Hey guys, I’m the co-founder of Popcorn and wanted to share this proposal we submitted to our community to deposit $3.7M of Popcorn’s Treasury into Anchor and use the yield to donate to our charities as well for POP buybacks. Just wanted to give a shout out Anchor because we did our DD on UST and Anchor and decided albeit an aggressive move, its the right move.
Background
Author: Anthony D Martin, Founder
The Popcorn ecosystem is currently undergoing some challenges with respect to liquidity mining incentives and dex liquidity that are affecting price action. Liquidity mining incentives drive market sell orders from liquidity providers that are looking to take profit with Popcorn’s newest product, Butter. Meanwhile, the current levels of liquidity within Ethereum/Polygon markets create unfavorable slippage and price impact conditions for all buy and sell orders. Popcorn currently has liquidity on two exchanges: Uniswap V3 (Ethereum) and Sushiswap (Polygon). The slippage conditions on these markets discourage a more liquid market because both buyers and sellers get unfavorable swaps and the price impact of trades is typically quite high. Additionally, the impact that sell orders have on the price is magnified because of the lower levels of liquidity. This proposal seeks to address these issues in four parts:
- Phase 1: Uniswap V3 Simulations
- Phase 2: Shift, augment and concentrate liquidity
- Phase 3: Ongoing buybacks via Anchor
- Phase 4: Consolidate liquidity
Treasury snapshot
The current amount of USDC held by the Popcorn treasury not currently deployed to exchanges is 4.36M USDC. [2,030,443.889 USDC on Ethereum ]and [2,329,582.37 USDC on Polygon ]
This proposal would allocate 700K (16%) of the USDC in the treasury to be used for adding additional liquidity on POP/USDC markets, and the rest would be used for token buy backs funded by stablecoin yield-farming gains.
Phase 1: Uniswap V3 Simulations
The first phase consists of running slippage and price impact simulations when the existing protocol owned liquidity is concentrated within a tighter range on Uniswap V3 (Ethereum). Using Gelato, we are able to create automated concentrated Uniswap V3 positions which may positively affect the current slippage conditions.
The purpose of Phase 1 is manifold. Firstly, the results of the slippage simulations with different configurations of concentrated liquidity will help to determine a more optimal allocation of capital with greater capital efficiency. This means that potentially less capital from the treasury would be required to mitigate the slippage and price impact conditions. Phase 1 would also prepare for Phase 2 and Phase 4 which would ultimately lead to consolidating liquidity into one market within a concentrated band.
Estimated completion time : Already completed
Phase 2: Shift, augment and concentrate liquidity
The second phase consists of augmenting the liquidity on both the Ethereum and Polygon markets. With respect to the Polygon Sushiswap market, this phase would additionally involve migrating liquidity to the recently deployed Uniswap V3 on Polygon. During this phase, approximately 700,000 USDC would be added across both exchanges via market orders, followed by the implementation of concentrated liquidity positions. The intended result is that slippage and price impact for both buy and sell orders would be reduced significantly by adding additional liquidity and concentrating it within a smaller range. At the same time, all token holders would benefit from the significant market orders.
Sushiswap (Polygon)
The additional liquidity to add to the Sushiswap pool via market orders will be 350k USDC. Because Sushiswap lacks the ability to concentrate liquidity within ranges, during this phase, the liquidity on Sushiswap will also be migrated to a Gelato Uniswap V3 position managed by the core team. A new staking contract will be deployed to incentivize liquidity on this new exchange, and existing liquidity mining rewards will be rerouted to this new staking contract. Users currently providing liquidity will have to withdraw their LP tokens and deposit them in the new exchange to continue to take advantage of liquidity mining rewards.
Estimated completion time : Within 2-3 weeks of proposal passing.
Uniswap (Ethereum)
The additional liquidity to add to the Uniswap V3 pool via market orders will be 350k USDC.
Furthermore, the ownership of the Ethereum Gelato Uniswap pool would be transferred to a multi-sig controlled by the core team. This would allow for automated administration of the Uniswap position to reallocate capital within new ranges as the price changes. This again would lead to greater capital efficiency with reduced slippage and price impact.
Estimated completion time : Within 2-3 weeks of proposal passing.
Phase 3: Ongoing buybacks via Anchor
The third phase of this proposal seeks to use the remaining treasury funds to fund a 6-month buy back program and a non-profit grants round. The program would consist of depositing 100% of remaining treasury funds (approx. 3.66M USDC) into Anchor protocol on the Terra blockchain. The current 19.5% APY would be used to fund market buy backs of POP. This would yield approximately 356,000 UST for POP market orders - of which 10% would be donated for use in the inaugural Popcorn grants round. This program would supplement the current liquidity mining program with capital to support profit taking as Popcorn products gain more traction.
Phase 4: Consolidate and Concentrate Liquidity
The fourth and final phase of this proposal will consist of consolidating all protocol owned liquidity into a Uniswap v3 pool on Polygon using Gelato’s Uniswap manager. Moving all liquidity to one market would lead to even greater capital efficiency. This phase is tentatively suggested and would be voted on separately in Q3 2022 after observing the impact Phase 2 has on the existing markets. If the resulting impact of phase 2 is satisfactory, the benefits of Phase 3 may not outweigh the benefits of having multiple liquid markets, and for that reason, it is proposed that Phase 3 be considered in a later vote with more details to be provided at that time.
Conclusion
Through adding additional liquidity and identifying more optimal Uniswap V3 capital allocation strategies, Popcorn will have a less volatile market with reduced slippage and price impact for trade sizes of varying magnitudes. The total amount to be added in liquidity will not exceed 700k USDC and would represent roughly 16% of the USDC in the treasury. The token buy back program funded through the treasury yield-farming strategy puts the treasury capital to work for the benefit of all token holders while advancing Popcorn’s philanthropic goals.
