Exploring Future Liquidity Options for SDT

As Stake DAO continues to evolve and adapt to the dynamic DeFi landscape, it’s crucial to reassess and optimize our liquidity strategy for the SDT token. Given the current distribution and performance of SDT liquidity pools, there are several challenges that necessitate a strategic review and potential realignment.

This thread aims to engage the DAO in a discussion on the future direction of SDT liquidity, highlighting current issues and exploring possible solutions.

Current Liquidity Distribution:

  • TriSDT : SDT-frxETH-crvusd (Curve-ETH): $900K

  • ETH-SDT (Curve-ETH): $750K

  • ETH-SDT (Uniswap-ETH): $150K

  • BNB-SDT (Pancake-BNB Chain): $100K

  • Total Liquidity: $1.9M

Notably, Stake DAO holds 85% of the TriSDT pool.

Identified Challenges:

  1. High Slippage: Approximately 5% for a 10 ETH swap, indicating liquidity inefficiency.

  2. Underperforming TriSDT Pool: Despite its innovative auto-rebalance design, the TriSDT pool suffers from insufficient volume, hindering its ability to attract frxETH-crvusd trades and enhance yields as initially envisioned.

  3. Preservation of FXS Incentives: The necessity to maintain the FXS incentives through sdFXS and Votemarket, which significantly contribute to covering DAO expenses.

  4. Desire to Decouple from Stablecoins: To better reflect ETH’s market movements and reduce dependency on stablecoins.

Proposals for Discussion:

  1. New ETH-SDT Pool on Curve: Leveraging new Curve’s “ng” smart contracts could offer reduced slippage and incorporate an efficient oracle for price discovery.

  2. frxETH-SDT Pool: This option aims to continue harnessing FXS incentives and the Votemarket mechanism. The downside includes an additional step for swapping ETH to frxETH before SDT, despite deep liquidity between ETH and frxETH.

  3. weETH-SDT Pool (ether.fi): Capitalizing on current weETH volumes and general re-staking trends. This also involves an extra swapping step from ETH to weETH before SDT, although liquidity is deep.

  4. Stablecoin-SDT Pools: Exploring the feasibility and benefits of establishing pools paired with various stablecoins.

  5. TriPool SDT Configurations: Investigating the potential of various TriPool setups involving SDT to enhance liquidity and trading efficiency.

This draft is intended to kickstart a discussion within the DAO, inviting feedback, insights, and suggestions on the outlined liquidity strategies. The goal is to collaboratively decide on a path that not only addresses current challenges but also strategically positions SDT for sustainable growth and utility within the DeFi ecosystem.

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I am kind of thinking that Curve might not be the best place for SDT liquidity. Crypto pools are amazing for big liquidity tokens imo, with big volumes on many different dexs. For those tokens, the price is not driven by the Curve pool, and it gives a nice place to have low IL and low slippage on trades.
However for us, low liquidity, low volume (at this stage), the oracle price mechanism kind of stucks us in our current price even if we are paired with ETH. We miss the ETH rally benefit.

Another benefit from Curve’s crypto pools are the access to llamalend, but at this stage having a lending market is dangerous for SDT, so I think we can keep that for later.

In the end, I am thinking that a v2 pool, or a v3 with a position manager such as Arrakis or defiedge, would probably be the best.
This will not enable us to vote with our sdCRV from ms for liquidity incentives on our liq pool, but we could report those votes on other pools, and potentially farm bribes that we could use on PancakeSwap to bribe the SDT liquidity pool.

What do you guys think of that?

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I am not an expert but would like to share my thoughts/ questions. I agree with the previous statements from @Tube. Also, as most of users go via aggregators to buy/sell, does it mean we need to minimize the number of pools within the ecosystem? Can we try to achieve the objective without creating new pools? My point is before creating new pools, we need to carefully assess if this is the best route. Maybe I am too simple (and not enough expert in liquidity management), but simplicity is often the mother of efficiency. We already have a pool on Uniswap. Can we implement @Tube proposal by redeploying Stake DAO own liquidity large share of the inefficient tripool to the existing Uniswap pool?

Aggregators can go through several pools, but the more pools, the more gas expensive…
The reason I proposed PancakeSwap instead of Uniswap is that PancakeSwap has vetokenomics, meaning we can bribe, and boost the PoL with our lockers. Besides that, it’s the same code.
The big question would be should we go for a v2 (as you said, simplicity is key), or a v3 pool.
Problem with v3 pools is that you need a position manager to avoid reward squatters. v2 might be the fairest solution. However, we already have a v3 pool, and it used to be the most efficient pool for SDT liquidity. Maybe we go for it and ask defiedge to build a position manager for it.

I prefer the simplest solution for SDT liquidity, which is an ETH-SDT pool on Curve “ng” or PancakeSwap V2. This approach avoids adding extra steps and potential risks, making it straightforward and safer. It’s the most direct way to ensure efficient liquidity without complicating the process.

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