PR with Payload
Introduction
Earlier this year, governance has approved to deploy Balancer on Avalanche
After a bootstrapping phase where an initial set of gauges was added the deployment is now at a much more mature state with approximately $7mln in TVL and $400k in daily trading volume. Furthermore, BAL emissions are flowing to major AVAX LST pools that are also part of our core pool framework. However, currently, no deep liquidity exists for BAL to trade with on Avalanche.
Motivation
Given the lack of BAL liquidity on Avalanche, we propose to seed $100k in BAL/WAVAX liquidity in a 80:20 pool on Avalanche so that protocol participants can trade against a core pair. This liquidity will be provisioned from the DAO treasury on mainnet. Funds will be bridged to Avalanche and deposited to a newly created BAL:WAVAX 80:20 pool.
At the time of the writing of this proposal, approximately $5k worth of BAL is emitted every day on Avalanche gauges. Therefore, a base liquidity of at least $100k is sufficient to provide a solid trading pair without too much slippage.This core liquidity pool will help participants to trade against WAVAX and therefore reduce friction of non-existent BAL liquidity. This measure should therefore improve UX for LPs and autocompounders significantly.
Examples of provisioning of 80:20 pools for other assets like Aura showed success on deployments like OP: Beethoven X | AURA VILLAGE
Risk Assessment
Following risks may arise when provisioning liquidity on AVAX:
- Incurring losses while trading or provisioning liquidity
- Incurring impermanent loss by providing BAL against a non-ETH related asset like AVAX.
Incurring losses while trading or provisioning liquidity
As the DAO doesn’t hold any WAVAX liquidity, it needs to trade it on the open market. We suggest that USDC shall be traded by the LM Multi-sig on Avax that will use aggregators like 1inch to facilitate the trade and reduce price impact from trading USDC to WAVAX. The final BPT position shall then be transferred to the multi-sig to complete the transactions
Incurring impermanent loss by providing BAL against a non-ETH related asset like AVAX
One of Balancer’s core strengths is to provision a 80:20 pool to reduce IL. To demonstrate,
we can sketch out certain extreme scenarios where AVAX price would appreciate much more compared to BAL price. In such a scenario, we would incur so called impermanent loss on our position which describes the loss of value of the underlying assets in the pool compared to when the assets were simply held. We can use a tool like our IL calculator Balancer Tools to simulate following scenario:
| Token | Price start | Price End | Difference (%) |
|---|---|---|---|
| BAL | 4 | 6 | 50 |
| AVAX | 35 | 100 | 185 |
Given this scenario for an investment of $100k we would incur IL of approx 3.7%. It is safe to assume that this pool will get at least 5% of trading fee rewards, which would negate any impact of IL.
Source: Balancer Tools
We therefore conclude that IL always plays a role but should not affect any significant losses to the DAO in this configuration.
Technical Specification
The Balancer DAO Treasury Multi-sig 0x10a19e7ee7d7f8a52822f6817de8ea18204f2e4f will send 20,000 USDC and $80k USD worth of BAL (real amount at time of writing) to the Maxi LM Multisig 0xc38c5f97B34E175FFd35407fc91a937300E33860 which will bridge the funds to the LM Multisig on AVAX: 0x326A7778DB9B741Cb2acA0DE07b9402C7685dAc6 using Stargate Finance bridge via WalletConnect.
After funds have arrived on Avalanche, the LM multi-sig on Avalanche will trade $20k USDC to WAVAX on 1inch.
A total of approx. $100k of BAL and WAVAX will be deposited into pool 0xa39d8651689c8b6e5a9e0aa4362629aef2c58f55
Finally, the BPT token will be transferred to the DAO Multi-sig to complete the transaction.