Draft Proposal: XIP#4 Boost liquidity of Punk-Basic with ETH from NFTX/ETH SLP

XIP#4 Boost liquidity of Punk-Basic with ETH from NFTX/ETH Sushiswap pair.

Authors

Finesseboi

Glossary

  • SLP
  • Onsen
  • Impermanent Losses
  • Allocation Points

Summary

As it currently stands $Punk-Basic and other punk based single (D1) funds do not have enough liquidity. Users would like to purchase $Punk-Basic but the slippage makes it a less than optimal solution. This proposal aims to rectify that by reducing the NFTX/ETH supplied by the DAO on SushiSwap, and using the ETH as additional liquidity on the Punk-Basic pool.

Rationale

The market currently values single funds more than combined funds. This may be the case because funds do not have enough liquidity. Adding liquidity to punk-basic will allow us to test and most likely confirm that single funds are a product with more demand. As it currently stands our most successful launches, such as the Hashmasks fund, came from organic growth with single funds. It is in our best interests to replicate this as much as possible and acquire liquidity from the ground up. If liquidity is increased and single funds are shown to be viable, then we will be able to move towards expanding our product (combined funds).

Effect

Opportunity

  • CryptoPunks currently have the most volume on OpenSea, by lowering the spread on Punk-Basic more users would acquire punks via NFTX versus OpenSea
  • If Punk-Basic is a success then more users will want to mint and provide liquidity with their floor punks as the opportunity cost would be higher if they don’t because of trading fees.
  • NFTX as a DAO would capture most of the trading fees from the Punk-Basic/ETH Sushiswap pair

Risk

  • By adding liquidity ourselves to the Punk-Basic/ETH SLP we may be subject to impermanent losses as the CryptoPunk floor price changes.
  • Pursuing single funds might prove to be a waste of time as adding liquidity may not be enough for demand to increase and prove PMF
  • By reducing liquidity for the NFTX/ETH SLP we may lower our Onsen Rewards as other liquidity providers may add to their positions.

Specifications

We need ~$5,297,600 of additional liquidity for the purchase, or sale, of 1 Punk-Basic to be realized with minimal slippage

  • Unstake & Remove 3907 SLP from NFTX/ETH SLP,
  • Use the 86 Punk-Basic currently in the treasury to match ~1720 ETH
  • ADD 86+1720~ Punk-Basic/ETH to Punk-Basic/ETH SLP
  • Do not Stake added liquidity to Onsen as we want to keep incentives for organic liquidity providers
  • Keep the removed NFTX in Treasury

Funding request - No - Implementation does not require additional funding

  • No additional funds required.

Communication

Proposed points of discussion.

  • Single vs Combined Funds
  • Smaller reduction of NFTX/ETH SLP

Quorum

  • Minimum Quorum: At least 5 votes
  • Passing Threshold: More than 50% of must vote in agreement for the XIP to Pass. For changes to the NFTX contract, more than 70% must vote in agreement for the XIP to pass.
1 Like

Thanks for putting this together @finesseboi! I agree that we need to use our treasury to bootstrap D1 liquidity.

One issue - our treasury is ETH constrained and we will not be able to scale this approach beyond PUNK-BASIC.

@alexgausman has suggested that instead of removing NFTX/ETH, we leverage the treasury’s NFTX holdings to create NFTX/D1 pairs. This will allow deep multi-hop liquidity across the many D1 funds that the treasury is holding.

Sushiswap has confirmed that they will add custom routing to their UI to facilitate this.

1 Like

Yes that sounds like a perfect plan now that we’ve gotten confirmation that routing will be solved on Sushi’s side, so there are no UI/UX barriers for people wanting to buy/sell into the fund without owning/receiving NFTX.

Only thing would be paying extra attention to setting the rates of NFTX/fund right - rest I’m all for utilizing the inactive NFTX liquidity over drawing ETH!

1 Like