Deploy Arrakis PALM to conduct market-making on UniV3 for ANGLE.
Arrakis Finance is Web3’s trustless market-making infrastructure protocol that enables running sophisticated algorithmic strategies on Uniswap V3.
Since launch, Arrakis has achieved
- $1.7b in TVL at its peak (currently around $200m), across Ethereum, Optimism, Arbitrum and Polygon
- Over 25% Uniswap V3 total TVL
- More than 80 projects have their liquidity managed via Arrakis vaults
Arrakis PALM - Protocol Automated Liquidity Management is a novel liquidity bootstrapping mechanism that taps into the organic trading volume on UniV3. It is the first product built on top of the Arrakis infrastructure.
In essence, PALM helps protocols bootstrap their base asset inventory (ETH, USDC, etc.) and attain deep and sustainable liquidity. The major advantages of using PALM are:
- Zero incentive: no LM incentive needed, liquidity bootstrapping is done solely via market making.
- Low requirement in base asset: the initial liquidity can be made of mostly ANGLE, and PALM will progressively pull it towards 50% to create an equal buy/sell support.
- High capital efficiency: by autonomously and actively managing concentrated liquidity, especially once a sufficient amount of base asset has been bootstrapped, PALM can further reduce the slippage for large trades even if with limited overall liquidity.
- No biased price impact: no swaps involved, PALM conducts market making by setting up ranges / limit orders…
- Minimize or outperform IL: PALM is able to keep the value of the deposit close to that of holding the initial assets, and often outperform it.
- Trustless & transparency: Angle protocol retains the custody of the liquidity and can withdraw at all times. PALM only autonomously manages the liquidity but can never remove it. All executions of PALM can be monitored on-chain with full transparency.
Currently, most of ANGLE on-chain liquidity is on SushiSwap, which is incentivized with ANGLE and takes most of its DEX volume.
However, a mere $10k swap in the Sushi pool that has $667k liquidity can already cause a price impact of about 3.5%, which reflects the low capital efficiency of the underlying x*y=k type AMM.
In addition, the average volume in this pool over the past 30 days (or even further back) has been below $10k, with $22k being the highest daily volume. This means that Angle is over-incentivizing an underutilized pool, and the low volume may also be due to the low capital efficiency that drives the trades to off-chain venues.
With that in mind, in conjunction with some preliminary discussions between Arrakis and Angle teams, we believe that Angle community can greatly benefit from deploying a certain amount of POL into PALM on UniV3, to build up deep and sustainable ANGLE liquidity that is far more capital efficient and cost effective than how it is currently.
Once PALM proves to be able to take in the majority of the volume, Angle community will have the option to wind down and eventually stop the incentives for LPs on Sushi. Furthermore, other incentivized pairs can migrate to PALM to enjoy the same benefits.
Therefore, we, as Arrakis, propose to provide Angle with the full spectrum of market-making services on UniV3 with PALM, to reach the objectives mentioned above.
Phase 1 - Bootstrap ETH
Angle Treasury allocates $300k worth of liquidity into a vault managed by PALM, in a ratio of 80/20 in ANGLE/WETH. PALM uses this allocation to bootstrap WETH over time, with an initial target ratio of 50/50.
Phase 2 - Deepen the market further
Once the ratio of 50/50 is reached, the focus will be on further increasing the liquidity depth for ANGLE, to minimize and equalize the price impact on both buy and sell side.
During the time of deployment, the Angle community has full transparency of the execution and performance of PALM via a custom dashboard, as well as retains full custody of the liquidity in the vault, meaning that at any point in time, the Angle community can withdraw the fund from the vault or revoke the managing access from PALM. PALM can only conduct market making with the liquidity deposited in the vault, and will never be able to remove the fund.
For the services provided, Arrakis charges fees on two fronts:
- Management fee: 1% AUM fee on a yearly basis
- Performance fee: 50% of trading fees generated
For more information regarding Arrakis and Arrakis PALM, feel free to have a look at our docs and join our community. I’m also more than happy to respond to any comments here from the Angle community towards this proposal!