SIP-13 sETH/wETH Pool, and the Golden Liquidity Pool Model

Proposal:

Note: This is a community proposal with no modifications, posted as is (except for typo fixes).

Market making for Pegged assets with low slippage are the cornerstone product offering of the SWRV ecosystem. Synthetix offers a no-slippage, chainlink oracle-based set of synthetic assets, with no-slippage trades between any asset pairs though their platform. The marriage of these two products has the potential to be an extremely significant driving force of the 3 most popular assets in the DeFi ecosystem, ETH, BTC, and USD.

We propose the creation of a ‘Golden Liquidity Pool’ which should rapidly become the most sought-after trading product on the Ethereum chain. By creating 3 low-fee low-slippage pools on Swerve, for each of ETH/BTC/USD, with all of them containing a synthetic asset (sETH/sBTC/sUSD), it would be possible to route trades ACROSS assets, using the Synthetix.Exchange platform to facilitate the inter-asset trades. On top of this, Synthetix has a Volume Incentive program, which will share 0.075% of all trades generated on their platform back to the referrer, further boosting our return on such trades.

We propose this be done in phases:

Phase 1: Meth is bad. How about seth-weth-eth?

The first phase is the creation of a sETH/wETH pool, which should be relatively simple, as well as a slam dunk for product/market fit. There is a lot of ETH looking for yield, and the current offerings for sETH/ETH are Uniswap (unattractive 0.3% trading fee and shitty bonding curve and no extra yield) or Balancer (bonding curve).

Currently, there is over 7k ETH ($2.5m) in Balancer/UNI sETH/ETH that could instantly switch over, and we believe that with SWRV rewards and boosting, could even potentially attract some yETH vault holders to switch over, as well.

Added to the UI would be the option to deposit in either ETH/wETH/sETH, while the underlying pool would handle the wrapping/unwrapping of wETH, as necessary.

Phase 2: Operation Golden Gate

The real goal of this feature is to allow cross-asset pool trades, as outlined in the initial description. Phase 2 would require the further creation of one or more pegged-asset pools containing a Synthetic asset (we propose a ‘Holy Trinity’ approach, to include a stablecoin pool containing sUSD, and a BTC pool containing sBTC), as well as developing a means to trade on Synthetix.exchange between these assets within a SWRV trade.

This phase would be longer and more complex, and would require collaboration with the Synthetix core team, but would enable the vast majority of all collateral in the entire DeFi ecosystem (ETH+BTC+stablecoins) to be converted on the Swerve with the best price on chain, especially as the trade sizes get larger and larger (Due to S.X no-slippage system). There are a variety of complexities to work through, and this SIP is not meant to be an exhaustive explanation of how it will work, so will require further proposals in the future.

At the end of this phase, Traders should be able to come to the SWRV UI and trade any amount of ETH/BTC/USD for any of the others, and only pay 0.33% trading fee (0.075% + 0.03% = .105% total fee going to SWRV platform, for all trades of any size).

The potential platform return of these 3 pools, alone is astounding, and the volume incentives from Synthetix platform should supplement the treasury nicely.

Phase 3 & Beyond: Peg ALL the Assets

After the initial holy trinity, essentially any asset that has a sToken could be added to the pool, and attract large depositors seeking yield. sLINK/LINK seems an obvious pair, but as with phase 2, new pools will come by way of new SIP in the future.

PS: Considering most of the community members have locked their SWRV in preparation for on-chain votes, this proposal uses Block 10,886,360 (same as SIP-10, SIP-12, SIP-9-T4) for SWRV snapshot so everyone can vote the SWRV they held earlier prior to locking.

Options:

  • Yes - sETH me up!
  • No - pass for now!

Off-chain Vote:
https://snapshot.page/#/swerve/proposal/QmU4tAtVioz4anju4vFL6wpAQfsDVuV5KmL4Puu3JsSy4B