TLDR - Use $300m allocation to become the dominant liquidity director on Tokemak through strategic LP positions in TOKE/ETH and ILV/ETH to accrue TOKE tokens
Note that my strategic proposal is also cross posted to my mirror. Note that since I am a ‘new user’, I am only allowed to post 2 links. If you want to see the full list of links, please refer to my mirror post. Phrases that have [ ] will be where original links were removed.
This is my strategic proposal in response to the Yearn Millennium Prize . I propose a strategy that utilizes recent innovations in DeFi and will allow Yearn to play a leading role in the [emerging LaaS] (liquidity as a service) DeFi industry. The strategy has the potential to organically scale to over $1b and will serve as one of the largest catalysts of change, creating an enormous amount of value for both DeFi and the web 3.0 ecosystem as a whole. The expectation for this strategy to be successful is that it creates more value than it takes and that the ‘returns/gains’ will only be a by-product of the value generated to the rest of the ecosystem.
With a $300m allocation, this strategy will create a liquidity highway and position Yearn as the dominant [Tokemak liquidity director]. This will allow Yearn to direct liquidity flow on Tokemak towards projects of choice, the first being[ Illuvium] which is the NFT RPG game where you mine, harvest, capture, and fight Illuvials with an open beta set to launch in Q1 2022.
The $300m strategic allocation will be split between $150m ETH and $150m USDC. $150m will go towards TOKE/ETH LP and $150m to ILV/ETH LP, two of the most liquid LPs on Ethereum. TOKE/ETH has ~$375m liquidity split on sushi and uniswap and yields ~190% APR. Each TOKE/ETH LP is allocated 13,300 TOKE per day. ILV/ETH has about $400m liquidity in the pool and yields ~400% APY. Both of these LPs were selected because they have deep liquidity on Ethereum and sufficiently high APRs such that diluting either pool by $150m will keep APRs sufficiently high.
Although the liquidity is sufficiently deep, there is limited volume every day, with TOKE/ETH at $21m and ILV/ETH at $54m [7 day volumes]. Extrapolating these 7 day numbers gives TOKE/ETH ~$84m and ILV/ETH ~$216m monthly volume, which is sufficient liquidity to dollar cost average into these positions over a 1-2 month period. During this wait period, there is an option to deposit $150m ETH and $150m USDC into the Tokemak genesis pools to start accumulating TOKE. Each genesis pool is allocated 1,410 TOKE per day per pool. Currently ETH genesis pool sits at $433m TVL at 9% APR and USDC genesis pool sits at $217m TVL at 18% APR. This will allow for optimal accumulation of TOKE.
The returns from this strategy will initially be denominated in TOKE and ILV tokens. The more TOKE that the strategy accumulates, the more weight there will be to direct liquidity. The more weight to direct liquidity, the more TOKE that can be accumulated which gives more weight to direct liquidity, thus creating a positive feedback loop. This also implies that the strategy will scale to over $1b entirely through organic growth.
With Tokemaks C.o.R.E. 2 (collateralization of reactors event) ending November 17th 2021, the top 5 tokens with the most votes will be approved to have their own Tokemak reactors. Currently ILV [is in 7th place] and requires ~250k votes to reach the top 5. Suppose that Yearn had accumulated a sizable share of TOKE voting power. Then Yearn would be able to throw votes to ILV, boost it into the top 5, and secure a reactor. Reactors are currently allocated 700 TOKE a day for staked tokens. Once a reactor is secured, the ILV that is being farmed from ILV/ETH LP can be deposited to earn even more TOKE, thus entrenching Yearn’s position as the dominant liquidity director on Tokemak. Even if ILV does not make it into the top 5 at the end of C.o.R.E. 2, the votes will be carried over to C.o.R.E. 3 and there will always be another chance to secure a reactor.
In conclusion, this strategy will cement Yearn as a critical Tokemak player. Yearn will play an important role in [DeFi 2.0] and will be uniquely able to grant both increased liquidity depth and capital efficiency to any projects that Yearn chooses to direct Tokemak liquidity towards. Yearn will provide critical liquidity infrastructure to support the continued growth of the web 3.0 ecosystem.