TLDR: Use the FORTH DAO treasury to seed an AMPL-SPOT pool on ButtonSwap with 25,000 SPOT and 25,000 AMPL.
Dear FORTH DAO community,
My name is Matthew and I lead growth for Buttonwood. At Buttonwood, we’ve worked on a number of things to further the DeFi ecosystem. Today I’d like to present a proposal that aligns our shared goals: to increase the utility and liquidity of SPOT, and to support the early growth of Button Swap, a new AMM for rebasing assets.
DAOs generally have two big problems:
- How to diversify its treasury without putting downward pressure on its own token
- How to put its treasury assets to work and earn
Providing liquidity on Swap solves the latter as FORTH DAO would earn fees from swaps.
Although new to this forum, Buttonwood has been closely tied to and aligned with the Ampleforth team for years:
Our founder Manny Rincon-Cruz co-authored the Ampleforth whitepaper in 2019.
Ampleforth inspired Button Wrapper, a protocol that transforms any non-rebasing asset into a rebasing asset.
Our concept and whitepaper of a crypto-backed stablecoin, Button Stable, served as inspiration for SPOT.
SPOT is built on top of Buttonwood’s Tranche contracts.
AMPL was the first supported asset on Buttonwood’s zero-liquidation lending market.
Manny co-authored the SPOT whitepaper in 2022.
Through our involvement with AMPL and rebasing assets, we found and created a better solution for AMPL liquidity providers (LPs).
On other automated market makers (AMMs), rebasing alters the marginal price. This creates a number of problems:
- For positive rebases, existing AMMs think the asset is getting cheaper.
- For negative rebases, more expensive.
- As a result, traders arbitrage tokens from the pool that would otherwise be owned by LPs.
Button Swap doesn’t solve every type of impermanent loss, but it does solve the one described above. The design is similar to Uniswap v2, but introduces a novel innovation, reservoirs:
- Button Swap’s model includes both a liquidity pool and a “reservoir” for each asset.
- Liquidity pools and reservoirs together form a “pair.”
- Liquidity pools are the active liquidity that gives users the swap ratio between two unique tokens.
- Reservoirs hold “excess” tokens, representing inactive liquidity (Note: at least one reservoir is always empty).
With Button Swap, new tokens flow to the reservoir, rather than liquidity pools. This allows the active pool to maintain the marginal price (1 AMPL = 1 SPOT):
Negative rebases follow the same logic. For a 10% negative rebase to AMPL, each pool would hold 90,000, and the reservoir for SPOT would hold 10,000 SPOT.
The net result of our design is more money for LPs. With Button Swap, additional token incentives become lucrative rewards, rather than compensating LPs for predictable losses.
To establish a strong start and incentivize early liquidity providers, we kindly propose that FORTH DAO seed initial liquidity for a new asset pair on Button Swap: AMPL-SPOT. We think a good starting point would be 25,000 AMPL and 25,000 SPOT.
- We believe Button Swap has the best design for a AMPL-SPOT pool
- The AMPL-SPOT pair does not exist anywhere else
- The FORTH DAO already owns both of these assets, and will earn fees from this initiative
In addition to earning fees on treasury funds, seeding liquidity for the SPOT-AMPL pair is a strategic move that generates additional benefits, including:
Enhanced Liquidity: A deep AMPL-SPOT pair will improve price stability and reduce slippage for traders.
Mitigated Impermanent Loss: Button Swap’s unique mechanism to handle rebasing events will result in reduced losses for LPs. This feature should attract even more LPs to this pair, thereby further enhancing its depth and stability.
Introduces New Market Opportunities: A successful AMPL-SPOT pair opens the door for additional rebasing pairs down the road. Pairs could be denominated in SPOT or AMPL. Button Swap can support two rebasing assets as well, so Lido stETH-AMPL would work nicely as well.
- Note: Button Swap’s value proposition for rebasing assets also applies to reward-bearing assets. A Rocketpool rETH-AMPL or rETH-SPOT would be another example.
We invite all FORTH DAO members to explore this idea, ask questions, and express any concerns or suggestions you may have. The Buttonwood team looks forward to participating in a community discussion.
If this is passed and is successful, in the coming weeks we would like to 1) revisit adding more liquidity to this pair, 2) propose adding token incentives to attract more LPs, and 3) discuss adding support for additional pairs. I will look to start a snapshot vote after 1 week if there is community support for the initiative.
Rebalancing the Pool
Reservoirs can be rebalanced in two ways:
- Automatic rebalance: If there were two consecutive positive rebases, the reservoir for AMPL would continue to grow. However, if a negative rebase followed a positive rebase, then a portion of the excess tokens would flow into the active liquidity pool.
- Single-asset deposit: In the positive rebase example above, an LP could manually rebalance the pool by depositing up to 10,000 USDC. The tokens from the AMPL reservoir would then flow into the active liquidity pool. The same logic applies to the negative rebase example.
There are two types of redemption:
- LPs can withdraw liquidity and redeem (burn) for a proportional share of the pool and reservoir
- LPs can withdraw from just a single-asset reservoir, up to the total number of tokens in the reservoir.