Depositing additional funds into Swapr

[Powers]

Tldr: some data on DXdao LPing on Swapr and discussion on how future deposits into Swapr across Arbitrum, mainnet and xDai.

Swapr is live on mainnet and xDai with plans to soon launch on Arbitrum. DXdao has provided liquidity on both mainnet and xDai.

On mainnet, DXdao is currently provisioning $789k in the Dai-WETH pool and currently supplying $1.88m on xDai across the WETH-xDai, USDC-xDai, WETH-DPI and WETH-WBTC pairs. These were deposited in various stages over the last 3-4 months through proposals on mainnet and xDai.

This liquidity has been crucial at bootstrapping Swapr, but it’s also a significant amount of DXdao funds. I put together a spreadsheet to track their performance. DXdao funds earn trading fees on Swapr but are also susceptible to impermanent loss. So, I looked at each pair DXdao is providing liquidity on to determine whether DXdao would have been better off hodling or LPing on Swapr.

Some highlights below (on the extremely small sample size of the last few months):

Mainnet:

All of the mainnet liquidity was provided before April 2nd, when ETH was at $2,175. DXdao was LPing while the price of ETH shot up to $4300 - selling ETH along the way - and has continued to LP while ETH has declined to under $2000 - buying ETH along the way. Annualized out, this would be close to a 7% APY, but market conditions could lead to more impermanent loss in the future.

xDai:

The story is similar for the WETH-xDai pair on xDai, although the deposits came a little later than mainnet (and therefore at higher ETH prices). There was a small return for the USDC-xDai pool, which would annualize out to about 1.5%, but this pool also has no risk of impermanent loss.

LPing on the WETH-WBTC and WETH-DPI pools, however, was not profitable:

The negative return is because ETH performed better against DeFi Pulse Index and BTC over that time period. These are likely correlated pairs - all three assets go up in a bull market. LPing could be more profitable if there is more volume, and the launch of Swapr Beta and farming campaigns may do that.

In total, DXdao has been profitable as an LP on Swapr on xDai and mainnet

Looking ahead

Swapr squad is building towards an Arbitrum launch and DXdao governance has already committed $2.25m in capital to be used by its base there. As the launch date approaches (wen….), DXdao should agree on a Swapr liquidity plan and pass a proposal to send the funds to aDXdao on Arbitrum One.

I also think this is an opportunity to deposit additional liquidity on xDai and mainnet - it supports Swapr and has proven to be profitable (in a small sample size). I’ve listed some polls below to gauge the community’s thoughts on next steps.

Here’s a proposed breakdown of the deposits across pairs and chains:

• xDai
  • WETH-xDai - $500,000
• Mainnet
  • WETH-Dai - $1,000,000
• Arbitrum
  • WETH-Dai - $1,250,000
  • USDC-Dai - $250,000
  • WETH-WBTC - $250,000
  • WETH-DPI - $250,000

This would be $3.5m in total and we’d have to discuss the source (ETH or stablecoins) and other logistics.

What do others think? Provide comments and feedback below

[kobello]

Great analysis here, @Powers!

Minor feedback: I think it’d be a good idea to add USDC to Swapr mainnet.

If you are using USDC as a base, then Swapr will not be used because the eco-routing will send users through Uniswap everytime.

You can test it out by trying to purchase DXD with USDC.

[Caden]

I’m in favor of depositing more liquidity into Swapr, but I’m thinking about this from a competitive advantage perspective and I’m thinking there might be more efficient allocations to attract more users to Swapr. Since most other AMMs already have so much liquidity on ETH-Stablecoin and stablecoin-stablecoin pairs. By choosing lesser-known pairs with less liquidity, Swapr can more quickly become the most liquid market for that pair, gaining economies of scale within that market.

Here are some ideas for pairs:

• WETH-DPI and/or WETH-MVI: This should be done if Swapr can convince Index Coop to add farming rewards for Swapr LP deposits like they have for Uniswap LP deposits: https://www.indexcoop.com/liquidity-mining
  This would allow double farming, with both Swapr LP rewards and rewards from Index Coop. These are also correlated pairs, and DPI-ETH should have less impermanent loss in the long run than ETH-Stablecoin.

• WETH-Staked Eth: there are many staked ETH tokens, and if Swapr can negotiate a LP rewards program with one of the providers of these, such as Cream Finance which is behind CRETH2, then it would allow us to earn rewards for them while LPing on a highly correlated pair with low impermanent loss. Big win.

(On Arbitrum): WETH-Arbitrum-specific: Find projects on Arbitrum without much liquidity for their token on Arbitrum, and negotiate a farming campaign with them so they will pay us and Swapr LPs for adding liquidity.

Double-farming, where LPs on Swapr get both SWPR rewards and rewards from the project token that we’re LPing for, is how Swapr goes parabolic