: 5,000,000 MIMO tokens will be deployed in a MIMO/wETH 1% PALM Vault in Arrakis on Polygon PoS.
Technical implementation:
- On Ethereum:
- Bridge 5,000,000 MIMO tokens from the Ethereum DeFi Multisig to the Polygon PoS DeFi Multisig
- On Polygon PoS:
- Deposit 5,000,000 MIMO tokens from the Polygon PoS DeFi Multisig in a MIMO/wETH 1% PALM vault.
Voting Options:
-
Accept to deploy onchain market making for MIMO via Arrakis PALM
-
Against/Rework the proposal
-
Abstain
Authors: @rapha from Arrakis
Sentiment poll:
- Accept to deploy onchain market making for MIMO via Arrakis PALM
- Against/Rework the proposal
- Abstain