Geyser Refresh for January 23rd, 2023

Ampleforth Governance
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The current wave of geysers are set to expire on January 23rd, 2023. Building on the previous discussion on geyser structure, I propose moving from 4 geysers spread across two chains to two geysers on Ethereum Layer 1, refocusing on AMPL/ETH and SPOT/USDC.

About the Geysers

The AMPL Geyser distributes AMPL tokens from the ecosystem fund to those who provide liquidity on decentralized exchanges.

The motivation of the geyser project is two-fold. First, it helps distribute the Ecosystem fund out into the world in a sensible, permissionless, and predictable way. And second, it distributes to those who contribute to the health of the AMPL ecosystem.

It was announced to be a 10 year program, with emissions roughly following Bitcoinā€™s emission curve. You can learn more here. However, itā€™s still within the DAOā€™s control to change or modify this program as it sees fit to keep up with the evolution of the marketplace.

Overall Thoughts

Now that SPOT is soft-launched, itā€™s a good time to revisit the Geyser configurations to best optimize AMPL, WAMPL, and SPOT liquidity to work well together.

Long term, there is a general consensus building that a small number of deep pools, combined with liquidity owned directly by the DAO is the best direction to move toward. Platforms like PALM from Arrakis are promising avenues to explore for acquiring the matching pair tokens (i.e. USDC) for the AMPL and SPOT. Using SPOT as the geyser reward token provides predictable, ā€œrealā€ yield for LPs while allowing the DAO to maintain exposure to the AMPL in the Eco Fund.

Proposed Configuration

Background:

  • Original EcoFund carveout was 23.5% of network
  • Forth DAO Treasury owns 5,133,813 AMPL, so 42.34% of original EcoFund carveout is liquid
    (not counting the 412K AMPL and 498 ETH in Uni v2 and 130K AMPL in Mooniswap which will be reclaimed)
Geyser Platform Pair Chain SPOT Amount
Beehive v5 Uniswap v2 ETH/AMPL Ethereum 75,000 SPOT
Fly Pilot Uniswap v3 SPOT/USDC Ethereum 10,000 SPOT
Total 85,000 SPOT

Mechanics

The SPOT geyser on Uniswap V3 will require tokenizing concentrated liquidity positions. This will be done through a new vault on top of Arrakis.

The onchain proposal will include enough from the DAO treasury to mint the required amount of SPOT, while the Z-tranches still be owned by the DAO. Simultaneously, the underlying AMPL from the aAMPL/AMPL mooniswap LP position will be unwound and reclaimed back to the DAO treasury.

In order to post the onchain proposal by the 14th, letā€™s aim to have a signal vote live by the 11th.

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Iā€™m for using AMPL as the reward token instead of SPOT!

One of the cool things about having had AMPL as the reward token was that the rewards were increasing together with supply expansions.
This didnā€™t have such a big impact for the AMPL-x geysers so far since the AMPL in those pools were rebasing too and because of that the %reward didnā€™t change much.

With SPOT-USDC however, we would have a stablecoin pool earning AMPL, which means that if we would have supply expansion the percentage rewards for LP providers would expand with it too.

This in my opinion has the potential for a positive feedback loop where people mint SPOT and provide LP to get the rewards. And when supply expands due to the increased demand, the rewards get bigger and with it the incentive to mint even more SPOT.

This potential phenomenon has been on my mind for a while and I actually did an interesting thought experiment on this a couple months ago:

If we remember Luna, they managed to draw in huge capital by offering a 20% APY on stablecoins. Luna eventually collapsed, but itā€™s important to remember how attractive 20% were for stablecoin farmers.

If the entire AMPL supply was used to mint SPOT and we were aiming for a 20% APY for the SPOT supply, that would cost 4% of the entire AMPL supply per year. The DAO currently holds around 9.5% of the entire AMPL supply.

What this means is, if we would use 4% of the supply as rewards we would create a situation where the APY never drops below 20%, even if the entire AMPL supply was used to mint SPOT. 4% per year is obviously too much and a 100% minting ratio too.

But what if we would aim for 10% of the AMPL supply being utilized to mint SPOT? Now we only need 0.4% of the entire supply per year and this is definitely affordable by the DAO with a 10 year horizon!

By using 0.4% of the supply per year(currently 221k AMPL), we can offer > 20%APY for a SPOT-USDC pool, until 10% of the entire AMPL supply have been utilized to mint SPOT. At which point, the APY would be exactly 20%.
The APY would still be > 10% until 20% of the AMPL supply are being utilized for SPOT.

This is only possible because of the rebase dynamics of AMPL.
If we use SPOT as the reward token, rewards would just decrease as more people join the pools and not grow with the expansion of AMPL supply.

I get the benefit of having SPOT as the reward token. It provides stable reward for stable liquidity which is also a good thing to have. However it also requires 5 times the amount of that in AMPL to lock into Tranches.

This is an opportunity to bet big on SPOT and incentivise the minting of SPOT properly. I think aiming for 10% utilization of the AMPL supply for SPOT is a good goal to have and it can be achieved with just 55,000 AMPL for this geyser
(0.1% of supply = 55k AMPL, 0.4% per year)

And even if we would not use AMPL, 10,000 SPOT is way too little in my opinion.

ā€“

Iā€™m in favour of using AMPL as the reward token for the potential positive feedback loop that it might bring as I explained above.

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I think the aim should not be to satisfy the risk appetite of people like Luna. The flame that burns twice as bright burns half as long. We experienced it. the price of SPOT should stay at 1.14 Ā± 5% no matter what. If I were a liquidity provider and I was receiving a more stable token as a reward, I would not hesitate to add USDC to create the pair to add more as I do not find it risky. This would be a simpler way for new participants to enter the ecosystem. It is easy to find USDC for someone new to the system, but ā€œspotā€ It may be difficult to mint. I think, letā€™s get them to meet with the first SPOT, and then others will come organically.

imo,the important thing is that when this geyser program starts,the platforms such as ā€œdefillamaā€, ā€œnanolyā€ must be displaying the apy values in order to compare the return of this ā€œstablecoin pairā€ with other stable pairs.

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I like Spot as a reward token at some point. However, given that the network is expanding now, I think Ampl is more enticing to lpā€™ers since Ampl rewards will expand with the network, while Spot will not.

While it isnā€™t a guarantee that Ampl will keep expanding, I feel that given the low supply and volume of Ampl in its current state, it is a lot more sensitive to demand right now.

Perhaps SPOT would be a nice reward - after this round? I just think it is too early right now. Spot is still a baby as well.

Also, I would also prefer a bit more rewards directed to Spot either way, right now its roughly 12% of rewards directed to the Spot pool. I would like to see at least 20%.

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SPOT/USDC should have SPOT rewards. ETH/AMPL could have either one.

I want to remind everyone that although deep liquidity is important, the SPOT/USDC Fly geyser should be kept small. But Iā€™m not sure why ā€œWeā€™ll need to balance the extra demand with the healthy growth / supply caps of the system.ā€, can @Brandon explain?

So should SPOT/USDC have SPOT rewards or AMPL rewards?

If AMPL demand goes up, the AMPL market cap goes up, AMPL rewards increase, more provide SPOT/USDC liquidity, and maybe there is more demand for SPOT. As the community knows, more demand for SPOT means more demand for AMPL.

With AMPL rewards, there is a positive feedback cycle. I believe the team wants to avoid any growth spikes, and they think slow sustained growth is healthy.

With SPOT rewards, there is no such positive feedback cycle.

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Thank you @Brandon , for suggesting the use of an Arrakis vault for SPOT/USDC Geyser Fly Pilot.

Though we have been keeping in touch with Ampleforth team for some time, now seems like an appropriate time to introduce ourselves to Ampleforth community.

Arrakis Finance

Broadly speaking, Arrakis is a decentralized and automated market-making protocol built on top of Uniswap V3. We build market-making infrastructure to help market-makers and traders execute on Uniswap with a CEX-like experience, and strategies to help projects bootstrap liquidity cost-effectively and sustainably.

Liquidity is managed via Arrakis vaults, which tokenize Uniswap V3 positions into ERC-20, hence making them fungible, composable, and therefore fit for the purpose of any type of staking, such as Geyser. When liquidity is added to a vault, vault tokens are minted and credited to the depositors. Vice versa, vault tokens are burned to redeem that proportion of the total liquidity and fees/incentives earned.

Vaults are set up and financed in a permissionless fashion. All liquidity deposited into a vault has the same position, which in this case can be either determined directly by Ampleforth or suggested by us. Trading fees generated are compounded back into liquidity positions to further grow liquidity depth.

Here are some vanity statsšŸ˜› Since launch, Arrakis has achieved

  • ~$1.7 billion in TVL at its peak, across Ethereum, Optimism and Polygon
  • ~25% Uniswap V3 total TVL
  • Over 80 projects have their liquidity managed via Arrakis vaults

General Process for Geyser

The setup process is pretty straightforward.

  • Ampleforth creates a Uniswap V3 pool for SPOT/USDC
  • Arrakis deploys 1) a vault for liquidity deposits, and 2) a gauge for storing and distributing incentives, all dedicated to Fly Pilot Greyser
  • Ampleforth sends incentives to the gauge
  • LPs deposit into the vault and stake vault token for incentives (deposit&stake can be made in one go)

Note that the proposed vault type is Arrakis V1 vault, which is a more reliable solution for LM or Geyser given its extensive in-production track record.

Apparently Iā€™m not allowed to post more than 2 links in my first post here, this is the link to our website, where you can find more information about Arrakis or contact us directly. Of course, we are more than happy to answer any questions here from Ampleforth community!

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I see a lot of valuable feedback by community members in this discussion.

If community is interested in catalyzing positive feedback loops, then that is simply one step away: conversion of SPOT to AMPL.

I think we should leverage this opportunity to spread awareness about SPOT, and get it distributed in as many wallets as possible. What happens next is determined by the Agent in control of that SPOT. So if our community would like to either directly or indirectly send messages out to the wider ecosystem about what should be done next, then that can be coordinated.

This Money is going to grow and add the most value to society when each individual learns to use it autonomously. Automated flows (such as the Arrakis Vaults - what a cool concept; Iā€™m just learning about this) can abstract away the technicalities, and the community can work towards optimizing the end user experience at that step. So as the ā€œnumbah goes upā€ (Dopamine), the positive state should be associated with the integration of valuable knowledge that we, as the community, can play a role in imparting.

I just zoomed out and realized how this might look, so clear disclaimer: this is not a ploy to manipulate or scam anyone lol. No trickery. Advertising/Marketing agencies do this to us all the time.

That being said, @Brandon I think it would be helpful for everyone to understand why we might not want to tame explosive growth and avoid growth spikesā€¦unless something emerges for those growth spikes to flow into (other than the system itself).

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For Fly Pilot, lets make it epic and give 80% of rewards in SPOT and 20% in AMPL

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Thanks for the intro @barbarossa_Arrakis and welcome to the Ampleforth community!

I wasnā€™t aware that gauges were built into Arrakis as well, thatā€™s good to know about. I was originally expecting that users would take their vault tokens and stake them into our geyser program here as they would with normal ERC-20 LP tokens.

But I think Iā€™m ok with moving this onto the Arrakis platform instead. Is there a separate app for this or is it automatically integrated into the vault and included in the APR? I poked around but didnā€™t see any dedicated page for gauges. Would this plug into aggregators like defillama?

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ā€œWeā€™ll need to balance the extra demand with the healthy growth / supply caps of the system.ā€, can @Brandon explain?

In the simplest sense, if we place enough rewards on the frontend that would lead to a demand on the backend thatā€™s greater than the supply caps, then either 1) the supply caps need to change or 2) SPOT will become vastly overvalued in the market due to supply constraints.

Thereā€™s nothing wrong about adjusting the mint caps as needed (within safety bounds), but whatā€™s important is maintaining a healthy bootstrapping phase where SPOT can always be showing what itā€™s capable of. While AMPL focuses exclusively on shifting volatility, SPOT is trying to be a refuge from volatility. If we sacrifice this in the name of growth, it will only be short-lived.

So thatā€™s why weā€™ve generally favored gradual, sustainable growth backed by fundamentals as much as possible, rather than a cross your fingers, and see what happens kind of growthā€“where people rush in with no long term investment in the outcome. Hope that adds some color to my thinking there.

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Thanks for all the input everyone, itā€™s really valuable.

With respect to AMPL vs SPOT rewards, I think there are a number of positive factors for SPOT:

  • More predictable yields. Right now, most DeFi activity is seeking ā€œreal yieldā€. This is predictable yield, often from natural market structures, rather than inflation rewards, or rewards in an asset where the value could be directly impacted by the yield-bearing program itself.
  • It allows the DAO to maintain exposure to the underlying AMPL. If we want to move towards Protocol Owned Liquidity, then we want to be diligent about how we deploy assets. If we use something like PALM to acquire USDC or ETH, then that can be paired with AMPL in the future forever. Expect another proposal on this soon.
  • It helps distribute more SPOT out into the ecosystem. More users touching SPOT could lead to broader interest and future users as well.
  • Thereā€™s a credible case that people will be more likely to hold onto a stable asset after the mining period vs a floating asset, since thereā€™s less risk

So I think Iā€™m still in the SPOT camp for geyser emissions. While AMPL might look attractive now since weā€™ve been in a growth phase, remember that markets can move more than one direction but SPOT ā€œshouldā€ be dependable in any scenario.

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After some reflections, Iā€™m on board with SPOT as Geyser rewards.

I think lpā€™ers may be able to attain decent apy returns (Iā€™m thinking at least between 5-15%) on a relatively stable asset. Which isnā€™t badā€¦

Also more Spot minted by the DAO, means more Spot in the wild. Hopefully there will be a couple million by the end of this year.

Whats good for Spot is great for Ampl. Spot is a baby (or should i say puppy) and needs as much support as possible this early on.

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I think weā€™ve reached enough of a rough consensus to move to signal stage and still keep on track for the refresh. Iā€™ve posted the signal vote, below, and it will start tomorrow:
https://signal.ampleforth.org/#/proposal/0xdcb74a8608fffbda10afb6af85aad359b05a5b177022c72e7eb09f82a742f295

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Thanks for the warm welcome!

Deposit & Stake are integrated into one single UI (actually one single button even), which is intended to save some hassle and also cost for the depositors. Although, having learned that there is a pretty streamlined staking process for Geyser from you guys already, probably doing it the Ampleforth way is a better UX.

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Onchain proposal is posted and voting will start in ~2 days!