Proposal #21: TCR-ETH Uniswap v3 Liquidity Pool Proposal - Visor Finance

Summary

This is a proposal for the Tracer DAO treasury to provide liquidity to the TCR-ETH pair on Uniswap v3 for both Ethereum Mainnet and Arbitrum. According to the proposal, Tracer DAO will supply the liquidity for both pools using its treasury funds and have Visor Finance manage the pools. Visor Finance are an active manager focused on liquidity provisioning strategies on Uniswap v3. Visor Finance currently manage over 20 pairs on Uniswap v3, and provide an infrastructure for protocols to use their own treasury funds to provide liquidity and generate yield. the Visor Finance treasury management service caters to the individual needs of the protocols serviced by Visor Finance. For Tracer DAO, the focus will be on providing deeper liquidity for the TCR-ETH pair to support larger volume trades without suffering significant slippage.

Rationale

The current slippage on Sushiswap both on Mainnet and on Arbitrum is very high due to the lack of liquidity. A trade of around ~$3,000 USD will suffer around 2% slippage on Mainnet and even more on Arbitrum. As such, it is of utmost importance to deepen the liquidity for the TCR-ETH trading pair.

The capital efficiency of Uniswap v3 offers many advantages. Given that much of the liquidity will be concentrated around the current price tick, there will be less slippage for same volume trades on the same amount of liquidity as on Sushiswap (or Uniswap v2). For example, concentrating liquidity around +/-50% of the current price will have 4x the capital efficiency of Sushiswap and may require less than 25% of the liquidity as Sushiswap. See calculation here: TCR Capital Efficiency Calculations - Google Sheets 4 Additionally, the lower liquidity threshold required on Uniswap v3 allows for Tracer to provide the liquidity with its own treasury, diminishing the need to pay liquidity mining rewards for TCR-ETH.

Managing the price range on Uniswap v3 requires active management, which is provided by Visor Finance and its research organization Gamma Strategies. As the price of TCR varies, Visor Finance will ensure that the price stays within range, and that there is sufficient liquidity to support TCR-ETH trade volume.

At present, there is an urgent need for trading liquidity on the secondary markets. The capital efficiency of Uniswap v3 makes it possible for Tracer to provide that liquidity with its own treasury funds. Doing so saves costs by eliminating the need for liquidity mining rewards for TCR, in addition to generating additional yield for the treasury.


Consideration

To provide further liquidity of the TCR token, Tracer DAO will supply the following for Visor Finance to manage:

  1. $500,000 USD equivalent of TCR; and
  2. $500,000 USD equivalent of ETH.

70% of the supplied liquidity will be directed to Uniswap v3 on Arbitrum and the remaning 30% will be directed to Uniswap v3 on Ethereum Mainnet. The 0.3% fee tier shall be used for both pools.

For the provision of these services, Visor Finance requests:

  1. A management fee of 10% of the earned Uniswap fees. 90% of the earned fees are re-invested back into LP positions to increase the balance of liquidity over time.

Deliverables

If engaged by Proposal to provide the services described in this Proposal to the DAO, Visor Finance will provide the following (Deliverables):

  1. Ensure that the provided liquidity is effectively managed in the Uniswap v3 Arbitrum and Ethereum Mainnet TCR-ETH pools.

Variation and Termination

  1. Visor Finance acknowledges that, if engaged, its engagement can be varied or terminated by future Proposals.
  2. Visor Finance expects that any engagement will be terminated if they fail to deliver in accordance with the deliverables specified above.
  3. If this proposal is successful, the liquidity provided by this proposal may be withdrawn via a future proposal.

Conflicts of Interest

In the context of the Tracer project, conflicts of interest include:

  1. Existing Service Providers who are Related Parties; and
  2. Existing (vested and unvested) holdings of TCR tokens.

Visor Finance wishes to declare the following conflicts of interest:

  1. No conflicts of interest to declare.

Interpretation

Unless otherwise defined in this offer, all terms beginning with a capital letter which are defined in the Participation Agreement have the same meaning unless the context otherwise requires.

If this offer is accepted as a Proposal under the Participation Agreement, Visor Finance may more formally document aspects of that Proposal.


Copyright Waiver

Copyright and related rights to this Proposal are waived pursuant to CC0.

3 Likes

This is a good addition to support liquidity of TCR. How will the 90% of earned fees be re-invested - in an equal share of TCR/ETH or variable depending on the current distribution of the pool?

How to supply funding?
Visor Valut or transfer to them?
Shouldn’t chose a lower fee tier for conmmunity?

The earned fees will be re-invested back into the LP based on the current distribution of the pool, and will occur at every rebalance.

1 Like

The funding will take place in a private whitelisted vault (called a hypervisor), for which the Tracer DAO will be the only ones able to deposit / withdraw funds. In terms of the fee tier, the three fee tiers are 0.05%, 0.3% and 1%. Typically, the fee tier for a token like TCR would be 0.3% or 1%. 1% is usually for more lower volume, exotic assets. TrueBit & Gitcoin are typical assets traded at the 1% fee tier. The 0.05% fee tier is usually for stablecoin pools or very commonly traded asset pools like WETH-USDC and WETH-WBTC, and everything else in between is at the 0.3% fee tier.
Another consideration is for the pool to be self-sustaining and have the ability to scale with the growing volume that will eventually be traded for TCR. For that reason 0.3% seems to strike the right balance of being a fair trading fee (similar to what is current on Sushiswap) and for growing sustainably with the volume of TCR.

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I have a few questions:

  1. How will the earned fees be calculated? Will this fee be denominated in TCR or ETH, since IL will impact fees?
  2. What happens when IL occurs?
1 Like

Got it, thanks! >|<>|<

The earned fees are just a straight 10% off the Uniswap fees that are earned. These fees are denominated in both TCR & ETH in proportion to the fee pool.

There is almost always some amount of IL within the pool when it comes to liquidity providing, but we expect the earned fees to make up for any IL suffered. IL gets accentuated when there’s severe price divergence between TCR & ETH and when liquidity is provided in a tight range. When there is significant price volatility, the ranges will widen to limit the amount of IL suffered, and when price volatility lessens, the range will narrow. Given that the price action has been volatile on Sushi (although largely due to the significant slippage), we will initially set a wide band, but as volatility decreases, eventually narrow the band.

Other tradeoffs include that a tighter range, although increasing the prospect for IL, will also cause less slippage for traders given that there’s more liquidity within a tighter band. Whereas, a wider range, will have lower IL but higher slippage than a narrower range. However, even a price band of 50% around current price will have significantly less slippage than a constant product AMM such as Sushi.

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An alternative approach would be to create a liquidity incentive to LP, this way the IL is outsourced to investors and you do not need a professional actor managing the liquidity. Also a decent way to attract new investors and reward those who want to front capital. A key benefit is having to put less funding upfront and having flexibility to course correct based on market needs.

1 Like