Proposal for bullish, high fee PCT/WETH balancer pool using PCT reserves

The suggestion, initially raised here, is to deploy the remaining PCT reserves in a new bullish, high fee PCT/WETH balancer pool. Rather than spending PCT to incentivise PCT liquidity the project would supply it’s own liquidity and also benefit from an increased fee. In addition, using a bullish pool would reduce impermanent loss in the event of PCT->:first_quarter_moon_with_face: as well as make it easier to come up with the WETH for entering the pool.

The intention of this thread is to refine this proposal for possible submission to vote. A few items to be addressed:

  1. What pool ratio? 90/10, 80/20? There was suggestion of using a dynamic pool ratio that changes over time.
  2. What fee? A 1% fee was suggested initially but this could be higher.
  3. Confirm focus on single pool rather than split across balancer and uniswap.
  4. What portion of PCT reserves?
  5. How to obtain the WETH for pairing?
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I think the most obvious answer would be to use our own money market - with the community pooling enough together to make the % lower than usual for the period.

Obviously if the rate will become significantly lower than elsewhere it will quickly cease to be, requiring the community to pool more and more funds. So it a circular problem…

Alternatively we can incentivize community to directly pool ETH into our BAL pool with PCT. Not sure it’s possible to incentivise ETH-only pooling though… Thoughts?

I agree with the idea of using the money market funds to get enough ETH, but the challenge is going to be PCT appreciation before we get enough ETH to launch a Balancer pool. So in a way we get screwed by our own success because we will need more and more ETH to have enough to balance out the value of our PCT. Thoughts @Spartacus @Vaspou ?

With an 80/20 pool let’s say we roughly need to come up with 685 WETH (2m PCT@2916 PCT/WETH). Right now to raise 685 WETH from the current pool… is impossible, at least the balancer ui max out at 574 WETH for 2.5m PCT and 33% slippage. A 90/10 pool is a little easier - we’d need 343 WETH which could at least be done by selling 1.25m PCT and incurring 20% slippage.

Maybe there is an alternative way to raise the funds without sellling this amount of PCT. Could we add PCT to the platform but not enable borrow and only whitelist 1 account on the supply side? The project can borrow this ETH from the protocol. Just thinking out loud here :slight_smile:.

Hopefully it doesn’t appreciate in value too much too quickly. See my comment above - even at current prices it is difficult if not prohibitive to raise these funds directly by selling PCT into the pool.

Ok, do we know how much the money market has made so far? Might be good to factor that in if it’s not minuscule.

Yes, you can check each token contract, e.g. pETH and look for totalReserves. The problem is deriving the actual ETH amount, as the number of ptokens ≠ number of original asset.

Also, the last 18 digits of the value in totalReserves represent the values after the dot (18 decimals).

So, in the case of pETH we now have:

8.6 pETH, which given there are at the time of writing 7.58m pETH with 14.54 ETH locked in the protocol, means that the ETH reserves are at ~16.5 ETH already

@PercentFinance please confirm it’s accurate

There was an error in earlier table and chart.
I added 10/90 and 40/60


Current estimated reserves for Compound

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I believe ratio is 1:50

@Bluecrypt thanks for the update! will revert on this in a few hours as i have more time to re-visit pool size calculations and BAL reward disrtibutions. this will provide ballpark estimates for these different weight setups.

So is it not as simple as dividing ETH supplied to the market by pETH minted by the contract then? Can you please explain?

Also, can anyone more technical than myself look into the changing weights pool and volatility-adjusting fee? @Bluecrypt @brisket @Spartacus @pyggie @vfat
both could be useful alternatives to the already proposed 1% fee + firmly set weights pool if we conclude that there’s too much problems that go with that. This seems like the place to start:

If we need to sell some PCT for ETH currently the best option would be in my opinion. The balancer smart pools are certainly nice but not really necessary. So the easiest implementation is to sell 10% or 20% on bounce for eth and create a 90/10 or 80/20 pool.

My main question on this is, why is IL an issue? If the goal is to provide liquidity so people can buy and sell PCT, the best option is the 50/50 pool, as that offers the most liquidity and lowest slippage. It also offers the best BAL rewards as others have noted.

Is the worry what happens when we decide to pull liquidity from this pool? If things go as planned, will we ever have to remove liquidity?

Thank you for adding the 90/10 and 60/40!

I have updated the 12 month 10x scenario table from the previous thread. A reminder - these values are very rough and include a number of assumptions and estimated values like:

  • 10m PCT supplied
  • BAL reward base apy 35%
  • Supplied PCT current value $1m
  • average volume $300k
  • share of pool 2/3
Pool BAL factor Bal income Fee income - 1 year IL factor@10x $IL Net value
50/50 1 1925000 733650 -0.425 -$4,250,000 -$1,591,350
60/40 0.96 1848000 733650 -0.378 -$3,780,000 -$1,198,350
75/25 0.75 1443750 733650 -0.2744 -$2,744,000 -$566,600
80/20 0.64 1232000 733650 -0.2305 -$2,305,000 -$339,350
90/10 0.36 693000 733650 -0.1271 -$1,271,000 $155,650

@Vaspou I’ll take a look at the smart pools today - it definitely seems very attractive to be able to change the fees and weights in the pool.

The goal can be to help fund the project while doing our best to preserve resources so the community has more to work with in the future. If the project supplied the remain PCT in a 50/50 pool (and was able to come up with the 50% ETH to do that) then it would have good BAL and fee income but after a year, if the project was successful (PCT 10x) then the project would also have lost over 40% of PCT value due to IL. I’m suggesting to consider this loss of value in addition to the income generation (and the ability to raise the paired ETH) when choosing what pool would be most appropriate.

This is one attempt to see the BAL rewards per week.

  • Pool liquidity: 2M
  • TVL Balancer: 350M (current one)

I believe my calculations are correct, but, let me know if you spot anything wrong. I’ll give it another run tomorrow.

@Bluecrypt thank you! can you also provide a numeric representation of this? I’d use these for pool liquidity:

@vfat can please elaborate on i’m not aware of how it works, probably not alone in this

@vfat and @spartacus both of your points hold merit and i think we would need to consider to meet those positions somewhere in the middle.

For one i agree with @vfat that since our end goal as a treasury is to distribute PCT we might as well consider riskier options in terms of IL.

However, @spartacus is right in pointing out that a) we will be able to generate much more income running our own pool with more skewed weights and b) we will retain the majority of PCT for future use-cases. I think both are too important to ignore.

You can see my calculations from the the original thread - if the protocol remains at around $30m TVL (which is a non-0 chance possibility, although like everyone else i’m super bullish, of course) - we might only have about $200k in annual income to support growth of the project and/or distribute it to token holders. This is minuscule.

Also, it is my firm belief that we do need to attract top talent to grow this into a real product. We may also need to incentivize them with our token (perfectly aligns interests), so need to keep a good chunk of that.

But i do want to point out that we need to realistically approach the assesment of the use of a Balancer pool. We will have ~2.7m PCT left for Phase III due to issues with MM distribution, as revealed earlier today.

So i would suggest to @spartacus to adjust the base assumptions. Also, both @brisket and @Spartacus have been calling for continuance of the MM incentivisation, which i’m sure is echoed by others in the community as well.

So the way i see it, the pie isn’t that big to begin with and splitting it for multiple purposes or running the risk of losing no less than 40% in the run-up (which if you don’t believe in, i don’t know what you’re doing here :sweat_smile: ), and i would argue a 50 or 100x is not outside the realm of possibilities at all here… So why risk losing all of this much needed coin, when we already have largely distributed the supply?

Look, the token is already well distributed, we have a good working product. what we need is to be able to sustain it and turn it into a real competition to all of these other teams that are better capitalized - like Comp, Aave and even Cream.

I’m all for actively managing the 100% of the remaining PCT supply with a Balancer pool (TBD which we end up choosing as the best option) for 6-12 months. And then depending on the price appreciation of the token and the amount of income generated through the protocol and BAL LM+pool fees, put the proceeds to the developer fund for at a 24-36 month runway + a good chunk of PCT for the “stock option plan” and either continue managing the remaining PCT that way - targeting to have a long-term stock chest for future hires (something i’m inclining to) or try to incentivize user behaviors beneficial to the protocol, if there’s any growing slack in that area.

Are there any more beneficial alternatives you guys see?

We will have ~2.7m PCT left for Phase III

Are we limited to the 2.7m PCT left for Phase III. I assumed the >10m remaining in total could be available.

end goal as a treasury is to distribute PCT

Is the goal to have a wider distribution for more decentralisation? I’d argue there could be more targeted and efficient ways to achieve that.

I’d strongly suggest a goal for the treasury, though, would also be along the lines of ensuring the most resources are available to maximize what we can do/build/etc.

@Spartacus good points!

BTW, regarding Sourcecred, i’ve looked into it and i think it could potentially turn out a cool experiment to incentivise “wisdom of the crowd” in community-sourcing best problem-solvers re/ development, product roadmap etc. with PCT awards. so i suggest we keep it on the radar for what’s to come after Phase III vote on treasury. Here’s another source from Maker for those interested:

Back to the pool - i thought your original idea was to limit the pool only to the treasury PCT. Please correct me if i’m wrong.

Also, from looking at the smart pool use cases i believe we can incentivize the provision of WETH by community members via whitelisting of accounts. Probably would need @percentfinance to confirm this option.

Alternatively we can put a cap on PCT supply, so its just us supplying it and allow WETH liquidity provision. Not sure still that it won’t need to be incentivized, but maybe the high fee may do its thing…


Bounce can be used as an OTC market, we can create a pool with X PCT in it and a price of Y ETH per PCT. People can then buy this PCT at that price.

I agree that if the plan is to maintain control over as many PCT tokens as possible then a 50/50 pool doesn’t make sense, but please keep it in mind as an option in general, if our goal is ever to provide liquidity for the token then a 50/50 pool is the best way to do it, and we wouldn’t have to use the entire supply of course.

My vote currently would be to do nothing, I think creating a new balancer pool is premature. I would wait until well into Phase III to be able to say that such a pool is needed.

Currently for all we know, after farming is done TVL could go down to $5M or less. Please keep in mind that as we are using the same rewards formula as Compound (deposits+borrowings), people are using the deposit/borrow/deposit/borrow cycle to farm as much as possible, which inflates the TVL. If we were to continue incentivizing then the correct formula in my view would be (deposits-borrowings). This is currently being used by ForTube, an Asian-facing competitor.

@vfat i fully agree with changing the LM-incentivization if we keep it to a less game-able.

But when you say do nothing what do you mean exactly? the Phase II ends we look at how the TVL reacts, how the Balancer pool reacts and then decide?

Could be problematic in a sense that it will leave community in a bit of a limbo. What i’m proposing is not much different with the exception of creation of the new Balancer pool - we give the contol over the PCT treasury to the multisig, stop LM, and i would argue the token liquidity should still be supported, otherwise we get a situation where current pool is small and creates too much [negative] volatility and the treasury is no longer earning any BAL…