Cryptex aims to move both liquidity pools onto Uniswap V3 due to lower slippage and more capital efficiency. There is a discussion about CTX/WETH pool strategy here: Cryptex Liquidity Strategy: CTX (1/2)
Today let’s talk about TCAP/WETH pool, but I would like to highlight a few differences first.
Table 1: Token specifics
Cryptex does not have any TCAP reserves atm. Moreover TCAP mcap growth is dependent on supply * price. But we can influence supply only. So what is the motivation for users to mint new TCAP today?
(the answer could be applied for price peg problem too)
I think we can learn from stablecoin protocols and their price peg mechanism. However, Cryptex is in a different situation. The most common use cases for users to deposit any asset and mint stablecoins against are either leverage or arbitrage opportunities:
Leverage - users are not willing to sell and rather take loans to cover their financial needs - buy more assets, pay the bill, other investments…
Arbitrage - you can pay x% for your debt and generate y% out of it, where x% < y%
Users still have price exposure to collateral - debt (denominated in stables + interest) → long collateral. Ideally those people are financially educated and understand the risks. If the conditions change (i.e. borrow rate), they adapt. That is the key for holding the peg imo. Generally we could say that the main motivation is capital efficiency.
What is the most common use case for users to deposit ETH (majority atm) and mint highly correlated TCAP?
Because once we fully understand the behaviour and the use cases, we can better design the price peg mechanism imo. Have that in mind but lets focus on liquidity pool.
TCAP/WETH pool stats:
Pool pair: TCAP/WETH
Pair correlation: >0.95
Pool APY: 3% (trading fees)
Current TVL: $2.2m
Protocol: Uniswap v3
Incentives: 26.038 CTX → $110k (0,26% of total supply)
Duration: 90 days
Daily inflation: 289 CTX → $1.21k
Pool APR rewards: 132% (CTX rewards)
The current TCAP/WETH Uniswap incentives will expire on October 15th 2022. I hope there is no need for explaining why this is not sustainable. Moreover there are only 24 users who provide liquidity for this pair. TOP 5 LPs have 84,8% of this pool.
Very high concentration is not good at all!
The protocol liquidity strategy should have 2 main objectives:
Deep Liquidity - enough liquidity for users to buy/sell with minimum slippage (with much better distribution)
Sustainability - sustainable model for having enough liquidity
Various liquidity strategies were mentioned in CLS part 1 here: Cryptex Liquidity Strategy: CTX (1/2)
Updates and new information are added in the comments too.
Team is currently working on better price peg mechanism for TCAP due to constant premium (market price > oracle price). IF we assume majority of minters are liquidity providers (which I was not able to confirm on-chain), we dont know how would new price peg mechanism affect them in any way.
I will not add any specific suggestion to this problem today for the reasons above. But let’s use this text as a resource for further discussion and a problem to solve for the future.
Please feel free to provide your feedback or suggest your solution.