TLDR: Proposal to add pickle jars that take advantage of high yield LP on balancer.exchange, starting with wBTC/wETH
Balancer is a unique AMM that allows for multiple tokens to be added to one pool in a certain percentage and presents arbitrage opportunities for people to keep tokens in this range. This means that one can create a pool with more than one pair of tokens, presenting a large area of potential yield farming opportunities.
Balancer incentivizes LPs by distributing BAL governance tokens once a week based on providing liquidity to whitelisted tokens, as well as harvests fees for LPs. This proposal is to create a new strategy that hasn’t been seen in any vault products before - utilizing the balancer pools as a vault strategy, starting with the uncapped wBTC / wETH pool.
Time for the numbers:
wBTC / wETH Pool
- Volume: $2,315,665.27 / 24hr
- Total APY: 28.14%
- Total Liquidity: $84,900,082.69
- Total Factor (multiplier for BAL rewards - 1 is best): 0.99
This pool has sufficient volume and liquidity to support a pickle jar, and an untapped market allows for pickle to be a differentiator in the aggregator scheme. My proposal is to create a simple Balancer strategy which would follow the below workflow:
- User deposits into wBTC / wETH pool and receives a BPT token (a BPT token is the LP token for balancer)
- User deposits BPT token into pickle jar
- Pickle jar polls balancer reward contract when block_count % 6609 == 0 (Once per day) to see if there are rewards available, these rewards are claimed and sold for 50/50 wBTC/wETH and restaked to the balancer pool, increasing the BPT amount
- Any non-like pair (and like pairs but not to any real effective point) that is on a AMM has some form of impermanent loss. If the price of bitcoin or ethereum moves in a significant way without the other following, the LP will face impermanent loss which may be disadvantageous to using the pickle jar
- wBTC is a centralized solution which has some risk of the central authority locking funds or losing peg.
- Should BAL tokens be sold and restaked or should these be held to claim?
- Is IL a big issue, or is the automatic reinvesting of BAL and the potential PICKLE / BAL rewards enough to cover this?
To create this pickle jar, we will need to create a base strategy for balancer that includes an interface for the below implementations:
- https://github.com/balancer-labs/erc20-redeemable - the redeem contract for BAL tokens
- https://docs.balancer.finance/smart-contracts/core-contracts/api - The API to join and exit the pool
- UniswapV2 logic found in other strategies
This seems like a low-risk, big time win for Pickle, which would allow for further iterations down the road to have a symbiotic relationship with other yield farming aggregators which do not take advantage of balancer at this time. Please let me know what you all think and if this is worth pursuing further!