SIP-003: Add STFX Token Liquidity to Arbitrum

General
1

Proposed by JakeXBT.

Background:

Arbitrum is quickly becoming a hotspot for L2 DeFi activity. In the wake of high profile NFT airdrops, fees on ETH mainnet have skyrocketed, making on-chain transactions for simple financial interactions like ERC-20 token swaps extremely expensive. More and more dApps are deploying their contracts directly onto L2 and bypassing ETH mainnet entirely. This creates a flywheel effect where the liquidity that users port to L2 may never need to return home (or only on an infrequent basis) given enough tangible utility within the L2 environment exists to satisfy all users’ needs. As a result, trade volumes and pool depth on Uniswap L2’s continue to accelerate.

Proposal:

We suggest deploying a novel STFX<>ETH V3 concentrated liquidity pool onto Arbitrium Uniswap. Doing so would solve 3 major obstacles:

  1. It would provide a low fee environment for users/traders to acquire STFX protocol token
  2. It would offer optionality for traders to greatly reduce their slippage costs on trades, as MEV exploitation by Sequencers on Arbitrum L2 is essentially nonexistent in current form
  3. It allows the protocol to tap into “static” liquidity that sits exclusively on L2, with no intention or ability to return to L1

Given that the overwhelming bulk of STFX specific protocol activity has been conducted on Arbitrum (via GMX liquidity), deploying a novel STFX<>ETH pool into this environment would demonstrate natural synergy.

Details:

The existing liquidity pool set-up for STFX token consists of the following approximate treasury positions:

  • An Ethereum mainnet Uniswap V3 position with ranges 0.4 and 40 cents, comprised of approximately 470 ETH and 21m STFX tokens ($1.6m)

This existing position has accrued swap fees of ~$50k since inception, which we propose recycling into the Ethereum mainnet position. So, the net liquidity pool set-up for STFX token would consist of the following treasury positions:

  • An Ethereum mainnet Uniswap V3 position with ranges 0.4 and 40 cents, comprised of approximately 390.5 ETH and 17.45m STFX tokens ($1.33m)
  • An Arbitrum mainnet Uniswap V3 position with ranges 0.4 and 40 cents, comprised of 94 ETH and 4.2m STFX tokens ($320k)

Finally, we propose an ongoing monitoring of L2 vs. L1 STFX<>ETH traded volumes. If there is material uptick in L2 volume against L1, the community can re-assess the liquidity spread across the two pools, and deliberate if a rebalancing of capital across the chains may be desirable in future proposals.

7 Likes
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Seems like a natural progression regarding the token offering. In favour of the proposal.

2 Likes
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great idea, highly in favor. Lets move to vote asap.

2 Likes
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In favor of the Arbitrum pool but you guys already have a relationship with TJ, would rather see the pool launch using their liquidity book it’s a more efficient AMM and they are new to Arbitrum and have been doing LP rewards to their pools. In addition, their platform distributes USDC (real yield) to their token holders for staking $JOE, which is what I’ve seen is the goal of accruing value to STFX. Not sure why so bent on using UNIV3 when TJ traders will pay nearly zero slippage, offer the LP more real yield, they are launching automated pools to reduce position management for LPs - seems like the most active teams in the space would leverage the relationships they already have with other active teams.

1 Like
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will there also be bridge solution proposed so we could transfer our tokens to Arbitrum, once the liquidity pool gets there?

2 Likes
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I vote a big’ol Yes!!

1 Like
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This is actually a good proposal and I’m voting YES!

1 Like
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I am new in all this but if mine vote countes,i say yes

1 Like
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Thanks for the feedback @ExcelBaller.

The STFX team is in touch with TraderJoe, and this is something they are investigating. However, we think that a migration of liquidity to TraderJoe is something that could form the basis of a future SIP, once there is a greater understanding of how the TraderJoe project works.

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The original proposal has been edited to remove the paragraph about bridging LP fees to Arbitrum. This is a decision that can form the basis of a SIP in the future once there is sufficient data to assess trading volumes.

11

Maybe you can check out Unipilot ($PILOT). They’re a Uniswap liquidity optimizer and they’re launching on Arbitrum in 2 days. They are already deployed on ETH and MATIC. Regardless of the way moving forward, in favor of the proposal.

1 Like
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Very reasonable. I am in favor of this proposal.

1 Like
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I’m Blue Clarity, the Marketing Lead at Trader Joe.

TLDR: Liquidity Book built by Trader Joe is a more efficient AMM for liquidity provisioning that will help to power higher POL revenue generation and also improve the trading experience for STFX holders. Trader Joe will also under-go with marketing initiatives, via a creative campaign and/or co-announcements to help further and deepen STFX integration into the Arbitrum ecosystem.

Introduction
Firstly, this is an exciting proposal. STFX making a move into Arbitrum is going to be great for exposure. The ecosystem on Arbitrum One is bubbling with activity and user metrics are hitting successive daily highs. The DeFi ecosystem starting up now, is at the forefront of what the ecosystem potential holds. Great time to make a move.

I thoroughly support the allocation of Liquidity into a concentrated liquidity AMM, the capital efficiency this type of AMM offers, is very clear. Liquidity provisioning into concentrated liquidity offers significantly enhanced capital efficiency, allowing for Protocol Owned Liquidity (POL) to increase revenue generation and also vastly improve the overall trading experience for tokenholders by lowering slippage and price impact.

However, I would like to propose that STFX consider dedicated liquidity provisioning on Trader Joe, via a Liquidity Book Pool.

To Introduce: Liquidity Book
Liquidity Book AMM is the most efficient and flexible AMM in DeFi. It was built from the ground up by the Trader Joe Core Team and utilizes a ‘Discretized Bin Architecture’ where liquidity is stacked in a vertical and fungible composition. This architecture of discretisation is different from popular concentrated liquidity AMMs, such as Uniswapv3, where liquidity is stacked horizontally (and non-fungible).

Useful Reading: Trader Joe Presents: Liquidity Book - by Blue - Joe Content

What is ‘Discretized Liquidity?’
Liquidity Book’s discretisation of liquidity means that liquidity is deposited into ‘bins’ which represent a price point for the assets in the liquidity pool. All bins are aggregated together, to form a complete liquidity pool that covers any price range where liquidity is deposited. Bins are powered by a constant sum formula, this means that if liquidity is swapped just from one bin, that swap will execute with no slippage or price impact. This results in a superior trading experience to existing concentrated liquidity AMMs.

How is Liquidity Book efficient for Liquidity Providers?
Liquidity Book has a dual fee tier, a base fee which is a flat fee applied to all trades and also, a variable fee which is volatility adjusted and applied by a novel volatility accumulator, which is an internal mechanism that reads liquidity going in and out of every bin in a liquidity pool. If liquidity is moving across bins, each bin step is counted by the volatility accumulator and that count will increase the variable fee applied to trades. In short, this variable fee applied is an additional source of yield for liquidity providers. The end result is that Liquidity Book generates higher yield for its liquidity providers, versus Uniswapv3 / other concentrated liquidity AMMs. As a project deploying POL, Liquidity Book offers increased revenue generation.

Real Data Efficiency Comparison
A recent comparison of this efficiency can be seen for the GNS-ETH market on Arbitrum, where Liquidity Book and Uniswapv3 have similar sized liquidity pools and over the course of 24 hours of trading following the Binance listing announcement of GNS. Liquidity Book had a TVL turnover of 15.7 times (v Uniswap 8.7 times) with fees generated of 39 bips (v Uniswap 35 bips) resulting in the average dollar of TVL on Liquidity Book ~230% more efficient (v Uniswap).

Tweet: https://twitter.com/blueclarityone/status/1627337920494333954

Auto-Pools
Trader Joe will very shortly be deploying Auto-Pools, which are a yield optimizer enhancement that is built in-house. Auto-Pools will have liquidity from a Liquidity Book pool delegated to a strategy that will rebalance and optimize liquidity provisioning to execute against the strategy objective. Auto-Pools are also fungible, enabling further incentivization via reward tokens and/or collateralisation to leverage and increase depth.

Co-Marketing
Trader Joe is also positioned as a local-ecosystem player that supports partners by onboarding via creative marketing campaigns or typical co-marketing initiatives. Trader Joe’s reach of well over 500,000 community members that spans into Avalanche and across different industry segments will ensure sufficient awareness and promotion of STFX being onboarded to Arbitrum.

End
Happy to answer any further questions about Liquidity Book or engage further in ideation of how Trader Joe can be the premier partner to welcome STFX into Arbitrum (and Avalanche).