Cryptex Liquidity Strategy: CTX (1/2)

Intro
Cryptex has currently 2 liquid pools. Today I’d like to talk about CTX/WETH pool on Sushiswap because it has slightly different specifics than the TCAP pool.

(It will be discussed in separate forum topic as Cryptex Liquidity Strategy: TCAP (2/2))

Liquidity is an issue for a lot of projects. In the early days of defi, liquidity mining was used to ensure liquidity, but the projects found out pretty soon this is very expensive and inefficient. This fact led to a number of projects trying to deal with liquidity much more efficiently - Olympus Pro, Tokemak, Ondo, etc. So there are a number of ways to better address liquidity.

Screen Shot 2022-07-26 at 10.46.07

Problem
CTX total volume is pretty high with reasonable distribution. Wintermute is doing great job to ensure enough liquidity on CEXes.

However there is a significant activity on Sushiswap too- cca 30% of total volume generating trading fees.

CTX/WETH volume:

CTX/WETH trading fees:

CTX/WETH pool stats:
Pool pair: CTX/WETH
Pair correlation:: 0.62
Pool APY: ~25% (trading fees)
Current TVL: $382k
Protocol: Sushiswap
Incentives: 26.038 CTX → $110k (0,26% of total supply)
Duration: 90 days
Daily inflation: 289 CTX → $1.21k
Pool APR rewards: 59% (CTX rewards)

The current CTX/WETH Sushiswap incentives will expire on October 15th 2022. The is not sustainable to keep extending incentives forever. But as seen above this LP pool generate trading fees, which could be potentially treasury revenue or used elsewhere. At this moment, it costs DAO 26.038 CTX distributed over 3 months to ensure liquidity for this pool, which is equivalent of $110k. Therefore I believe we should start a discussion about CTX long-term liquidity strategy.

Suggestion:
I will kick of with an idea that DAO could provide CTX tokens to the LP pool and let other people or community members to deposit the second asset (WETH or any stablecoin). Both assets would be matched up and put into LP pool together. DAO would negotiate rewards to non-CTX depositors, while DAO would take all IL and trading fees. By other words DAO would be junior with variable yield, and non-CTX depositors would be seniors with fixed yield. The terms would be negotiated prior to that action. The pool size can be limited, possible whitelist for CTX, TCAP holders, vested rewards, targeted yield, duration etc…

That would result into more efficient liquidity solution, better token distribution, use of idle treasury assets and aligning LT goals.

Few things to consider:
Why do we pair CTX with WETH vs stablecoins?
How to assess IL risks?
How would active LP management change the outputs?
Why is this suggested solution better over bonding?

Please feel free to provide your feedback or suggest other solution.

5 Likes

I really like this proposal and think we should work to make it happen as there are clearly benefits for doing this.

Few points to consider: Do we really want to use CTX from the DAO treasury? Using new CTX from the treasury to LP would dilute current CTX holders. (As it will release new CTX to the market?)

A new stCTX asset could be created for delegated CTX and let members of the DAO use the delegated CTX to LP. Thus CTX staked to delegates can keep earning rewards (from SSS pool), while the other side - WETH/stablecoin participants will be incentivised with CTX rewards (the ones currently going to CTX/WETH pool).

I’m open to hear other ideas and let’s craft the best strategy possible.

4 Likes

perhaps instead of using treasury CTX, we use some of the multisig CTX that’s been earmarked for protocol incentives? that way we don’t dilute any more than we had already intended over x amount of time and put those assets to work for the DAO.

the biggest concern for me in this proposal is the IL, if CTX pumps against ETH like we all want/expect the DAO wont be able to capture all of the upside return and in the reverse scenario we would be getting dumped on as a DAO… what if we did the reverse and used the DAO assets as senior and the non-CTX depositors would be junior?

i really like the idea of utilizing the SSS (single-sided staking) pool and creating a staked CTX too, as it would unlock over $2mil in additional CTX liquidity.

2 Likes

I would agree with this, we could use the rewards that are assigned for this. Love the idea @m0xt.

2 Likes

Adding more info:
Impermament Loss has been -5.08% since the launch of CTX/WETH LP pool.

  • excluding trading fees

  • excluding CTX rewards

!Historical results do not guarantee anything!

2 Likes

What are our options in terms of managing the liquidity, build the smart contracts in house or do a partnership with another project?

1 Like

I would say that depends how much resources are we allocate for this.

We could use existing projects focusing on LP manamgenet:
Gelato: https://www.gelato.network/
Charm: https://alpha.charm.fi/

We could come up with our own strategy and use some 3rd party to execute the strategy onchain.
Keep3r: https://keep3r.network/ (own liquidity management strategy)

2 Likes

thanks for the post. love the new idea and thinking outside the box.

Some of my thinking;

  • LP is essential for any token to maintain the trading pool, especially in dex as not everyone will be using cex.
  • LP mining rewards are also a way to distribute the token and reward long-term holders of the CTX token.

The current ctx/weth pool has about 423k, not a big pool though. I personally think we shall keep the current rewards for now as LP providers are facing the risk of IL anyway.

For the new idea of junior/senior, maybe we can create a separate pool like CTX/USDC on Uni so that people can participate in the other LP pool with a stable return of non-CTX tokens. This may also create arbitrage opportunities to increase the trading activities on CTX tokens.

4 Likes

Just dabbling my feet here with crypto and Cryptex…but what is the future of the protocol? or like the vision/roadmap? I’m not sure about the proposal here…but I do think that if you guys are talking about the future of the protocol, i’d be interested in knowing what the plan is for it…
also, quick q…in order to MINT new TCAP…I can only mint like 70% of my ETH right? so if I have $1000 i can only mint $700 worth of TCAP…if i take that $700 worth of TCAP and sell it at sushiswap or whatever and end up with like $900 ETH…how can i pay back that $700 worth of TCAP from my mint? I’m confused on how to arb the listed price vs. mint price…almost seems like there is no way too?

The team is currently working on the rodmap. More clarity about the future is needed as requested by more community members including me.:slight_smile:

Your debt is denominated in $TCAP, which reflects the oracle price while calculating collateral ratio. (not market price). Therefore once there is premium (market price > oracle price), the protocol accrue bad debt.

Theoretically the only arb could occur when you sell your $700 (oracle price) worth of TCAP for 900$ (m. price) on the market and then you would have to buy back the same amount of TCAP at some point for total amount lower then 900$.

In practise it is no real arb opportunity. But the team is working also on research to make sure there is improved pricing mechanism to better track the peg price (oracle price) reducing the premium.

Adding new product from Olympus as possible solution: