Over the past few months, the smart treasury has seen an inflow of ~100 WETH which has been used to buyback IDLE and increase the treasury holdings in $IDLE while also providing on-chain liquidity.
The smart treasury has also seen its share of trading activities, with 900 trades to date, however, it would seem that majority of this activity is due to arbitrators between other DEX’s.
I think that if we added a stable coin to the smart treasury it will add a number of benefits to on-chain liquidity, and for trading activity. Currently, the IDLE-DAI pair across balancer, Sushiswap and Uniswap have combined on-chain liquidity of ~100K.
I propose that we update the smart treasury with the following distribution 80/10/10 : IDLE/WETH/DAI.
This is equivalent to having the following weights for each pair:
88/12 : IDLE/WETH
88/12 : IDLE / DAI
This weighting makes trading IDLE / DAI possible with less slippage than on any other exchange. In addition to this, introducing a stable coin / idle pair means that price volatility in either IDLE or DAI results in greater trading fees for the treasury from arbitrators.
Additionally adding a WETH/DAI pair means that more trading activity with the pool as this is a major trading pair.
What does the community think of this suggestion?
Is there a preferred stablecoin to use (DAI?, USDC?, other?)
Does the weighting make sense?
(At this point this is just a suggestion for the community, technical implementation would follow based on the discussion)
When bootstrapping Smart Treasury, ETH was chosen to avoid excessive IL, but stablecoin was close second. With ST pool on track to reach its 90/10 target on April 12th, now is a good time to throw a stablecoin into the mix and capture those IDLE/USD trading fees.
Also, Idle governance would benefit from some non-volatile assets at its disposal; budgeting and paying in IDLE or ETH can be inconvenient.
On the question which stablecoin to choose, there is a risk-based answer (DAI) and a fee-based answer (USDC).
Following up here – thanks @8bitporkchop for bringing this up, I’m personally in favor of reviewing Smart Treasury performance and adjusting weights.
Got a bit into it, and I have a couple of considerations where I’d like to hear some feedback.
Reducing slippage is ideal, but how much slippage reduction are you expecting with an equivalent 88/12 compared to the current 90/10?
According to the slippage chart here, we shouldn’t see a substantial change for IDLE/WETH, for IDLE/DAI (or IDLE/USDC) yes it’d be the most liquid market (after bootstrapping DAI/USDC to 10% weight) so we can expect a lower slippage relative to other DEXs, and a 50/50 WETH/DAI could potentially increase trading volume and swap fees returns for the smart pool. Seems we have a good balance of benefits to me!
As IDLE is potentially more correlated to ETH rather than a stablecoin, we could expect a higher relative price change thus a higher IL. What’s your view on impermanent loss with an 80/10/10?
I concur with @idal that having stablecoins would be beneficial for treasury diversification and increase Idle working capital. You expect more volumes with USDC (fee-based choice), right? If our goal with this addition is to increase Smart Treasury profitability, I’d say USDC would make more sense looking at historical volume.
Also, I wanted to share with our community this interesting simulation environment for Balancer pools:
This is really insightful feedback, and I want to throw in some opinions to some of your considerations.
The weight difference between the two is negligible. However it would be a good starting point. If this weighting was implemented, a future improvement could be to update the weights to 60/20/20, or something similar to reduce slippage even further.
Impermanent loss would be increased with these weights, since we throw a stable coin into the mix, the relative price of the underlying tokens will diverge, however this is mitigated in two ways.
The low weighting of stable coins and ETH mean that impermanent loss is mitigated (refer to balancer medium post)[but at the cost of higher slippage]
Trading activity would increase by introducing a stable coin, which would offset impermanent loss over the long term.
I agree with the reasoning for USDC, though I would like to raise some points in favour of DAI for the sake of argument. DAI is decentralised coin compared to USDC which is centralised. DAI is not upgradable, while USDC is. DAI has a more vibrant ecosystem in DeFi, though USDC is a very close second.
My 2 gwei: Either choice for USDC or DAI would serve the purpose for this proposal, I would agree that USDC would expect to see more trading volume, however I prefer the idea of using DAI as the stable coin mainly due to its decentralised nature, which is alike to IDLE, which itself is a decentralised protocol.