After discussions with Sommelier, Bunni and Liquis, the following liquidity strategy for GHO on Uniswap v3 is put forth to the committee.
Uniswap v3 Target TVL and Strategy Update
The following details the joint Uni v3 strategy:
- $1M to $2M TVL in a Bunni / Liquis position
- $5M to $7M TVL actively managed narrow ranges via Sommelier’s Turbo GHO vault.
This allows Bunni to provide a liquidity backstop that supports the GHO peg while Sommelier’s Turbo GHO vault provides a deeper narrow range that dynamically follows GHO’s price.
During the initial stages, I am supportive of having a higher APR, even overshooting to attract TVL before then tapering the APR over time to a defined target level. This is due to the non-linear deposit elasticity towards incentives, meaning that it is easier to generate deposits by overshooting initial APR forecasts followed by a decrease, rather than launching with a low APR and subsequently increasing the APR to attract new deposits. A high APR when initially bootstrapping the vaults/strategies is the lowest risk strategy for reaching a desired TVL target.
This comment will focus on the Sommelier strategy, with further details on the Bunni and Liquis strategy to be provided at a later time. If a news ARFC is required to amend the liquidity strategy, please comment below.
Turbo GHO Vault
The Turbo GHO Vault actively manages GHO liquidity to help restore the peg. During a typical week, the liquidity ranges are dynamically adjusted 3-4 times per week, subject to market conditions, and the current positions can be viewed here. For further details on Turbo GHO, please refer to this publication.
To give an illustrative example of how tight the ranges Turbo GHO is quoting on an average day, on Sept 27, the vault was quoting $1.65M (85% of its LP) in the range of $0.9769 - $0.9806 while the GHO price was $0.9799. When the GHO price goes up and price moves out of the range quoted by the vault, the vault buys more GHO and moves the LP range up.
If price moves the other direction, the vault can loop wGHO on Aave and speculate GHO trending towards repeg whilst providing a smaller amount of liquidity, subject to market conditions. The critical point, the Turbo GHO vault dynamically tracks GHO’s price by intelligently rebalancing 3-4 times per week to provide efficient, deep liquidity.
For Sommelier’s Turbo GHO vault at $5M TVL, we estimate a total yield of ~13% which is comprised of GHO incentives providing ~5% yield, SOMM co-incentives providing ~5% yield and base yield generated by the vault to account for ~3% yield. A request for SOMM co-incentives for Turbo GHO was published on the Sommelier governance forum and has since been approved by the Sommelier community.
The Sommelier team is to commit 540,000 SOMM incentives over the next 3 months if the Aave DAO contributes the equal, or more, USD value in GHO incentives. With SOMM trading at 12 cents, this is equivalent to 64,800 units of GHO. The rate of GHO rewards for Turbo GHO can be adjusted every 7 days to scale with TVL to help maximize efficiency.
A minor yet relevant technical detail regarding SOMM rewards distribution, @MatthewGraham has been added as a signer for Turbo GHO incentives in the multi-sig wallet.
The Sommelier team is currently in the early stages of discussing integrating the Turbo GHO Vault into the OKX yield platform.
Update provided by @MatthewGraham from @TokenLogic with support from the Sommelier team.