Add a PICKLE/WBTC Pool

Current discourse revolves mostly around slashing rewards to PICKLEPOWER LPs, Governance-for-Stakers and Post-UNI-Farms.

I would like to make a proposal to add another Pool: ORANGEPOWER (or ORANGEPICKLE, I am sure the community can come up with something funny and memetic).

As @yyctrader has pointed out, the massive liquidity we enjoy in our PICKLE/ETH LP has both benefits and drawbacks. I would like to think that adding a second PICKLE LP would help alleviate some of the catch-22s we would find ourselves in when trying to reduce TVL without hurting the project.

First, let’s recap

TOO MUCH LP?
We have an inordinate amount of Liquidity in our Pool in relation ot the TVL in our other Jars, market cap of PICKLE and we rewards this LP extremely well, almost to the point that we are unable to allocate enough rewards to other Jars. Governance being tied to LP tokens is another problem (if you see it as such), as it puts the power into those most benefiting from the current setup.

Traders and Farmers can offload large amounts without impacting price heavily. As a trader myself, I cannot fail to see the benefits of this. However, it does make the price very stable, as equal amounts of BUY pressure are needed to push the price back up, and the natural inflation of supply would dictate that there isn’t enough of that (the last couple of weeks of price action would confirm, I think).

That being said, we cannot strip those who provide the baseline to the market-side of the project’s success of their incentive.

PROVIDE OUTSIDE INCENTIVE TO TRADE
By introducing a PICKLE LP Pool that is comprised of PICKLE and WBTC, we can achieve the baseline goal: Reducing Liquidity of the pool.
We have not, however, been able to address the issue that most traffic is either driven by LPs and farmers cashing in their rewards, and a very few whales playing the price of PICKLE.
We need to incentivise trading and traffic by making use of the natural arbitrage opportunities these two pools present. How?

By introducing another leg to stand on.

Let’s assume Two Pools:

X=ExP and Y=PxB (E = Ethereum, P = Pickle, B = Bitcoin)

Any change in price of E or B would affect the price of P in the other pool, incentivising a market participant to make a transaction either in Pool X or Pool Y to bring the two pools in sync.

To roughly outline the price developments, I have done a very basic DoD-price-change calculation over all three assets in the last 30 days.

Absolute and Relative Price Action

ETH/BTC: While the two assets still basically are aligned, over the last 30 days, we’ve had daily price fluctuations from -8% to +7% in this pair (abs average at 2.1%, median 1.6%).

PICKLE/USD: From 29 to 15 to 20 USD (abs average and median price change DoD 22% and 23% respectively).

PICKLE/ETH: 13 to 25 to 15 to 23, implying a DoD change from -18% to +52% (abs average 6.3% median 3.3%).

BTC/PICKLE (easier to express this way around): From 400 to 870 to 750, displaying DoD changes from -20 to +48% (abs average 6.5%, median 3.5%).

Reduced TVL increases Volatility

Having stated all of the above, assuming an average PICKLE trading volume of 500k USD per day the maximum price impact this would have executed in one single order ranges to about 2.8%. Since not all transactions are pointed in one direction, the actual price impact is actually lower (in ETH terms, as a large portion of the PICKLE price hinges on ETH price changes).

By reducing TVL in the PICKLE/ETH pool, we enable slightly more volatility, adding to the arbitrage opportunitis that present themselves by virtue of triangulation (ETH->BTC->PICKLE), but without actually taking away LP incentives.

Taking into account the amount of PICKLES it would take to equalize the arbitrage opportunities (outlined above in the “The Liquidity Conundrum”) I would expect a vast increase of trading activity. With most of the supply being locked up in either LP or STAKE, I would additionally argue that a larger than presently available amount of it would present itself in the shape of buying power by outside entities that want to exploit said arbitrage.

Proposal and Rewards

I therefore propose to

  • Implement a PICKLE/WBTC pool for the reasons outlined.
  • split the PICKLE POWER rewards 50/50 between the ETH and the potential WBTC pool.

The added incentive to trade between the two pools while keeping the overall rewards the same (or adjusting by community vote) will provide additional revenue to LP providers, making it attractive all the wile reducing liquidity of each pool, making it more shallow and more attractive to trade on via the arbitrage opportunities presented above.

The Sheets I have used to make these calculations are a hot mess. I am more than happy to share but they might not be self-explanatory (using my breakfast time to work this out).

Comments welcome.

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Would voting also be given to the new pickle/btc pool? If so, that presents a sizable engineering challenge (per Devs) since the current method can only target one pool (eth/pickle) for Signal voting.

In addition, (my opinion) I think that having 2 smaller pools only increases volatility in a negative manner since you are intentionally creating volatility in a pool that should be relatively stable by design.

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@2weiX, I understand your point and the value of doing that, it could increase profits for LP’s and could reduce the need for artificial incentivization.

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Welp, yeah. I guess that can be quadrate’d out.

The point of contention is if there’s too much TVL to make PICKLE “too stable” (see the “Conundrum” post). I do agree with that assumption. My suggestion would increase volatility without robbing LPs of their revenue source (infact, increase it) and facilitate all the upside of it without the downside.