[SCP-TBD] Extending Protocol Owned Liquidity on Uniswap and Starting POL on Bancor v3

SUMMARY:

This proposal extends and modifies the current phase of liquidity mining incentives, which end mid-July.

ABSTRACT:

This proposal outlines the latest revision to our liquidity mining efforts (an update to [SCP-55]). This proposal continues the LM program on Uniswap v2 for another 4.5 months past the current early July end date, alongside the creation and funding of liquidity mining incentives on Bancor v3.

MOTIVATION:

Owning liquidity is important. Insufficient liquidity can exacerbate price slippage. FOX needs to be present and available throughout the Defi ecosystem for the stability and long-term success of FOX and Shapeshift DAO.

In light of fewer liquidity provisioning options, this proposal seeks to ensure sufficient liquidity for FOX, and for that liquidity to be owned by Shapeshift DAO.

SPECIFICATION:

This proposal would extend the Uniswap FOX/ETH v2 LP reward program for this next 4.5 month LM cycle. This reward program would be for 6.75M FOX.

SCP-55 extended and modified the current phase of LP rewards for an additional 4.5 months and was approved in January. This proposal would extend LM rewards 4.5 months past the current early July end date (with a new LM program). This proposal will allocate 6.75M FOX for this next program.

The Bancor v3 LP reward program will last 4.5 months and start from the time of FOX being listed on Bancor v3. Up to 6.75M FOX will be deposited to Bancor v3, which Bancor will match up to 50k BNT, emitted over a 24-month schedule. All previously whitelisted tokens will be introduced to Bancor v3. As FOX is whitelisted with Bancor, this means that FOX should be listed on Bancor v3 sometime between May 29th and June 5th.

Bancor v3 is different than Bancor v2 in that impermanent loss protection is now instant (was 100-day wait before), with the drawback that there is a 0.25% withdrawal fee imposed. In addition, Bancor v3 imposes a 7 day redeem cooldown window. To ensure impermanent loss protection, Bancor v3 allows for DAOs to escrow a certain amount of their token to “bail out” individuals who would otherwise suffer from an impermanent loss.

Bancor v2 rewards were denominated in BNT only. Bancor v3 rewards can be BNT and the native token, or FOX in our case. In Bancor v3, these FOX reward tokens (FOX LP tokens) are, initially, part of the liquidity provided (unlike in v2). These FOX LP tokens (living in bancor-land) autocompound and are staked in a burner, ensuring that the ultimate redemption of the FOX LP tokens results in more FOX tokens than FOX LP tokens staked/burned.

Through v3, user experience is simplified to one swap (from the 2 necessary in Bancor v2). This will better develop the liquidity necessary for FOX to function well.

What This Proposal Would Do:

  1. Up to 6.75M FOX will be allocated as liquidity mining rewards for the Uniswap v2 LM program 2 days before the current one ends (mid-July). This program will last for 4.5 months.

  2. Start LP reward program on Bancor v3 (when available) up to the amount of 6.75M (4.5 month period, starting when FOX is available on Bancor v3).

  3. Deposit 10M FOX into Bancor v3 from the Shapeshift DAO Treasury.

  4. Authorize the creation and funding of an IL-protection escrow pool, up to the amount of 1M FOX, to be decided by the TMDC.

BENEFITS

Bancor will match up to 50k BNT to any whitelisted v2 token (this includes FOX).

Shapeshift will provide liquidity in the form of the 10M FOX deposit.

Incentivized liquidity provision by FOX holders.

Shapeshift will augment the Bancor IL protection with an escrow account holding $1M FOX, to be paid out to FOX holders in cases of IL.

DRAWBACKS

  • Smart contract risk
  • The decrease in rewards to Uniswap FOX/ETH pool may result in a temporary shock to liquidity if LP holders react quickly and significantly.

WHAT EXACTLY DOES THIS PROPOSAL DO?

YES:

  1. Extend the Uniswap v2 FOX/ETH LM rewards program for an additional 4.5 months with 6.75M FOX from the Shapeshift DAO Treasury as allocated rewards.

  2. On or after the date that FOX becomes available on Bancor v3, authorize the TMDC to allocate up to 6.75M FOX from the Shapeshift DAO Treasury in liquidity mining rewards.

  3. On our after the date that FOX becomes available on Bancor v3, authorize the TMDC to allocate up to 10M FOX into Bancor v3 from the Shapeshift DAO Treasury.

  4. Authorize the creation and funding of an IL-protection escrow pool, up to the amount of 1M FOX, to be decided by the TMDC.

NO: No changes are made. (In this case, the DAO will need to pass another proposal if it wants to extend its liquidity mining program past mid-July).

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