Proposal
Authored by Aerodrome, Milamber and Defi Ted on 18 Mar-24 with review from the Treasury Council
Proposal: Aerodrome PRIME/ETH LP Deployment Proposal - Google Docs
Summary
We propose to deploy a $0.6m PRIME/WETH Project Owned Liquidity (POL) to Aerodrome on Base by migrating a portion of our existing Uniswap Ethereum PRIME/ETH LP. Aerodrome allows liquidity pools to attract 3-4x as much value in AERO tokens as they collect in trading fees and protocol incentives.
As a result the DAO could collect $3+ in AERO rewards directed to a PRIME/WETH pool for every $1 it deploys in incentives. Both the Parallel and ParagonsDAO communities will benefit from attractive APRs, deep liquidity and access to the Base community. The position will also provide a vote share base for an intended migration of PDT to Base as well as potential liquidity rewards for PDT stakers, and in time may allow the DAO to provide LP deployment/veAero votes as a service to other games launching tokens.
Motivation
Our current Uniswap Ethereum PRIME/ETH LP is valued at $3.6m and while having recently moved out of range due to the strong PRIME price action relative to ETH, it has generated significant amounts of fees, recently providing an average of c.$8k per day in 2024 or roughly 80% APR.
In spite of the strong price action, liquidity and volume on Base for PRIME is still relatively muted. There is an opportunity for the DAO to be an early mover and capture a large portion of this market share, which in turn should help bring volume and activity to Base due to Ethereum gas prices - this is even more relevant given the future migration of the majority of Parallel TCG activity to Base.
Aerodrome is the central trading and liquidity marketplace on Base with more than 2x the TVL of all other DEXs on Base combined. AERO emissions are streamed to liquidity pools weekly based on the number of votes received during the weekly voting period (“epoch”). Voters (veAERO holders) receive 100% of fees & incentives for the pools they vote on. Voter rewards typically generate 3-4x the value to LPs. In other words, for every $1 in voter rewards, $3-4 worth of AERO emissions get streamed to LPs.
Projects and their communities can deposit incentives to attract votes/use their own veAERO votepower to direct emissions to their liquidity pools. Every listed project on Aerodrome is eligible to receive veAERO airdrops to help them build Project Owned Votepower passively and benefit from fees and any incentives by voting for their own pool/s. These airdrops are distributed to partners proportional to their contribution across three categories every four weeks. More details about the program here.
ParagonsDAO is uniquely positioned to benefit from the 3-4x multiplier on top of base fees, as it owns c.$3.6M of PRIME/ETH liquidity on mainnet Ethereum whilst also owning 500k+ PRIME tokens. The DAO can also leverage Relay, Aerodrome’s veAERO automation layer, to vote for PRIME/WETH perpetually, compound veAERO rewards, and direct AERO emissions to ParagonsDAO POL at zero cost to the DAO. This will grow its share of rewards received over time without adding extra operational overhead.
Specification
Remove c.$0.6m of liquidity from the existing Uniswap PRIME/ETH
Remove a c.$0.6m portion of the current LP for migration to Base. As the LP is newly out of range TBC if the PRIME half of the LP will come from the Treasury or if the ETH will be converted from LP funds.
Deploy a new PRIME/ETH LP of c.$0.6m on Aerodrome
Bridge the c.$0.6m of PRIME/ETH to Base and create a PRIME/WETH pool on Aerodrome (once the token is whitelisted), migrating the c.$0.6m POL.
Allocate c.12k PRIME tokens (c.$0.3m value) as incentives over 10 weeks
Funds will need to be set aside for equal weekly distribution as voter incentives over 10 weeks. The DAO should receive the $ value of these funds back in AERO rewards at a greater than 3x multiple. TBC if these funds will come from the Treasury or if the ETH will be converted from ETH funds.
Compound an equal portion of AERO rewards into more PRIME/WETH POL
In order to ensure zero net cost of the PRIME incentives, c.$30K weekly worth of the AERO received will be converted into more PRIME/WETH POL.
Lock all/a portion of remaining AERO rewards to build veAERO votepower
In order to build a position in AERO to direct rewards to the new PRIME/ETH LP and any future LPs, a portion of the remaining AERO should be locked to build veAERO votepower and qualify for Flight School rewards. The Treasury Council will monitor and determine the best utilisation of AERO rewards.
Deposit veAERO into Relay to automate veAERO management
As noted above, the DAO can also leverage Relay to vote for PRIME/WETH perpetually, compound veAERO rewards, and direct AERO emissions to ParagonsDAO POL at zero cost to the DAO.
Assumptions
Expected ROI on deploying position
The total value of AERO emissions last epoch was $5.9m and total rewards (fees and bribes) was $985k, which divided together is a 6x multiplier (i.e. for every $1 in voter rewards, $6 of value was directed to LPs). A 3x multiplier has been used to account for efficiency reduction over the 10 week program.
$30k of PRIME incentives per week should generate c.$90K worth of AERO emissions (at the 3x multiplier) distributed to the pool each epoch, which is $4.7m annualised. The existing Uniswap Base pool of c.$0.9m is generating c.$500 per day or c.$170K annualised which is 18% APR. If that c.$0.9m TVL were to be migrated to Aerodrome, the $4.7m incentives divided into it would be a c.500% APR.
At a conservative 60% ownership of this pool (c.$0.6m), the DAO could receive up to $54K or more worth of AERO emissions i.e. an 80% return on its $30K incentives. By compounding $30K worth of AERO into PRIME/WETH the DAO will be capturing its weekly earnings whilst growing its POL position on Base and creating a net nil loss from incentives.
Any remaining AERO estimated at $24K per week can then go into building ParagonsDAO votepower so it can vote for its own pool and claim voter rewards (fees & incentives) every week.
i.e. In total we estimate these steps could allow ParagonsDAO to bootstrap c.$1M TVL at c.470% on Aerodrome assuming a constant 3x voter reward to LP reward multiplier.
Recommendation
We recommend the Treasury Council approves the creation of a $0.6m PRIME/ETH POL position on Aerodrome, distributing c.$300k of incentives in PRIME (c.$30k weekly) over a period of 10 weeks. We also recommend that an amount of AERO equivalent to the incentive value is compounded into additional PRIME/ETH POL, and the remainder of the AERO is votelocked to build a veAERO position.
Rationale
We stand to increase our earnings on Project Owned Liquidity
The DAO should earn $20k+ per week from PRIME/WETH liquidity with only $600K in liquidity i.e. a 3% weekly return. Compared to c.$60-70k earnings per week on $3.6M in liquidity i.e. a 1.8% weekly return. This excludes include weekly earnings made by the end of the program through its veAERO votepower.
The deployment should Boost APRs and deepen liquidity on Ethereum L2s
AERO emissions will attract additional liquidity providers for PRIME/WETH, likely bolstering liquidity on Base for seamless trading execution. This is beneficial for Parallel and ParagonsDAO communities given the costs associated with using ETH mainnet. We have an opportunity to generate further goodwill with the Parallel and Echelon teams by providing further liquidity to the market on the chain of choice for future TCG activities. A stronger community and working relationship with both teams benefits the DAO.
A successful trial can mean rolling out PDT liquidity to Base in a similar manner
Base is the fastest growing L2 network and a potential leader in onboarding new users to the ETH ecosystem this cycle. Developing a stronger presence on Base will allow ParagonsDAO to service the growing Base community and ParagonsDAO votepower can be used to direct emissions to a future PDT pool post-migration to Base after the new v2 staking contract launches.
The DAO’s veAERO position will be a tool to use in future to support other projects
The DAO’s veAERO position will provide a vote share base for an intended migration of PDT to Base and potential liquidity rewards for PDT stakers as noted above, but in time may also allow the DAO to provide LP deployment/veAero votes as a service to other games launching tokens.
The move will improve ParagonsDAO exposure and strengthen its brand
Aerodrome offers all partners support via amplifying relevant comms. As the largest and most ecosystem aligned DEX used by some of the biggest L2 power users in DeFi and trusted by Coinbase Ventures, a close partnership with Aerodrome gives projects a natural boost in exposure and branding. We would have first mover advantage as PRIME/ETH is not yet whitelisted on the platform and the team wants to work with us directly as one of the largest PRIME holders and largest Parallel asset holder.
Timeline
Within one week of this proposal, subject to Treasury Council approval at its next meeting.
Costs
c.$0.3m worth of PRIME tokens will be used as incentives throughout the program (c.12K PRIME at current prices) but will be offset by the returns generated in AERO. Minor costs relating to the gas fees for redeployment of the Uniswap Ethereum LP.
Important Links
I’ve included a selection of other important links below, which might be helpful context:
- Smol Dapp Safe: MultiSafe - SmolDapp
- Example Discussion on Issue: https://forum.safe.global/t/how-to-create-a-safe-on-arbitrum-by-retaining-same-ethereum-safe-address-and-owners/3173/7
Deadline
The deadline for comments given this has already been verbally approved by the Treasury Council will be Thursday, 21 March 2024 19:00, after which the on-chain vote will be set-up and go live for three days. We will look to execute the transaction, subject to approval, on the following Monday.
