Replying to @zk_sjp 's post here - 2024-05 IMC Nomination Thread - #31 by zk_sjp
What’s POL?
POL is “Protocol Owned Liquidity” - it is some full range uniswap rpl/eth and reth/eth postions the IMC has. It’s currently worth about 1/4 of the IMC’s current treasury. The intention was to slowly build up that POL over time so we would be less dependent on spending RPL on incentivized liquidity. So unwinding and spending it would kind of sting in my opinion.
What is changing that would impact liquidity depth?
Well, in general - the more you spend, the more depth you get. More incentives make for a bigger yield number, which attracts more TVL that serves at liquidity depth around the peg. The converse is also true - if spending goes down, LP’s may decide to move their capital to other options to get the yield they are looking for. But, since the IMC only gets RPL as income, as the RPL/ETH ratio has declined, we’ve had to adjust our spend downward to maintain a “runway” of roughly 1 year’s worth of deficit spending at whatever the current ratio was. At the moment though, that ‘runway’ is more like ~8 months instead of a year.
Where can I read about the mechanisms the IMC uses to incentivie liquidity.
Val’s treasurer report here is a good exploration of our recent budget and spending.
What type of creative things do you think you’d suggest to the IMC?
As for ideas - I think a number of things will need to be looked at:
- The reth/weth Balancer pool (which is our main pool), while concentrated around the peg, isn’t as concentrated as it could be. This has benefits in that we’re less likely to fall off a liquidity cliff, and it’s good from a ‘resiliant’ liquidity standpoint. The downside is it’s more expensive, and that resiliance may not be as necessary now that withdrawals are available. So, in general, shifting to incentivizing more concentrated liquidity (eg a more concentrated balancer pool, the existing Gamma/Uni and PCS pools, possibly a more concentrated curve pool) may be a necessary trade-off.
- While the IMC’s income is all RPL, the spending budget is almost entirely denominated in Eth since that’s what the LP’s are putting into the various pools and are looking at in terms of their yield. If we were to move to denominating a portion of each line item as flat amounts of RPL - further changes in the RPL/ETH ratio would naturally change the spend without the IMC having to explicitly retarget the budget. This may make more sense for the more concentrated pools since the LP’s in those pools tend to have more yield from trading volume then incentives
- While I was opposed to incentivizing on Maverick because their LP contract was unverified, their new V2 is supposed to be fully open source and verified. Once it gains some “lindy” time - I’d be open to incentivizing there since they do have some innovative ideas about how to structure liquidity.
- Explore options for pairing with other values-aligned LST’s since this can be very efficient. We tried this with Stakewise and we were incentivising an osETH/rETH pool on Curve for a while. Unfortunately it wasn’t being picked up by swap aggregators and the pool saw very little volume. So while it was ‘efficent’ in terms of getting TVL, it was ineffective if it only was ever used by arb bots. So any new partnership would need to make sure the logistics around getting the new pool included in the routing for aggregators (at least one) was figured out. This may mean things like reaching out to CowSwap solvers, etc.
- Asking the PDAO for a modest boost in spend. With the new on-chain governance system coming with Houston, the IMC’s spend will be based on a fixed amount of RPL every period instead of a percentage of the PDAO’s share of inflation. It may make sense to use this as an opportunity to ask for a modest increase to shore up the budget.