$oneGIV to deploy 6M $GIV tokens to earn/create $GIV liquidity
Executive Summary:
Over the past six months, $GIV’s low liquidity on Ethereum mainnet has hurt the projects’ ability to retain value within its ecosystem and provide low slippage trades for $GIV buyers and sellers. This low liquidity is due to the high amount of Impermanent Loss that Liquidity Providers (LPs) are exposed to and the large amount of $GIV the DAO has to use for rewards to cover this gap. The Angel Vault was helping with this but it is no longer being incentivized and the liquidity has plummeted. With this proposal, ICHI has created a $GIV Vault that will enable LPs (any $GIV holder) to provide $GIV liquidity to help Giveth and earn without the need for a farming rewards program. Additionally this will create the ability for $oneGIV to deploy its $GIV treasury tokens to both earn and create liquidity for $GIV.
Goals:
Create more on-chain liquidity for the $GIV token.
Enable the Community Treasury, $oneGIV treasury, and any $GIV holders to earn with their token while maintaining a long position on $GIV.
Enable $GIV tokens to help the Giveth community.
Issues with $GIV liquidity today:
$GIV has extremely low liquidity on Ethereum mainnet today.
Giveth was spending extremely high amounts of $GIV on farms that created sell pressure for the $GIV token. Giveth should no longer spend $GIV tokens to incentivize $GIV liquidity on Ethereum mainnet.
Proposal:
ICHI to create a Vault on Ethereum Mainnet for the GIV token, concentrating $GIV liquidity in an efficient way, enabling yields to increase without the need for farming/bribes/etc.
ICHI to keep IRR above 15% for the first 12-month within deployment constraints described on the recent ICHI Vote.
oneGIV to deposit 6M GIV tokens into the Vault.
Any other GIV holders on Mainnet can also deposit
Vault benefits for Giveth
Single-sided deposits of the GIV token
Capital efficient earnings through concentrated liquidity - earn higher fees/yield on your GIV token and aggregate more of it
Liquidity management allow “deposit and forget” experience
Mitigation against impermanent loss for depositors due to single-token deposits and uneven pool distribution.
Liquidity to support Giveth protocol
Non-custodial LP token received so funds are always held Liquidity Providers (whether it be oneGIV multisig or others).
VAULT FAQ:
What are the risks? You are exposed to the price of each token in the pool as you are creating a liquidity position.
How do ICHI vaults earn high yields? Liquidity concentration enables higher yields than other forms of liquidity provision. Here is an overview of liquidity concentration? Concentrated Liquidity | Uniswap
Why not just deposit directly to Uniswap V3? This requires managing the liquidity positions as the price changes on Uniswap V3. You will have high impermanent loss and/or stop earning fees if this isn’t done in a timely manner.
How do the vaults help mitigate impermanent loss? Vaults protect against impermanent loss with three strategies: 1) off-balance asset ratios, 2) single-sided deposits, and 3) ICHI auto-compounding rewards (only in Vaults).
I agree that GIV needs more liquidity on Ethereum mainnet, and the GIV vault sounds like a compelling way to achieve this in a way that generates revenue for the DAO rather than costing and increasing sell pressure.
I think the main risk like you mentioned is exposure to ICHI’s price, which is exposed to the price of all tokens that ICHI has vaults with. However, the vaults have a small amount of ICHI liquidity relative to their native token, which mitigates the risk. It goes both ways too. If ICHI’s price is stable or increases, the vault is very comfy and adds a lot of value, and it’s great to see that this has been the general trend over the past year. If ICHI’s price goes down, it can be counter-productive. Because there will be more (and more concentrated) GIV liquidity than ICHI liquidity in the vault, we are taking on more of the risk, but perhaps that’s an acceptable tradeoff.
The vaults seem to be working well at a glance, particularly for ICHI token, but I’m curious if you can shed some light on why all of the vaults have such low vault strength according to this metrics page. What are the consequences of being below minimum vault strength, and why are all of the vaults currently below this (many with less than $1000 of total liquidity)? How could Giveth’s vault be different?
Great analysis here. What is important to note is that deploying to an ICHI Vault means providing liquidity for your project token. With that in mind lets do a high level comparison with other methods of Liquidity creation that are available to Giveth and the community (which will be referred to as Giveth/Liquidity Providers/LPs below) such as 1) Deploy to Univ2 or its forks 2) Deploy to Univ3 directly 3) Use a Centralized Exchange (CEX):
Deploy to Univ2 or its forks:
Pros:
Simple Deposit and forget experience - You deploy your tokens, get back an LP token (which makes this non-custodial), and don’t need to worry about managing your positions.
Cons:
High slippage - Liquidity is spread across the entire Constant Product Curve making slippage higher than it needs to be for buying $GIV and minimizing fees LPs can earn.
IL exposure - LPs are exposed to large amount of impermanent loss due to having to deposit both assets into the pool.
Sell pressure - Users holding $GIV have to sell 50% of their $GIV in order to provide liquidity, hurting Giveth.
Deploy to Univ3 directly:
Pros:
Concentrated Liquidity - Liquidity can be concentrated to enable capital efficiency and high fees for LPs.
Cons:
Not Flexible - LPs get back an NFT rather than a fungible ERC-20 LP token making it less flexible for projects to create other programs to incentivize Liquidity provision.
Time consuming - LPs need to constantly manage their positions in order to keep earning at the best rate.
Costly - Minimal management of the position leads to funds sitting idly and not helping Giveth.
Use a Centralized Exchange (CEX):
Pros:
Simplicity - give your money to a market maker and let them do the work for you
Cons:
High upfront costs - paying market makers and sometimes listing fees to exchanges.
Opaque - you don’t always get the full picture/understanding of trades and volumes, market makers do whatever they want with your token (often times selling it for their benefit)
FTX…
ICHI Vaults:
Pros:
Minimal sell pressure - Giveth only deposits $GIV tokens
Simplicity - Deposit, receive an LP token, and let the smart contracts manage the position optimally
Transparent - on-chain liquidity enables every Market Making action to be seen live and analyzed
Low slippage - The vault concentrates $GIV tokens by the price to create deep liquidity with low slippage
Earn - LPs earn in their deposit token with a minimum of 15% annual IRR due to ICHI’s recent vote to contribute as necessary.
Cons:
LP Risk - while the single sided deposits seem like a staking mechanism, they are actually creating liquidity on an AMM so there are the same risks as any liquidity creation mechanism (IL)
Vault strength is actually 22.2%, the other vaults just show how much of that total they make up. Confusing UI - we will update this as necessary (Vault strength is ~83% higher than minimum at the moment).
Many vaults are low in liquidity because we have launched about 20 in the last two weeks - Some communities are still gathering funds to deploy and ICHI will soon release a boost program for liquidity provision in those vaults - stay tuned!
If this passes the Giveth Vault will get that initial liquidity from the oneGIV assets so it will already have deep liquidity.
