Ampleforth should acquire Protocol Owned Liquidity on Eth Mainnet

Ampleforth Governance
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Introduction

I would like to start a discussion about whether the Ampleforth Protocol should acquire Protocol Owned Liquidity (POL) and how this could be done.

Context

  • The Ampleforth Whitepaper states on page 16:

The Supply Policy, Oracle […] modules will be depolyed only once, on the chain with the highest level of decentralization […].

  • In recent Office Hours (09.02.2022) @Brandon stated (link):

Our oracle does not report in price data from satellite chains, and I think that’s the best structure since it minimizes exposure of the core protocol to particular bridges.

I’ve been thinking a lot about how protocol owned liquidity can be useful for FORTH & AMPL. Over time, I am of the opinion the Forth DAO should own a reasonably sized AMPL-USD liquidity position (univ2/balancer).
This accomplishes 2 things,

  1. Force correlation between FORTH and AMPL
  2. Liquidity pool exists as a public good which and the twap from that pool could be used as a decentralized input the ampleforth price oracle. It could directly plug into the oracle as another provider. Or we could consider the compound model where the AMM price is used as a anchor price and prices reported by other centralized providers can only deviate as much as a pre-defined percentage of the anchor price.

  • An OpenZeppelin post about the dangers of price oracles explains the concept of anchor oracles.

  • An outage of the Meter bridge leading to the Ampl secured by Meter token on the Avalanche chain being behind with rebases.

  • Discussion about the unclaimed FORTH tokens here.

Reasons to acquire POL

Ampleforth should acquire AMPL-USD (e.g. USDC, DAI, A-Tranches ?) liquidity for the following reasons:

  • As the price of Ampl on Ethereum mainnet has the most weight for the Supply Policy, the Ampleforth Protocol has direct interest in making sure that there will always be deep liquidity.
  • AMPL:USD liquidity could be used as an anchor oracle, i.e. defining a price band for the oracles.

Realization

Ampleforth could acquire liquidity by selling FORTH tokens. This could be done in many different ways, e.g.

  • Using OlympusDAO like “bonding” mechanisms
  • DCA buying liquidity through the Geysers
  • One-time trade to a USD token, pairing that USD with Ampl from the treasury and providing that as liquidity.
  • etc…

I would argue a DCA strategy realized through the Geyser would be preferable.

What are your thoughts? Should Ampleforth acquire POL? If so, how? If not, why?

3 Likes
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What about DCA selling FORTH for AMPL and USDC via the Balancer V1 smart pool? We already have a USD(ish) pair and a geyser for that, so it benefits existing liquidity providers. Also the upcoming balancer V2 usd-ampl pair could be used in the future.

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Love the idea a lot.

I especially like the idea of the DAO owning a reasonably sized liquidity position in AMPL-USD
(I would propose DAI for that, as it’s still the most decentralized one out there)

I think it’s very important to grow the AMPL-stable pools. The bigger those pools get, the less correlated AMPL will be to the rest of the Crypto Market.

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Not sure if I understand your point correctly.
Are you suggesting selling FORTH in the open market for USDC and providing that as liquidity to the BAL smart pool?
The benefit for the liquidity providers would be indirect through the trading fees, right?

I thought more in the direction of buying the BAL smart pool liquidity directly from the Geyser participants if they wish so.
This way, Geyser participants could decide between increasing their say in the protocol, i.e. acquiring FORTH, or continue participating normally in the Geyser and increasing their AMPL holdings.

FORTHs price would also not be impacted (too much) with this mechanism, as most frens selling their AMPL-USDC liquidity would most probably not dump the FORTH directly. Does this makes sense?

This is a very good point! :100:
While I think we should not wait too long, as I imagine as soon as (w)AMPL is bridgeable to L2s (Arbitrum, Optimism, etc) the mainnet liquidity will start to dry up (especially if there will be a Geyser), it could definitely be worth waiting for the new pools as well!

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:partying_face: :four_leaf_clover: :rocket:

I agree. The USD liquidity seems to be the most important one.
USD liquidity is important to enabling the “stable long term contracts”. While the contract denomination would be in AMPL, most people will probably trade the borrowed AMPL directly for USD to get out of AMPLs volatility.

However, AMPL-ETH liquidity could also be beneficial. Acquiring a reasonable-sized ETH stack, in the long run, would obviously help in paying the rebase/Orchestrator fees. This liquidity could still be used for the anchor oracle through ETH:USD oracles.

:100: Diversifying the USD liquidity by using different stablecoins is definitely a worthy goal.
DAI also successfully managed to decrease its dependency on USDC lately.

While it’s still early for Mooncake, would it also make sense to discuss A-Tranches in the long run?