This proposal will describe how a planned ‘LP tokens Index’ can be used to ensure that sufficient liquidity for all other Pie DAO ‘pies’ can be ensured by applying targeted and responsive liquidity within the ‘LP token index’.
This proposal represents a rough draft for feedback and consideration for further development.
The snapshot vote ‘Create LP tokens Index’ was passed on 25th March, showing a strong desire to create a LP focussed index. While no further detail on what this index looks like has currently been expressed, it is expected that it will contain multiple different LP positions across pairs and AMM networks.
This proposal describes that liquidity can be directly targeted by the DAO via the ‘LP token index’. The LP tokens Index shall allocate a portion of it’s holdings (such as say, 20%) to provide liquidity to pairs and exchanges that the DAO determines require additional liquidity. The DAO can nominate which pairs, and their proportion as required. The DAO will reward all holders of the ‘LP tokens Index’ with DOUGH for their assistance in providing liquidity.
Currently, the DAO encourages liquidity by providing farming rewards for liquidity providers on certain nominated liquidity pools. Rewarded pools receive a reward of DOUGH via distributed from the treasury. This new structure may invalidate the requirement for the existing rewards structure/ farms. The liquidity provided by the LP token index may be sufficient in alleviating liquidity issues.
As the ‘LP token index’ has not been described yet, much of how this will function is speculative.
Some parameters would need to be determined.
- The ‘LP token index’ will set aside a portion of its holdings to provide liquidity for PIE pairs. What portion will be set aside for providing liquidity?
- The portion set aside for providing liquidity may result in sub optimal returns for ‘LP token index’ holders, when compared to other pairs with a higher APR. The DAO can compensate this with DOUGH, but what level of compensation is required?
- Does this mechanism provide sufficient liquidity to remove the need to provide existing farms?
Thanks for reading.