Thanks to #chutoro (chutoro#8759) for preparing the document.
AMMs of choice
Option A: Balancer
SILO-ETH pool is now whitelisted
- The pool will offers incentives for LPs in the form of BAL emissions. We can expect 200 BAL/week up to 1000 BAL/week upon meeting TVL targets
- Offers oracle solution for our own Silos
- Can consider adding lending markets for BPT (Balancer LP Tokens) which benefits both our projects
Option B: Bancor
When you stake any token on Bancor that isn’t BNT, the protocol will mint BNT on the other side of the pool to match your stake. This BNT is protocol-owned and accrues fees for the protocol, which are then used as one of the ways to pay for impermanent loss.
There is a per pool limit to how much the protocol can mint though, as to not allow infinite single-sided space. The limit allows the DAO to control how much BNT the protocol can mint to match single-sided stakes, and is called the trading liquidity limit.
To be accepted in Bancor V3, $SILO needs to be whitelisted first. A draft proposal to whitelist SILO is being prepared.
If whitelisted, $SILO token holders can stake SILO and earn trading fees without incurring impermanent loss (IL).
According to the proposal, the pool will have a 50k BNT trading liquidity limit which will allow 50k BNT worth of SILO space to be staked. If the pool is full, it should have at least 100k BNT worth of liquidity (SILO+BNT) — That’s ~$250k.
We can increase the trading liquidity limit in the coming weeks.
Option C: Curve v2 (+Convex)
- LPs earn CRV emissions based on gauge weights voted on by CRV/CVX holders (essentially incentivizes LPing by boosting net APY)
- Voting on gauge weights typically requires paying bribes OR owning CRV/CVX directly
This is one of the more interesting solutions. CVX as a treasury asset generates cash flows in the form of bribes. If we end up buying CVX with treasury funds (instead of bribing), we could increase gauge weights to a $SILO Curve v2 pool and then deploy liquidity from the treasury to this pool and earn CRV on top of transaction fees.
Curve is also an option for Silo’s stablecoin (USDs) if we choose to allow it to be used externally to the Silo protocol — I think this may end up being something that is necessary if we want to deploy yield strategies on Silo that are competitive with other platforms in terms of capital efficiency.
Proposed Solution
Our choice of AMM is not necessarily mutually exclusive — each one has its own merits in terms of time to implementation, IL protection, investment requirements, and future integrations.
We can consider the time-frame of each AMM choice and act accordingly:
Short-Term
Balancer SILO-ETH pool has already been whitelisted and should begin emitting BAL rewards soon. This option has not required any capital investment from Silo although we will need to wait and see whether the BAL incentives are sufficient to actually attract any liquidity.
We suggest waiting for BAL emissions to start and if they are not sufficient we could consider deploying liquidity from the Silo treasury.
Medium-Term
Bancor proposal is currently being worked on. Bancor is probably more suitable than Balancer as AMM choice since it can provide IL protection and allows single-sided $SILO staking which can be deployed directly from the treasury. SILO is also paired with BNT which vastly increases capital efficiency.
This option is not immediately available and requires the proposal passing on Bancor governance.
The Long Play
At a core level, Curve v2 is not drastically different from other AMM options in providing a market for us to deploy treasury funds to and allow traders to trade our token with the lowest possible slippage. What sets Curve apart is its ability to also set up markets for $USDs when it eventually comes to fruition which will allow it to be used as an external unit of account — this allows our lending strategies to be directly competitive with other lending platforms.
The key to the Curve ecosystem is CVX which controls the vast majority of CRV voting power which is necessary to direct liquidity to pools to incentivize liquidity. I would like to recommend investment into CVX to allow SILO the ability to direct gauges towards $SILO AMM liquidity as well as $USDs liquidity in the future.
If other members of the community are not supportive of this — or at least not until USDs is online — it is understandable. To me, it is just a solution that addresses an immediate problem ($SILO AMM liquidity) as well as a future problem (Externalization of $USDs)
In any case some amount of funds will need to be deployed from the treasury to create deep liquidity (either directly or via another Liquidity Solution discussed in the previous post). Each of these 3 options have their own unique benefits and trade-offs and are excellent AMM solutions.
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