The settings for the SPOT-USDC pool of the Arrakis vault is only covering the range $1.1367 - $1.1854.
Currently, that is around 80k USDC per 0.6% increments:
And then it’s suddenly dropping to 4.6k USDC per 0.6%:
This has the consequence of SPOT becoming extremly volatile outside the 5% band due to lack of liquidity.
With the stAMPL vault v2 around the corner, and the expectation of AMPL-SPOT arbitrage going to happen, I believe this setting should be reconsidered.
The liquidity range should be adjusted to cover a broader range and moved upwards to account for the price target adjustments that have happened since the creation of the vault.
The current AMPL price target of $1.175 is almost outside of the current SPOT-USDC range.
I propose the settings to be adjusted to cover AMPLs neutral rebase zone entirely. This would bring the liquidity range up from 5% to 10%.
New proposed Arrakis setting:
$1.116 - $1.234
The consequence would be that in the neutral zone SPOT would become a bit more volatile, but it would also become more stable on the outer parts.
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Bonus:
I’m not very knowledgable about the possible settings of the Arrakis vault, but ideally there should be a 2-tiered liquidity setting.
Most of the liquidity to cover the neutral zone and a smaller part to cover the edge zones.
Currently, there is only 70 USDC per 0.6% in liquidity above $1.28 price!
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Yes thanks for bringing this up @Togenkyo. I totally agree, but–in advance of the v2 rollout–I would advocate for an even wider band. Ideally, the vault should have coverage for 90-95% of the historical AMPL price distribution, or perhaps more since the market is still small, plus headroom on the topside for future dollar inflation.
This doesn’t preclude also having an inner band with a configuration more closely matching the neutral rebase zone as you suggest. Such a band could attract more volume because of its concentration, but it could also come with more risk of IL if rebalances are needed in the future.
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I’m totally open to that.
The suggested range came more from the assumption that the initial configuration was set because of a high priority for price stability.
When we talk about 90-95%, are we talking about percentiles as was the case with the configuration for AAVE? Meaning “time spent”.
At that time the 95% percentile was around 5% rebase, so that would be around a 20% range for SPOT.
As we spread liquidty over a wider range, the overall volatility of SPOT would increase.
With current liquidity, the density per 0.6% for every range would be:
10% / 20% / 40%
40k / 20k / 10k
This has some pros and cons, like more arbitrage opportunities maybe leading to more minting of SPOT and higher volume, but also might hurt the image of SPOT being a flatcoin, should volatility become too high.
However, if we are able to attract a lot more of new liquidity, this wouldn’t matter anymore.
Regarding the inner band and outer band. Wouldn’t that require a second vault?
There would also be the option to keep a tighter range for Arrakis and tap into the DAO treasury to cover liquidity for the outer bands.
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