We propose the incentivization of the USDC side of a new VST-USDC liquidity pool on Wombat. By adding this liquidity pool, we take advantage of Wombat’s novel stableswap algorithm, which is able to provide Vesta users with more options for trading and liquidity provision. We plan to provide 1500 VSTA bribe to the gauge voting for this pool for two months as a first commitment to ensure that liquidity providers are incentivized appropriately.
Motivation
As the product development team drive toward protocol v2, we aim to ensure that the current product VST meets leverage demand. As of now, the Curve pool is off-balance by 200k and we also aim to push forth wstETH as a new collateral with 600k of mint cap. To ensure that the token goes back to peg even as we add potentially 600k in selling pressure, we need to ensure that the liquidity pool is able to remain at equilibrium by adding more liquidity.
Specification
We hope to add a VST-USDC liquidity pool on Wombat. Wombat has a stableswap that’s set up differently from the rest of the market - it allows for single-token staking using its unique asset-liability model, which makes it possible to add liquidity for only one side of the liquidity pool. This is a good fit for Vesta as VST is consistently used as a tool for leverage, thus seeing lots of selling pressure.
About Wombat
Total market size: $95.64M
Reaching over 78.6K followers in Twitter and 10,153 members in Discord
We propose to allocate 1,500 VSTA each week for two months as a first commitment to fund a VST-USDC pool, specifically the USDC side. Vesta plan to bootstrap the VST side of the liquidity pool first to ensure that the swap price isn’t completely imbalanced. Overtime, as more and more people lever up using VST, the pool will increasingly become more occupied by VST, pushing the pool toward equilibrium, allowing the protocol to slowly withdraw the initial liquidity.
Looking across the current pools on Wombat, we see an average APR of 15-20% for the fiat-backed stablecoins. Assuming that our pool has USDC’s side reaching 20% APR, 1500 VSTA per week combined with a bribing efficiency of 200% would sustain roughly 390k in USDC liquidity. Vesta aims to supply the VST side initially to ensure pricing equilibrium, then slowly withdraw VST as leverage demand increases. We welcome any suggestion on the exact logistics.
Timeline
This poll/discussion period will be live for a week and if passed, the official voting will commence immediately and will take place over three days.
I’m definitely in favor of increasing liquidity against USDC. The FRAX gauge has been OK but IMO VST really needs additional pairs.
I’d never heard of Wombat before, but I’m intrigued by their mechanism design. I see they also have several security audits, so that’s good.
I’m tentatively in favor, but I’m curious if the Vesta team has a rationale for why they chose Wombat for this pool rather than an established player like Balancer, Curve, or something like Camelot.
Also curious about the rationale behind choosing to do the bribes on Wombat.
We would have a strong preference for Balancer or Curve.
Maybe this gets a bit less APR but has a lower risk, and bribes through Hidden Hand or Paladin are still efficient. Convex also has an Arbitrum deployment and there are no good stable pools available there yet, so it would get a lot of eyes there. Unless Wombat is offering some additional incentives or the APRs really will be that different, we would suggest going with Balancer or Curve for this initiative.
Please see the below quote for why I am in favor of using Wombat.
To further elaborate - VST does not need to incentivize VST side of the liquidity as there’s natural demand for people to generate VST and then selling them into the liquidity pool. Looking at all the periods when VST were below-peg, they were all caused by how there was natural demand for gaining more exposure to underlying collateral, thus generating more VST. In that process, almost all newly generated VST are usually then directly sold for the underlying collateral. As a result, what we need is to fund the other side of the liquidity pool, thus providing people with the liquidity that is needed for leverage.
I like what you guys/gals are doing a lot! As Wombat strives to be the default stableswap, I think the collaboration between Wombat and Vesta makes sense. It’s important to have sufficient liquidity and slippage on a stablecoin, and that’s what we do best. Furthermore, I think the ethos for both protocols has a lot of similarities – simplicity and ease of use to help push DeFi to the next stage. That’s what we ultimately need because for DeFi to grow, we must make it easy for the masses to use.
I’m dedicated to making Wombat a success on Arbitrum and other chains and growing DeFi, and I would love for the Vesta ecosystem to be part of the journey together.
I’m excited to see the potential of this VST/USDC pool on Wombat! The innovative stableswap mechanism that Wombat offers seems like a great fit for Vesta, and I believe it will effectively address the liquidity and leverage demands of the community. Kudos to mikey and the team for exploring this opportunity and sharing it with us. Looking forward to seeing this proposal pass and the positive impact it will have on the ecosystem. Let’s continue to innovate and grow together!