Discussion Post: Proposal to Increase DXdao’s Capital in Swapr on Gnosis Chain

Overall, DXdao should increase its usage of its own capital on Gnosis Chain with the following goals:

  1. Support Swapr to become the most important DEX on Gnosis Chain for important non-stable coin pairs
  2. Increase volume and fees to Swapr
  3. Bring liquidity to pairs that will benefit the Gnosis Chain ecosystem
  4. Become an important DEX for CowSwap to tie into for a substantial set of pairs
  5. Get awareness of Swapr and DXdao spread further across the wider Ethereum ecosystem

The hardest part is coming up with how to exactly deploy the capital.

Stable coin pairs are less interesting mainly because Curve does a good job of supporting these pairs on Gnosis Chain.

I think we could either co-provide capital or acquire some tokens via token swaps with projects where appropriate. It would be good to have a tool for trustlessly co-providing capital to a pair. We talked about this for a while and we should focus on getting it done. If we have the right mechanism, we might be able to get other communities to participate in this growth program as well.

I think a reasonable amount of capital to commit to Gnosis Chain is around $10m total. If we have about $3m already committed, this leaves room for another $7m.

Personally, I think Swapr will get more attention on Gnosis Chain if DXdao uses its own capital rather than trying to “farm” it with SWPR rewards. In fact, if we slow the distribution of SWPR rewards, implement a reason for people not to sell SWPR and then grow Swapr leveraging internal DXdao capital, I think this will help SWPR price.

To give some possibilities, some pairs DXdao could focus on are:

Example:

There is lots of flexibility for providing capital.

Pinpointing the exact pairs to focus on will take time and can be a step by step process.

The below snapshot gives a good overview of the top pairs on Gnosis Chain DEXs. You will see that after the top 5 to 10 pairs, the liquidity isn’t too substantial. Swapr could have the largest liquidity for many pairs. There are also a number of pairs that are against a USD token. Maybe these tokens against WETH could be a better pair.

DXdao doesn’t have to do this all at once, but it would be good to set a strategy and start implementing it via the movement of capital and acquisition of tokens.

This conversation ties in with Swapr farming strategy so it might be good to discuss this at the Fortnightly Farming Sync.

Gnosis pools in Swapr have almost the same TVL as that of those on Arbitrum, but double the fees for the last 7 days. % is compared to the total for the 3 networks.

Please share your thoughts and ideas for other pairs to focus on.

9 Likes

This seems like a no-brainer to me. GNO-WETH in particular might be a great pair to deploy liquidity for.

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There has been generally positive feedback on this post and strategy with no opposition.

The goal of this strategy is to help strengthen and make Swapr more relevant (starting on Gnosis Chain) by leveraging assets that DXdao currently has, without focusing on liquidity mining (which is currently having issues). DXdao’s idle capital is an advantage that DXdao and Swapr have over other DEXs.

First Step Forward:

Focus on successes. The WETH/WXDAI pool has been a good one for Swapr. With some additional capital this pool can become the largest WETH/WXDAI pair on Gnosis Chain.

This ties in really well with Swapr integration in 1inch on Gnosis Chain, and pushes another big reason for CowSwap to integrate Swapr.

It currently has $1.9m of liquidity. With an additional $2.3m, it reaches $4.2m becoming the largest on Gnosis Chain. This increase in liquidity (combined with the more competitive 0.25% swap fee) will bring this Swapr pair to be the go-to pool on Gnosis Chain for WETH trading.

To keep things simple, we can start with this first move.

This requires $1.15m of ETH and $1.15m of DAI to be bridged over to Gnosis Chain from Mainnet.

DXdao has $3.2m of DAI on Mainnet so $1.15m can be moved.

DXdao has 11,068 ETH on Mainnet. At ETH/USD price of 3,100, this would require about 371 ETH to be brought over to Gnosis Chain.

This action will require Mainnet proposals to move the funds from DXdao’s mainnet treasury. Bridging can be actioned by the DXdao Dev Multichain MS, and Swapr deposits will happen using the Relayer on Gnosis Chain.

There is good reason to move forward with this initiative quickly. If there is no opposition, Mainnet proposals will be created this week.

Risks:
It is important to note that putting additional capital into Swapr pools for a pair like WETH/WXDAI comes with impermanent loss risk, and can underperform not doing this strategy in an ETH-up environment.

I believe that this additional risk is worth it in order to better “activate” Swapr.

6 Likes

I agree with this approach and think the WETH/xDAI pool is both strategically important to Swapr and has been profitable for the treasury. Before we last deposited treasury liquidity into Swapr in September, I looked at the profitability of the treasury’s LP positions.

I updated the spreadsheet with the current token balances. As before, the WETH-xDai LP position and the USDC-WXDAI position are both profitable

But the WETH-WBTC and WETH-DPI pools have been very unprofitable:

.

I agree with Sky that we should move forward with a Swapr Liquidity Deposit proposal for the WETH-xDai pair. And I think we should move quickly towards a mainnet proposal.

Just a few considerations:

  • If we went through with the $2.3m deposit, it would be a big increase (more than doubling the pool) and this additional $2.3m deposit would represent ~ 3.8% of DXdao’s non-DXD assets. This is a large allocation from the treasury but the strategic benefits to Swapr are clear, which likely outweighs the risk of impermanent loss.
  • Should we take from the Dai mainnet balance or sell ETH to fund the deposit? The $1.3m in Dai would be more than 1/3 of the Dai balance on mainnet. Previously, DXdao had sold ETH for Dai to deposit as LP.

While we are moving forward with this proposal, we should also work on developing plans for additional moves on Gnosis Chain, namely 1. GNO/WETH pair 2. Re-examining the WETH-DPI & WETH-WBTC pairs. We could also make adjustments to these in the next few weeks.

4 Likes

Reasonable risk, but let’s put it this way: DXdao has 1000 staked ETH (with more to come) which earns a health of ~4.5% denominated in ETH. This can act as a hedge against the IL in favor of growing Swapr on Gnosis Chain.

Let’s polish this and put it for voting by next week’s DXgov call.

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This post and topic was discussed deep on the DXgov Weekly Gathering call on Jan19th, 2022.

You can find the discussion starting here:

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