HGP-20 [LD] Create Liquidity pool on Trader Joe (Avalanche)

Author: PHBR0 x58B

Original Post Date: 15 Jun 2022

Snapshot Proposal Link

Category

Liquidity Distribution

Summary

  • Create a HBOT-AVAX liquidity pool on [Trader Joe](Trader Joe](Trader Joe) to increase the possible ways for the community to acquire HBOT tokens
  • Include the HBOT bridged to the Avalanche chain through the Nomad Bridge (as established on HGP-16 to be used for governance voting on Snapshot

Description

With the approval of HGP-16 the bridged HBOT token contract has been created on the Avalanche Blockchain.

As a way to kickoff the token liquidity on the Avalanche C-chain, the Foundation proposes to use funds from the Hummingbot Treasury to create the liquidity on the Avalanche Blockchain on [Trader Joe DEX](Trader Joe](Trader Joe).

When the TVL of the pool reaches 2x the size of the Foundation initial deposit, this initial position will be removed from the LP and returned to the Foundation treasury.

Liquidity Pool Creation

Using the existing HBOT-USDC Pool on Uniswap as a reference, the creation of this new liquidity pool will abide by the following rules:

  • The Liquidity pool will be created on the Trader Joe DEX;
    • Since the pool is similar to the Uniswap v2 style, both sides of the pool have to be added to the pool;
  • The Hummingbot Foundation will add 10k USD value in AVAX tokens from the Foundation Treasury on one side;
  • Using the last price of the Uniswap HBOT-USDC Pool at the moment the pool is created as reference, HBOT will be added to the pool to match the
    • Example: If the HBOT price is 0.01 at the moment of the pool creation, 10k USD of AVAX and 1M HBOT tokens will be added to the pool creation;
  • The creation of the Liquidity Pool will be executed through the Foundation Avalanche multi-sig wallet

Removal of Liquidity from the pool

Since the goal of the creation of this pool is to kickstart the liquidity on the Avalanche Blockchain, The Hummingbot Foundation will remove the tokens from the LP and return them back to the treasury, once the total liquidity of the pool reaches a total value of 20k USD from other participants.

Milestones

  • Bridge 10M HBOT to the Foundation Avalanche multi-sig Wallet
  • Move 10k USDC to the Foundation Avalanche Multi-sig wallet
  • Use 10k USDC and the matching HBOT amount to create the liquidity pool on Trader Joe
  • When the total Liquidity value of the pool reaches 20k USD, Hummingbot Foundation will remove the tokens back to the Foundation Avalanche multi-sig wallet

Treasury Allocation

Author: Dipfit 0xD8A

There seem to be two conflicting statements:

  1. "When the TVL of the pool reaches 2x the size of the Foundation initial deposit, this initial position will be removed from the LP and returned to the Foundation treasury." and
  2. “The Hummingbot Foundation will remove the tokens from the LP and return them back to the treasury, once the total liquidity of the pool reaches 100k USDC from other participants.”

So are we talking about 100k USDC or 20k USDC as the milestone to be reached, before the withdrawal of the LP position?

Author: PHBR0 x58B

Nice catch. The 2nd statement is a typo and from the start draft. Will edit the draft.

The proposal milestone will in this proposal is 20k in total TVL.

Fixed the proposal with the proper

Author: Jelle {Cryptobot} 0xe8f

I like the idea! I wonder whether gradually removing the tokens from the liquidity pool is a better approach than suddenly reducing the total pool’s size by 50%.

It might be better to remove 2.5k when the pool reaches 17.5K, another 2.5k when it reaches 20K, etc. to achieve a smoother transition.

Author: Mcflurry 0x22b

Considering the current state of the market, I think it would be prudent to include in this proposal the USDC amount needed to hedge AVAX and to also account for the potential impermanent loss if any due to market fluctuations.

Using also that same price point to also reference the amount of liquidity that has been provided in order to trigger the 20k addition staked in the pool so that governance can execute the withdrawal from the pool.

That way it is clear what price has been locked in and when it would be exited.

I agree with Jelle and Mcflurry that the proposal’s concept of removing liquidity at a certain fixed TVL amount was not fully thought through. The Foundation’s goal in creating this pool was to ensure that Hummingbot community would have a more liquid, efficient way to accumulate and divest HBOT without paying exorbitant gas costs. In addition, since CoinAlpha plans to distribute HBOT tokens to Hummingbot Miner participants who run bots on the Avalanche chain, so we wanted to ensure that HBOT recipients had an accessible market on the Avalanche.

We added the removal threshold so that the Foundation’s capital would not locked eternally in the contract, but it exposes the capital to impermanent loss and potentially unwanted price risk. I would support additional proposals that defuse these risks.