ParaSwap Safety Module — Liquidity Component 🛡️🌊
Making sure ParaSwap is as secure as it could be is a prime objective, both for the team and the DAO as it helps to ensure the long-term sustainability of the protocol and bolster confidence in ParaSwap for the many integrators using the service.
ParaSwap’s current Safety Module is already pioneering, yet we think that with the support of the DAO, it can be further developed to increase safety even further while also growing PSP’s liquidity.
First, let’s have a look at the current Safety Module, with two layers:
- 🛡️ Safety Module — External Insurance: the $30M Unslashed Finance insurance, covering ParaSwap and PSP staking contracts.
- 🛡️💱💸 Safety Module — Platform Fees: the fees ParaSwap collects (positive slippage and integrations) used for audits and anything need for the long-term safety of the protocol
Please read this documentation page carefully if you’re not familiar with the current ParaSwap Safety Module structure:
This proposal aims to introduce a third layer to the Safety Module.
🛡️🌊 SAFETY MODULE — LIQUIDITY COMPONENT
Here are the base specifications for the third component of the Safety Module:
- It will accept Balancer LP token for the 80% PSP / 20% ETH pool.
- Any users who own this LP token will be able to stakelock them to earn PSP rewards.
- To withdraw the LP tokens, a 14 days cooldown period (duration of an epoch) is required.
The PSP required will be supplied from the Ecosystem Reserve. The goal is to grow the liquidity component of the safety module to $5M TVL within a month of its release.
The liquidity component draws inspiration from Aave’s Safety Module, a pioneering solution to increase safety and liquidity simultaneously
PROPOSED BUDGET = 1.25 M PSP / 3 months
Provided by the Ecosystem Reserve if the proposal passes.
To that end, a budget of 1.25M PSP tokens for the first 3 months is proposed: it’s up to the PSP holders and stakers to decide. After the first 3 months; the program can be revised to reduce or increase the budget, or even cancel if deemed unnecessary.
What are the benefits for PSP and the ParaSwap protocol?
- The proposed design adds a layer to the safety module, providing more funds to compensate if a failure was to occur. If that were to happen, stakers can be slashed up to 30% to help support the refundment.
- Besides, the choice of 80/20 Balancer pool provides additional benefits, by offering a solid earning opportunity to long-term PSP bulls confident in the safety of the protocol.
- The liquidity component will help develop and diversify the liquidity on PSP, offering an alternative exchange and ratio that the current most widely used 50/50 (Bancor or Sushi) or Uniswap (range-based).
What happens if the proposal passes.
- Balancer pool setup | Creation of the 80% PSP / 20 % ETH pool + petition Balancer DAO for PSP whitelisting (-> extra BAL incentives)
- Staking contract | Deployment of the Balancer PSP/ETH LP token staking contract, including the cooldown period logic & claim mechanism for PSP rewards.
- PSP Budget allocation | The 1.25 M PSP budget from the Ecosystem Reserve is allocated to the reward contracts.
- Staking interface | Addition of a page on ParaSwap.io to enable users to interact with the SM Liquidity Component contract: users can stake their LP to earn PSP.
- New responsibility for the DAO | SLASHING WILL NOT BE ACTIVATED AT RELEASE. The DAO can enable it with another vote once the pool is sustainable.
To discuss this proposal, join the community on Discord: https://paraswap.io/discord
If you hold or stake PSP tokens, you can vote on the proposal on snapshot.
NEXT STEPS FOR THE SAFETY MODULE
Forward-thinking considerations for further proposals related to the Safety Module.
During the last community call, we discussed a potential improvement of the model for the Safety Module — Platform Fees, enabling the top farmers from the ParaSwap community to make these assets productive! This is not part of this proposal.
> The envisioned infrastructure for SM — Platform Fees will be submitted to the DAO to be validated with an upcoming vote. Feel free to reach out if you have any suggestions.