Deploy protocol-owned liquidity to improve TRU’s onchain liquidity.
Motivation
TRU liquidity on DEXs today is worse than its peers. Taking a look on aggregators like 1inch (screenshot below) and Cowswap currently, a user who swaps 10k USDC into TRU incurs ~4% slippage.
Slippage observed using 1inch shows that TRU slippage is very high in comparison to other DeFi tokens between $125M and $175M market caps:
Token
Market Cap (circulating)
Slippage on 10k USDC buy
Slippage on 25k USDC buy
MPL
170M
1.0%
1.6%
TRU
145M
4.0%
7.0%
STG
145M
0.5%
0.6%
BADGER
130M
0.4%
0.4%
CPOOL
125M
2.7%
3.8%
Considerations / next steps
If TrueFi governance were to allocate protocol-owned liquidity, it could go about it in different ways.
For example, Aave has delegated a Liquidity Committee multisig that’s responsible for deploying tokens across multiple pools to improve GHO liquidity. This approach gives Aave the flexibility to run experiments, deploy strategies across multiple DEXs, and make faster adjustments as needed.
Alternatively, projects like Stargate and Angle have deployed funds through Arrakis PALM to automate Uniswap v3 strategies. Using an Automated Liquidity Management (ALM) tool like Arrakis could enable governance to deploy TRU in a more passive manner.
TrueFi has >200mm TRU in its protocol reserves. At current price of $0.13, this represents >$25M USD.
Temp check
Do you think TrueFi should deploy protocol-owned liquidity?
Thank you for this proposal @tylerw! I am strongly for the protocol utilizing its assets to improve on-chain liquidity.
Provisioning this liquidity will (1) increase access to TRU (2) increase TRU volume and (3) generate fees for the protocol’s assets.
I am open to either the liquidity committee concept or using an ALM solution (I haven’t looked into those tools yet).
I also think it would be worth at some point exploring additional partnerships we could create with Sushiswap, Uniswap, or other DEXs, in exchange for providing liquidity from DAO-owned assets. But that shouldn’t stop us from proceeding to deploy those assets wherever we see opportunity!
Basically, what one could do is lend TRU tokens to DEX Liquidity Providers in a purpose-bound way. This means, users could then borrow TRU tokens from the DAO to use them to pair with stables (or ETH) to construct a DEX LP token and then pledge the LP token back as collateral. All of this could be done atomically, ensuring that the loaned tokens can only be used for liquidity provisioning, i.e., the loan is purpose-bound. What is interesting about this is that LPs would be long the LP token (= long TRU + long stable or ETH) and short TRU (= TRU debt), overall offsetting LP’s TRU price risk exposure, allowing them to build a delta-neutral position (at inception), resembling a short straddle (see below figure).
To attract LPs one could structure the TRU loan with a debt discount, meaning that a LP borrowing 100% of TRU only needs to pay back e.g. 90% at expiry. The LP’s short straddle position would then basically be shifted upwards by the discount (and DEX trading fees), where if the TRU price doesn’t change too heavily either upwards or downards the LP’s position will produce a net gain.
Note DEX LP Loans would be somewhat easy to imlpement for Uni-V2 and Balancer pools, whereas using Uni-V3 positions for this is not as straightforward given the non-fungible nature of V3 LP positions. Anyways, just something that might be interesting to think about.
Etienne’s proposal to implement DEX LP lending is a more complex approach, but it offers potential benefits that could be interesting. Benefits include generating additional returns for DEX liquidity providers and encouraging participation in liquidity pools. Furthermore, debt discounts and the opportunity to build delta-neutral positions could make it an attractive proposition for creditors.
As part of TrueFi governance, I would support this idea from Etienne because of its potential to improve liquidity, generate additional returns, and strengthen the TrueFi ecosystem. Additionally, the proposal can be put to a vote among community members to obtain additional feedback and determine general support for its implementation.
It’s really great that this issue has been identified, low slippage is important to encourage more onchain volume and activity, especially as we start to encourage more onchain activity such as staking TRU.
I like @aetienne’s solution too, but it puts our liquidity in the hands of users rather than being owned by the DAO. It’s prudent to build up our own POL to not be overreliant on potentially mercenary LPers, in addition to the loan default risks.
One potential solution is for us to raise protocol-owned–liquidity using a partner like ApeBond that will allow us to raise liquidity from our community. The community would sell us a selected pair (TRU/ETH) and get rewarded in streamed TRU over 30 or 60 days.
