Deploy Arrakis PALM to conduct market-making on UniV3 for FORTH.
Arrakis Finance is a trustless market-making infrastructure protocol that enables running algorithmic strategies on top of Uniswap V3.
Since launch, Arrakis has acquired:
>$1.7b in TVL at its peak (currently around $460m), across Ethereum, Optimism and Polygon
>25% Uniswap V3 total TVL
>80 projects have their liquidity managed via Arrakis vaults
A SPOT/USDC Arrakis vault is already used within the Ampleforth ecosystem to create an easy entrypoint to being a SPOT Liquidity Provider. It is also used as a way to tokenize LP positions so the geyser program can work with Uniswap V3. This vault currently holds > 40% of the SPOT/USDC liquidity pool on Uniswap.
Arrakis PALM, Protocol Automated Liquidity Management, is a liquidity bootstrapping mechanism that taps into the organic trading volume on UniV3.
PALM is designed to bootstrap liquidity by acquiring more base asset inventory. For instance, the Forth DAO can seed liquidity with an initial asset ratio of 90/10 in FORTH/ETH. PALM can progressively balance it towards a target ratio, like 50/50, only by taking advantage of the volatility to make markets for FORTH. Not only will this approach save the DAO Treasury from spending ETH on liquidity and FORTH/AMPL/SPOT on LP incentives, but it will also put no downward pressure on FORTH price since the market-making is done via setting up LP positions instead of doing swaps.
During the time of deployment, the Forth DAO community would have full transparency of the execution and performance of PALM via a custom dashboard, and it retains full custody of the liquidity in the vault. At any point in time, the DAO could withdraw the fund from the vault or revoke the managing access from PALM. PALM can only conduct market-making with the liquidity deposited in the vault, and will never be able to remove the fund.
A case study of Arrakis’ first PALM deployment for Gelato’s GEL token showed very good results, accumulating from 2 ETH to nearly 170 ETH in under 3 months.
Arrakis charges two fees:
Management fee: 1% AUM fee on a yearly basis
Performance fee: 50% of trading fees generated
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FORTH is listed on a variety of Tier-1 centralized exchanges like Binance, Coinbase, Kucoin, Kraken and does in excess of $5M of daily volume. Despite this, there is no meaningful FORTH liquidity onchain. Creating a pool onchain would allow the DAO to tap into the already decent volume in the surrounding ecosystem.
The Forth DAO Treasury currently owns 3.8M idle FORTH tokens. Deploying some of these into PALM would simultaneously support the ecosystem by providing liquidity and also safely diversity the treasury over time.
The DAO also holds $1.14M of AMPL/ETH liquidity on Uniswap V2, which includes ~552 ETH (~$595K). We could utilize 10% of the ETH in the AMPL/ETH pool to initialize the FORTH PALM vault in a 90:10 FORTH/ETH configuration.
That would initialize PALM with approximately:
$540K in FORTH and
$60K in ETH
totaling ~$600K to start.
Since PALM is a new system, an option to minimize risk is to start with $200K of assets, then reserve a follow on with the remaining $400K after a period of observation–perhaps after 1 quarter.
After 50:50 equilibrium is reached, the DAO can revisit market making objectives. Since PALM is non-custodial and exists onchain, the DAO retains ownership of the assets and is free to withdraw them at any time. At this point, we can revisit if/how to adjust the parameters, or if/how much liquidity should be added or removed.
For example, the DAO could maintain the vault as is, repurpose the accumulated ETH and deepen AMPL or SPOT liquidity, or deploy the ETH for yield completely independently.