[BIP-45] Balancer LP BAL into MLP

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

  • 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).

  • 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.

  • 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.

  • 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.

9 Likes

Congrats to the Tracer / Mycelium team for making a pivot & launching this new product.

To me the risks here are minimal, with the caveat of trusting the forked code base to be sound. The aggregated oracle approach also puts me at ease minimizing the risk of a single point of failure for the system. The financial implications for the BAL are positive. The deposit would be helpful for us to build up ETH for the treasury, while not selling BAL in the process.

I am in support if no major concerns are brought forward in the meantime.

5 Likes

Hi all, Josh from Mycelium. Been a big Balancer fan for some time now and have met some of the team at ETH Denver.

We would appreciate your support here and think this is a great opportunity to further promote the Balancer Ecosystem. I will be happy to share this out and promote our collaboration on Twitter :slight_smile:

3 Likes

All looks good to me. Sounds like you’re requesting a one time deposit of $200k BAL correct? and what would withdrawing these funds look like if/when the time comes?

3 Likes

In support of this proposal.

2 Likes

This would be one time. Potentially this could scale up as the size of the LP pool grow but that is not within the scope of this proposal. In terms of withdrawing treasury assets, that can be done at anytime since funds are able to be withdrawn from the pool at anytime.

2 Likes

I’ve had positive experiences with GMX thus far and would expect the same with Mycelium/Tracer’s product. Adding another market for BAL sounds good to me. Earning return on BAL whilst not selling it sounds great. In favor.

6 Likes

I am also in favor of this proposal. Risk/reward for the requested BAL amount is reasonable.

2 Likes

This is a sound proposal with a safe way to expose the treasury to couple more assets, which is great, esp without having to sell BAL.

I get the reasoning behind not needing an audit, but its better to be safe than sorry. Regardless, we are in favor. Link to the GMX audit too.

1 Like

https://snapshot.org/#/balancer.eth/proposal/0x5c12d1838c1a873eab1beabc406940999c97cfff2564d967f8f4a385a6e7a021