MDP20.1 Use of the mStableDAO treasury to bolster DAI/MTA liquidity

From the mStableDAO

Summary

The mStableDAO is proposing that it uses some of its treasury balance to create a DAI/MTA pool on Uniswap, which would bolster MTA liquidity, and offset any reductions to rewards for the MTA/WETH pool being proposed as MDP20.2.

Specification

This proposal suggests that the c.2.34m DAI currently held in DAO reserves is put into a Uniswap pool with a matching amount of MTA (currently c.810k MTA at current price of $2.90). This would create a total liquidity pool of $4.68m in depth, and leave c.2.4m mUSD as the remaining USD balance in the treasury.

Rationale

This proposal aims to:

  1. Provide deeper markets for MTA to reduce slippage during trades
  2. Increase the capital efficiency of the mStableDAO’s treasury by using it to improve MTA liquidity
  3. Generate some fee revenue for the mStableDAO in a market neutral fashion (given existing exposure to MTA)
  4. Help offset any MTA liquidity loss from any reductions in MTA/WETH rewards as detailed in MDP20.2

Further discussion points

  • It should be noted that if this proposal is successful, the MTA and DAI contributed would be subject to impermanent loss.

  • DAI has been chosen here as the USD pair due to its decentralisation, and the fact it is what’s currently held by the DAO. Other USD pegged stablecoins could be considered, but it should be noted that swapping out the DAI will incur slippage costs.

  • With the announcement of Uniswap V3, this proposal should be revisited in future to optimise for the new flexibility and design parameters offered by the upgrade.

This proposal should be considered alongside MDP20.2, however can be implemented independent of any changes to EARN rewards. We look forward to feedback from Meta Governors.

3 Likes

Fully support this. Keen to see the DAO treasury become more efficient and a deep market be created for MTA that presents exposure only to 1 volatile asset, making it more attractive for me to contribute to

I think putting DAO treasury funds to more productive use is good. Looking at this proposal and MDP 20.2 described here, I think it makes sense to have a two LPs for MTA liquidity - one through ETH and one through a stablecoin like DAI or USDT/USDC.

I think deploying DAO funds through a LP like MTA/DAI helps to increase MTA liquidity in secondary markets, supplementing the MTA/ETH pool liquidity.

However, I’d caution that MTA/DAI is probably subjected to higher risks of IL compared to MTA/ETH, and there are no Uniswap rewards to cushion against that risk. Instead, if a MTA/DAI on Sushiswap via the Onsen can be incentivised with SUSHI rewards that would be good. Then we consolidate MTA/ETH liquidity on Uniswap.

1 Like

Good point, any idea what the estimated $SUSHI returns would be? The DAO farming with its liquidity is a long term and attractive play.

Thanks for posting this!

It is the opinion of the mStableDAO that reallocating treasury funds in a capital efficient manner that doesn’t negatively impact Meta Governors to be of very high importance with the outline of MCCP-4 and a possible gradual reduction of MTA rewards in the current MTA/WETH pool.

We expect that reduction of rewards will cause a removal of liquidity in the pool, and offsetting this loss with our own deployed LP position makes sense, and could even be seen as a mandatory action.

Like stated above, we also caution around the impermanent loss that the position will be exposed to, but are confident that with the launch of Uniswap V3 those losses can be significantly reduced, and risk of the position minimized.

We’re also very curious to gather more sentiment and feedback from the community around this proposal, and invite Meta Governors to explore this topic and possible alternatives with us here in more depth, as to find the best way to put the unused part of the treasury to use in a way that benefits the mStable protocol and it’s users in the best way possible.

This has gone to voting on the mStable Snapshot as MDP-20.1

Votes close on April 6th!

1 Like