Introduction
Tracer DAO has recently rebranded to Mycelium and expanded its strategic direction as part of a recent governance proposal. Balancer has and will continue to be a significant part of the Mycelium ecosystem. With the Perpetual Pools, Balancer serves as the secondary market for pool token and we are building tools that will leverage BLP tokens to aggregate stable coin and other assets to serve as collateral in Perpetual Pool markets.
Next week, Mycelium is releasing a Perpetual Swap product. The product is a generalised fork of GMX. If you’re familiar with the GMX model you are probably aware of their liquidity token, GLP. Mycelium will be releasing MLP which is effectively a yield bearing index of stablecoins and bluechip crypto tokens that acts as the universal counter-party for leveraged traders. MLP will introduce a number of new assets relative to GLP, one of which is BAL. BAL will be used in the MLP pool to collateralise trader’s long BAL positions, which are executed at the oracle price with no slippage. The MLP pool will also act as an AMM allowing traders to buy and sell BAL.
The token weights in the pool are adjusted to help hedge the holders of MLP against trader open positions. For example, if a large number of traders are long BAL, the MLP pool target weighting would be adjusted to have a higher BAL holding. Initially, BAL will have a target weighting of 1% of the MLP Pool.
Please find more information here: Perpetual Swap and MLP background
Motivation
The following proposal is for the Balancer community to allocate a percentage of the BAL held in the Balancer treasury towards the MLP liquidity pool. To provide incentives to LPs, Mycelium will be targeting a 25% APR to LPs for the first month after launch. 70% of fees generated by traders will be distributed to MLP holders. These fees will be paid out to MLP holders in ETH. If the APR derived from ETH rewards is under the targeted 25% APR, the shortfall will be subsidised with escrowed MYC, Mycelium’s native token, that vests over a 6 month period.
The goal of this proposal is to diversify the Balancer treasury, deposit BAL into the MLP liquidity pool and, earn ETH and MYC rewards. As a result, the Balancer community would generate yield on liquid treasury assets. $200,000 worth of BAL would help seed liquidity into MLP to allow traders to go long BAL in an meaningful as we launch Mycelium Perpetual Swaps.
Risks
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Single sided asset supplied; LPs are protected against impermanent loss seen in traditional AMM models. Despite only depositing BAL, the treasury would be exposed to every asset in the MLP pool (see the chart above).
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Smart Contract risk; Mycelium Perpetual Swap contracts are unaudited, but are a direct fork of the GMX codebase, which has been audited. GMX code has facilitated 10’s of billions in volume via their codebase and has hundreds of millions locked in its contracts.
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Oracle risk; all transactions are executed at the oracle price feed. If the oracle price feed were to be manipulated in some way LPs may realise losses. To mitigate this risk, Mycelium Perpetual Swaps is using an aggregated oracle pricing system pulling in data feeds directly from Chainlink, Binance, Bitfinex and FTX. By aggregating these feeds prices are normalised, eliminating the risk of exchange specific volatility.
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Trader’s profits; LPs are providing assets for traders to go long and short. If traders are profitable, that would cause a portion of LPs capital to be lost in the form of trader’s gains. Historically, as seen with GMX, traders have suffered consistent losses against the pools.
I’m eager to get the discussion going and hear what the community thinks.
Specification
The DAO Multisig 0x10A19e7eE7d7F8a52822f6817de8ea18204F2e4f will transfer 30,800 BAL (~$200k) to the LM Multisig 0xc38c5f97B34E175FFd35407fc91a937300E33860. From there, the BAL will be bridged to Arbitrum and deposited into MLP.
