UMA’s Liquidity Mining Pilot — Retro and Rollover
The Risk Labs liquidity mining pilot ran for four weeks and at its height attracted $20mm in locked Ether. This pilot was designed to test the effectiveness of liquidity mining UMA’s synthetic assets.
This pilot aimed to measure the degree to which liquidity mining would:
- Bootstrap synth liquidity and
- Distribute tokens to people who will contribute to governance.
Results
The program was successful at bootstrapping synth liquidity.
Each week, liquidity providers were airdropped 25k $UMA tokens for providing liquidity for the yUSD-SEP20 token on Balancer.
The APR for providing liquidity varied greatly over time due to the other opportunities in the market that drew capital away from this particular opportunity.
Notably, between August 11th and 12th, the total locked wETH in UMA’s yUSD contract fell 30% drop due to the launch of the Yam Finance protocol, which was offering APR returns in the tens-of-thousands.
At this time, the price of yUSD swung up as high as $1.09. The community speculated that some users were wiling to pay a 6–9% premium to repay their debt and rush their WETH into farming the YAM token.
The cost Risk Labs had to pay for each million dollars of liquidity varied for this reason. The above three-week graph shows the daily cost-of-liquidity in red. It varied from under $1000 per million attracted up to $4,500 per million. This was due to the turbulent cost-of-capital as well as due to an increase in the spot price of the $UMA token. The total number of $UMA tokens awarded remained constant, but the token price increased consistently during the pilot.
It is not yet possible to determine how effective the program is at increasing governance participation on-chain. There have been no votes.
A proxy for this is how sticky the $UMA tokens were after being distributed. However, this may only indicate that the recipients are holding as an investment and have no interest in governance. $UMA rewards were sold by liquidity miners at these rates:
Week 1 — 25%
Week 2 — 52%
Week 3 — 36%
Each week’s totals are based on a sale over the following week. It is possible that future liquidity mining programs will include some incentive to hold or a transfer restriction.
The liquidity mining pilot led to an influx of new members into the UMA community. Many asked questions about how expiring tokens work. The result was a core community that learned the system well enough to explain it to newcomers. From a mindshare and education perspective this was a valuable outcome.
Risk Labs has decided to continue the pilot by offering liquidity rewards on a new yUSD token. This yUSD-OCT20 token expires on October 1st, 2020. The liquidity mining program will run the lifespan of this token, and will continue to provide 25k $UMA per week.
Rollover Plan — yUSD-OCT20
The existing yUSD-SEP20 token expires at the stroke of midnight, August 31st. In order to encourage existing liquidity providers to redeem their yUSD and move to the new pool, Risk Labs has scheduled the following actions:
- August 24th, 23:00 UTC: Liquidity rewards begin on the yUSD-OCT20 Balancer pool
- August 28th, 23:00 UTC: Liquidity rewards end for the yUSD-SEP20 Balancer pool
- August 31st, 24:00 UTC: The yUSD-SEP20 token will expire
See these events in the UMA Protocol calendar.
There is a 96-hour overlap in calculating rewards, between August 24th and 28th, when rewards will be accrued on balances in both pools together. This means that 1 token in the SEP pool would earn exactly the same amount as 1 token in the OCT pool.
Rollover Steps for Sponsors who Minted yUSD
For those who have minted yUSD, these are the steps to roll into the new pool:
- Withdraw your liquidity from the SEP Balancer pool — So so in the same fashion you deposited: Either all as yUSD if you did a single-asset deposit, or as yUSD and USDC if you deposited in equal amounts. You want enough yUSD to repay your loan.
- Visit tools.umaproject.org and follow the minting guide, except choose “redeem” instead of “create.”
- Repay all of your yUSD debt to the exact amount. If your balance is off you may need to swap some USDC to yUSD.
- Withdraw all of your collateral.
- Repeat the steps in the guide to mint yUSD, this time for the yUSD-OCT contract.
- Navigate to the yUSD-OCT20 Balancer pool and deposit your yUSD-OCT and USDC.
Rollover Steps for Farmers who Purchased yUSD
For those who have purchased yUSD from the pool, these are the steps to roll into the new pool:
- Withdraw your liquidity from the Balancer Pool. You can withdraw as a single asset, USDC, and that will automatically sell your yUSD back into the pool.
- Navigate to the OCT Balancer pool and deposit your USDC, which will auto-purchase the yUSD-OCT token in equal proportion.
Please note that when you deposit or withdraw a single asset into a Balancer pool you should be mindful of the trading price. The prices of the assets will fluctuate with the market. When you withdraw pure USDC, you will be selling your yUSD-SEP20 tokens, so you would like a higher price of yUSD-SEP20.
Conversely, when you deposit pure USDC into the OCT pool, you will be auto-purchasing yUSD-OCT20 and would optimize for a lower price. A four-day window should give you sufficient time to avoid any temporary liquidity crunches.
A Note About Expiry
During the price request period, which will last four full days from Sep 1st through the 4th UTC time, all contract functions will be frozen. Sponsors with outstanding yUSD and locked collateral will be unable to redeem or withdraw. The rollover has been designed in such a way as to incentivize farmers to roll capital into the next pool for this reason.
Links
yUSD-OCT20 Balancer pool
yUSD-OCT20 on CoinGecko
Minting and position management
Farming Guide
UMA Protocol calendar
