ARC-14: Incentivise Prism Pools with ASTRO

Summary

Incentivise Prism pools to build up liquidity in Astroport. The purpose of this proposal is to create deep liquidity pools of xPrism-Prism, cLuna-Luna, yLuna-Luna & pLuna-Luna outside Prismswap.

Abstract

The purpose for creating an alternative LP outside Prismswap is to capture the fees generated from these highly traded pairs. Alternatively, this allows TWAPs of cLuna, pLuna, yLuna, xPrism can be developed for it to be accepted as a whitelisted collateral on Mars Protocol in the future.

Currently, the Prism pools in Astroport have shallow liquidity:-

  1. pLuna-Luna: $477k
  2. yLuna-Luna: $41k
  3. cLuna-Luna: $61k
  4. xPrism-Prism: $686
  5. Prism-UST: $54k

Compare this against the pools at Prismswap:-

  1. pLuna-Prism: $5.48mil
  2. yLuna-Prism: $13.77mil
  3. cLuna-Prism: $8.88mil
  4. xPrism-Prism: $3.15mil
  5. Prism-UST: $19.76mil

In order to provide a similar depth of liquidity, these pools will need to be incentivised with Astro emissions to attract liquidity from Prismswap to Astroport.

Motivation

xPrism-Prism LP
Since Astroport is the only DEX with a stableswap invariant pool on Terra for now, this places Astroport in the prime position to provide a low slippage swap for xPrism-Prism.

In March 2022, the xPrism-Prism LP has seen approximately $14.32mil traded volume for this pair. At 0.025% Astral fee, this equates to $43k in annualised fees. For a protocol less than 3 months old, this is phenomenal trading volume for a governance token. We could expect this volume to increase in the near term.

cLuna/pLuna/yLuna-Luna LP
Although all refracted Luna tokens in Prismswap are paired with Luna, we can still analyse the trading volume & fees accrued from the Prismswap LPs.

In March 2022, the refracted Luna LPs had trading volumes of:

  1. pLuna-Prism: $10.02mil
  2. yLuna-Prism: $15.49mil
  3. cLuna-Prism: $11.07mil
  4. Prism-UST: $20.69mil

At 0.1% Astral fee, this translates to an annualised fee of $120k (pLuna), $186k (yLuna), $133k (cLuna) & $248k (Prism).

With over $730k in annualised fees with just 5 pools, attracting liquidity with Astro tokens not only bring TVL over to Astroport, but increases the protocol revenue substantially.

Specification

In order for us to provide a deep enough liquidity, the pools should aim to build up to total liquidity equivalent to their counterpart in Prismswap. I propose that the Astral Assembly provides Astro emissions as per the following table:

With an Astro price of $3.45 at writing, I would propose the following:

Target TVL Target APR Monthly ASTRO Emissions
pLuna-Luna LP $5mil 8% 9,600
yLuna-Luna LP $15mil 8% 29,000
cLuna-Luna LP $17.2mil 12% 49,875
xPrism-Prism LP $3.5mil 8% 6,800
Prism-UST LP $10mil 8% 19,300
Total Monthly Emissions 114,575

Given that Prism LP pairs generates a high trading volume, a modest monthly ASTRO allocation of 114,575 (~$395k) will bring over $730k in annualised fees, at today’s Prism market rate & trading volumes. Most LPs who are provided with high ASTRO emissions do not come close to the trading volume of these LPs.

If we compare the fees generated from boosted pools vs Astro emissions:

*Based on March 2022 transaction volume.

Based on the table above and the proposed ASTRO emissions, you can see that all 5 Prism pools are extremely efficient in terms of ASTRO emission vs fees earned for Astral Assembly.

Copyright

Copyright and related rights waived via CC0 .

Update (23 Apr 2022): Added comparison table vs existing boosted pools & revised monthly emissions of cLuna-Luna LP to make it more competitive vs stLuna-Luna & bLuna-Luna LPs

6 Likes

In favour of this. Liquidity fragmentation in this case is beneficial for both parties:

  1. Deepening liquidity for said token ($PRISM) across different platforms
  2. Thereby, enabling whales / institutions to participate in said platform (Prism Protocol) as opposed to current state where liquidity may be too thin for them to farm AMPs with a significant PRISM size
  3. Naturally increase visibility & marketing for both tokens (TVL for Astro; increased awareness for PRISM)
  4. Bring substantial trading volume and revenue to Astroport, and strengthen its footing as Terra’s dominant DEX
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Update (23 Apr 2022): Added comparison table vs existing boosted pools & revised monthly emissions of cLuna-Luna LP to make it more competitive vs stLuna-Luna & bLuna-Luna LPs

3 Likes

Thanks to Max for taking the time to draft this original proposal!

Some thoughts on this from the perspective as a core contributor to Prism Protocol and how this will benefit the Terra ecosystem at large.

At first, this may seem like a negative for Prism Protocol since the swap fees from these pools will no longer be going to xPRISM holders. On the contrary, I hope to make the case that this proposal will be a net benefit to both xASTRO and xPRISM holders.

The first point I’d like to make is that low risk LUNA pools are and will likely continue to be extremely popular on Astroport as they were on Terraswap.

Pools such as bLUNA-LUNA and stLUNA-LUNA LPs account for a combined ~$1b out of ~$1.8b in total liquidity on Astroport across all pairs.

When the cLUNA-LUNA pool was introduced and incentivized on Loop Finance last month, it quickly became the 6th deepest pool on the entire platform. For users, having yet another source of low risk strategy to earn ASTRO and yield on their LUNA without impermanent loss is an easy choice.

Looking at Prism Swap, all pairs are paired with PRISM and only xyk pools are supported, a stableswap cLUNA-LUNA pool simply cannot exist. Furthermore, since this pool on Astroport can be a stableswap pool, this enables more efficient swaps and an overall better experience for the end user.

Beyond the cLUNA-LUNA pool, the mechanics of Prism’s refracting and merging lends the pairs to benefit from a large amount of arbitrage flow which generate a disproportionate amount of swap fees compared to most pairs on Terra.

For example, in the last 7 days, the LUNA-PRISM and cLUNA-PRISM pools exceeded $10m in volume with only $20m in liquidity. Compare this to the stLUNA-LUNA pool where $35m in volume was traded with $281m in liquidity. Similarly, for LunaX-LUNA, only $6.2m in volume was traded with $123m in liquidity.

@MaxCallisto exemplifies this point well with his table which depicts that swap volumes and arbitrage flow would be very efficient at generating swap fees per ASTRO incentive for Prism assets compared to most other pairs.

I posit that the amount of LUNA refracted will increase proportionately as liquidity on Astroport increases. Now, even though xPRISM holders may be missing out on these swap fees, the staking yields generated from cLUNA and yLUNA may well be a fair trade off. In this way, these incentives and an increase in liquidity for Prism’s assets will be a net benefit to both protocols.

As for the amount of emissions requested in the proposal, I believe 1.2-1.5% of the annual ASTRO emissions is a fair starting point to begin incentives. I look forward to revisiting the cost effectiveness of these incentives in the future as a function of liquidity attracted as well as swap fees generated.

Beyond LP pairs and incentives, Prism Protocol plans to refract Astroport LP tokens into their principal and yield bearing components in the very near future. Since these pools directly affect Prism’s assets, naturally they would be of high priority and provide additional synergy between the two protocols.

Refracting LP tokens brings additional utility and composability to users of both protocols and will also enable the Astral Assembly and Prism Treasury to lock liquidity in perpetuity in a very cost efficient manner.

And finally, though only tangentially related, deeper liquidity and the TWAP oracle of Prism’s assets will enable the assets to be whitelisted on Mar’s Protocol’s Red Bank assets as well as the Fields of Mars leveraged strategies.

New assets listings and strategies will drive additional utilization of the Red Bank’s assets as the community discovers interesting and more novel ways to speculate, farm, and trade.

In short, multiple pools, decentralized liquidity, decentralized trading volumes, and multiple sources for price oracles will support a healthy ecosystem and make economic exploits more costly, difficult, and unlikely to occur.

I look forward to hearing more from the community regarding this proposal and continuing to find more symbiotic opportunities to collaborate.

2 Likes

If I am not mistaken majority of the liquidity in Prismswap is from the Prism Team itself. So the assumption that lack of ASTRO emission is the reason for shallow liquidity is not true.

The sensible first step is to add PRISM emission to the Astro pool before asking for emission from the ASTRO protocol.

As the Prism Protocol by design decided to make its own DEX instead of using terraswap or Astroport by providing the Astro emission to fragment liquidity will act against prism protocol.

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Most protocols attract liquidity by having their own emissions since they’re not able to bootstrap their own LP pools. This is coupled on with the fact that the utility for these LPs are low, therefore, it doesn’t generate as much swap fees by itself. This is not the case for Prism Protocol, which it not only bootstrapped “some” of its liquidity by having its own skin in the game, they made a conscious effort to limit the amount of equity (in tokens) emitted into the market.

With the high utility & speculative nature of p/yLuna, it has generated sufficient trading volume by itself, which I’ve illustrated in the table in my original post. Astroport doesn’t need just high TVL, but as a DEX, it requires high trading volume to make its fees, something that is often missed out. Given that there’s an opportunity for Astroport to attract this highly traded LP over to Astroport at a cost-effective emission schedule, this is beneficial for both Astroport & Prism. A high amount of emissions are currently emitted to low trading volume LPs that in honesty, doesn’t benefit the ASTRO stakers much.

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I think the data you have posted doesn’t paint the actual picture as in any protocol launch first couple of weeks is highly volatile.
If you have similar data for the month of April that will be helpful.

I agree there are a lot of pools that currently don’t generate many fees but high ASTRO emissions. Anyway, those are added by ASTRO team before ASTRO governance .

I think 1st step is to reduce those by governance vote and let the Protocols bid for astro emission after vexAstro launch.

It’s a good point that most protocols have a higher volatility in its early days. Taking cue from your comment, I went back to crunch the numbers from 1st Apr - 26th Apr (26 days) vs previous data of the full 31 days of March. Seems that the transaction fees actually rose, bear in mind the data written as annualised fees for 1st Apr till 26th Apr is technically not annualised since I took 26 days of fees and times it by 12. In fact, the numbers may be much higher.

Back to your point after reducing the ASTRO emissions it via governance, Astroport has a fixed emission of 100mil ASTRO in its first year, therefore a method to reduce its emission is to dilute the emissions from the other LPs to incentivise these Prism Pools. The amount I proposed is 1,374,900 ASTRO out of 100,000,000 ASTRO emissions in the first year. That’s 1.374% of the total first year emissions for 5 LPs for an annualised fees of ~$1.2mil.

2 Likes

what is the math on the benefits to xprism holders? Prism has created a very strong protocol in and of itself for benefit of xprism governance. paying exogenous value to those outside the protocol itself has some merit but there needs to be some direct link back to the protocol itself. astro emissions to bring new or transfer existing liquidity are insufficient imo for xprism.

Jimmy did posit that perhaps the increase in prism derivatives and their staking yields may offset some of the value loss however xprism is currently generating 16% yield from protocol usage alone. ASTRO pools will shift trading volumes of prism and unless the protocol itself experiences massive growth, this is left-hand / right-hand shifts of trading volume and not net growth.

perhaps @lejimmy can provide some data on the current revenue generation breakdown. And if anyone has data on increase in arb trading through establishment of multiple pools that would also be helpful analysis.

As an ASTRO holder, I’m all for the proposal … but as a PRISM holder, I believe this to be detrimental given zero sum game in general and therefore net harmful for terra ecosystem.

Alternative / amendment suggestion
If the focus were to be on stable swap pools for cLuna-Luna, yluna-luna and pluna-luna then this would be additive without disturbing the base premise of PRISM protocol which is to swap via the prism base pair.

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I believe that I do not need to go into the details of why pools with cLuna, pLuna & yLuna since Prism earns 100% of all the staking fees of the unstaked c/p/yLuna. Moreover, a large chunk of the liquidity in the LPs are seeded by Prism themselves. I believe that this liquidity will remain in Prism Protocol and not transferred over.

As for the xPrism-Prism pools, this pool will be a stableswap pool which will allow the peg between xPrism & Prism to stay constant for as long as possible, thereby, reducing the slippage between the two tokens. This by in itself will enable higher trading volume of the pair.

As much as we’d like to retain the liquidity in Prism, since the pools will benefit Astroport, ASTRO tokens holders will vote to incentivise the pool regardless. Since the pools are active, the least we could do now is to incentivise these pools and bring more users to Prism.

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@MaxCallisto think it’s almost time to make an on-chain proposal. Do you want to revise anything?

Hey Stefan, just on the alloc_points. Thanks!

Based on the above proposal, the proposed alloc_points for the pools will be:

LP Pools Annual ASTRO Emissions % of Emissions Alloc_points
pLUNA-LUNA 115,200 0.115% 1,370
yLUNA-LUNA 348,000 0.348% 4,138
cLUNA-LUNA 598,500 0.598% 7,116
xPRISM-PRISM 81,600 0.081% 970
PRISM-UST 231,600 0.231% 2754

Well set out proposal @MaxCallisto.

As an ASTRO holder I’m strongly opposed to this. It’d be the only pools which are receiving ASTRO emissions without additional rewards from an external protocol, excluding the LUNA derivative pools and ASTRO-UST.

If the volumes in the PRISM pools were extraordinary it might have been interesting, but 24h volumes in the proposed pools are <10% of liquidity. I don’t believe this warrants only ASTRO emissions.

At the very least PRISM incentives should match the ASTRO incentives.

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I’m opposed to this proposal. Prism would be asking for rewards in Astro while providing none of their own. They’ve also opted to build their own Dex rather than using Astroport, which on its own, I have no issue with. I welcome the competition. However, to then ask for Astro rewards while providing none of their own incentives seems a bit unreasonable

Hi @svenocean , @AstroChad69 , those are certainly fair points. That’s precisely the reason why I proposed to incentivised these pools with 1.4% total emissions in total for all 5 pools. Most pools by itself does not have sufficient trading volume, but the Prism pools have seen a higher than average trading activity as shown in my table here. The trading volume across LPs (except for those early protocols) have been muted the last week so the trading volume may not be a good reflection. However, if you compare the trading activity on April, it has shown to have high fees per astro allocated.

Rather than seeing it benefit Prism, I proposed this to bring the benefits of Prism trading volume to Astro stakers like myself. Most pools that are currently incentivised do not generate much trading fees that will be used for the ASTRO buybacks. The same can’t be said for Prism, since they have seen higher trading volumes during times of LUNA volatility. Its focused on having higher liquidity pools on Astroport.

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Are the calculations here done using 0.3% trading fees? The proposed pools are all stableswaps, where fees would be 0.05%. Unless I’m misunderstanding, all of the “ASTRO/1 UST Fee” numbers for the highlighted pools should be multiplied by a factor of 6.

Hey, you’re right, the trading fees that I highlighted were constant product pools with 0.3% since its’ paired with PRISM, whereas the trading fees will be a factor of 6 lower. That being said, a stableswap invariant pools that has a lower slippage records a larger amount of swaps compared to constant product pools (comparing bLUNA-LUNA LPs of both Astroport & Terraswap).

Comparing in the last 24H (highly volatile period):

  1. Terraswap. TVL $17.06mil, 24H vol $2.21mil
  2. Astroport. TVL $464.47mil, 24H vol $201.83mil

Astroport clearly records 90x more swaps compared to Terraswap since the slippage is much lower. This benefits both the LP & trader. Now back to cLUNA-LUNA, incentivising stableswaps will essentially divert most of the swaps from Prismswap to Astroport since PS pools require the trader to move from cLUNA-PRISM-LUNA.