Problem/some observations
The LPs which are currently incentivized on Algofi V2 are all STBL2-… pairs, this means the most liquidity on the protocol is concentrated around STBL2. If someone now wants to swap from ALGO to goBTC it might be better from them to first swap to STBL2 and then to goBTC on Algofi.
Algorand as a whole has a liquidity problem where not enough liquidity is on chain to makes decent swaps without big price impact. DEX aggregators help with that but this also means less swaps on Algofi since everything gets spread out. Additionally, STBL2 the protocols own decentralized overcollateralized stablecoin (backed by multiple assets) sets us apart from other Defi protocols on Algorand and thats why we should focus on it.
Idea:
I am proposing to doubling down on this idea of the importance of STBL2 such that the liquidity gets also more concentrated so its more feasible to use the Algofi DEX in the following way:
have a simple routing feature on the DEX where if you want to swap from for example ALGO to TOKEN it would check if there is are STBL2-ALGO and STBL2-TOKEN pairs and compare this to the (if it exists) ALGO-TOKEN pair and take the better route. in this way people supplying STBL2-… liquidity will also earn more fees since their pool might get used more often
future LP token that will be incentivized should be mainly STBL2-… pairs (that means sth like a goBTC-ALGO Lending pool should not be directly incentivized). exceptions could be me made ofc if there is the need for an ALGO-TOKEN pair for that specific TOKEN (like USDC-ALGO is an important LP which should get incenitivized)
Possible issues:
-Core devs would have to say if its possible and if its too time consuming to implement. i would like the routing feature to be on chain if possible
-some people prefer ALGO-… pools probably because of the similar way the tokens move which could help with IL. additionally ASAs are mostly paired with ALGO since their success is also closely tied to the one of ALGO (for now)
-will DEX aggregators make this simple routing feature obsolote? then the questions becomes if we should rely on these 3rd party DEX aggregators
Why now?
I would love some discussions about this because I think its important to be clear about how Algofi wants to incentivize the growth of STBL2 and its use, this could be a way to do this. Additionally new proposals might launch soon about new Lending pools and there should be a clear strategy before we have a lot of different Lending Pools with low liquidity
Edit:
matthew had a good point: obv one would have to check if the price impact by routing is actually worth double the swap fees (2*0.25%=0.5%), otherwise the routing feature would not be feasible
possible solution:
what one additionally could think of is fee reduction for STBL2 pools to stay competitive with other DEXs (idea mentioned by matthew), i propose that would be 0.15% fees for swapping (which goes to liquidity providers), so that if you route through STBL2 pools you end up with at max 0.3% swap fees which is normal. additionally this 0.15% could make swapping via STBL2 more attractive to people.
possible issue:
the question would be is 0.15% enough for liquidity providers to provide liquidity? i think if we only have Lending Pools (that earn lending rewards) with the reduced swap fees that get further incentivized via BANK emissions this could be a viable strat. additionally by the routing feature pools STBL2 would get used more often and the reduction to 0.15% wouldnt be so bad
I am in this camp, but I also like your idea. I don’t think they are mutually exclusive.
One way to boost Algo/BTC LP would be to allow users to use it as collateral. We are already able to use Algo and BTC separately so this is an easy implementation. This can be an easy, low hanging fruit, first step.
thats exactly the problem tho, if now Lending Pools like ALGO-goBTC get implemented we will have the same problem as we’ve always had: multiple pools all with low liquidity
In my opinion we should be more focused on implementing new Lending Pools only if they fit within a strategy and I propose this strategy to be STBL2 focused
We already have goBTC lending and Algo Lending on there own. It only adds options and utility adding Algo/goBTC LP as an option for lending. Or the other option would be to just leave LP in other dexs. I don’t see how that Helps AlgoFi.
I agree more on @lobo with this. I think trying to get ALGO/XYZ pairs highly liquid on AlgoFi would require a lot of incentivization and could end up backfiring. STBL2 pairs turn people off from the IL and more naturally require rewards to get people to LP for it. If the devs can implement order routing for ALGO- pairs that route through STBL2- pairs it would bypass the need.
Making STBL2 pairs as liquid as possible will make the lending platform more efficient. The more efficient it is, the more strategies it opens up for whales, which will help drive larger positions, larger swaps, and more volume all which benefits us more as LPs
I think you guys are missing my point. There’s no need to incentivize this ALGO/goBTC LP beyond giving the utility of being able to use it as collateral. We already have the ability to use goBTC as collateral so nothing changes on that end. This just allows users to also stake the Algo/goBTC as collateral instead of just goBTC alone. This helps AlgoFi. At most, take some of the incentive allocated towards just staking BTC alone and add it to the LP side. Just adding this utility could help bring some LP over from Pact which currently has the deepest Algo/goBTC LP.
AlgoFi isn’t changing their rewards structure, and nothing else changes from the other proposed ideas.
I did misinterpret you and assumed that you meant it should be incentivized as well, so apologies there. Adding Algo/goBTC pairs to be used as collateral is something I am for and just saw your proposal
matthew had a good point: obv one would have to check if the price impact by routing is actually worth double the swap fees (2*0.25%=0.5%), otherwise the routing feature would not be feasible
what one additionally could think of is fee reduction for STBL2 pools to stay competitive with other DEXs (idea mentioned by matthew), i propose that would be 0.15% fees for swapping (which goes to liquidity providers), so that if you route through STBL2 pools you end up with at max 0.3% swap fees which is normal. additionally this 0.15% could make swapping via STBL2 more attractive to people. the question would be is 0.15% enough for liquidity providers to provide liquidity? i think if we only have Lending Pools with the reduced swap fees that get further incentivized via BANK emissions this could be a viable strat