Shade Protocol Community,
To date, SILK has generated approximately 29.2k SILK in unrealized interest fees.
*Columns for calculating SILK interest (from left to right) use the following equations:
`Total SILK borrowed in vault` (reported by front-end) - (`Max Allowance` (reported by contract) - `Allowances` (per vault, reported on front-end))
`Total SILK borrowed in vault` (reported by front-end) - `Allowance used` (reported by contract)
Given the following market conditions for SILK, we suggest the protocol realize the unrealized SILK interest fees that totals ~29.2k SILK ($32k at market rate) and pair that with SHD in the SILK <> SHD LP on ShadeSwap.
Estimated Liquidity Provided:
- 29,000 SILK (~$32k at market price)
- 28,829 SHD (~$32k @ 1.11 per SHD)
11420.6 SHD was unbonded from the SHD <> KUJI LP, detailed in this previous forum post: Liquidity Management Response to Kujira Ecosystem Instability; if this SHD amount were repurposed for the SHD <> SILK LP, we’d effectively need to introduce another 17,408 SHD, which is ~50% larger than the average amount of SHD deployed across LPs with existing POL deals.
Rationale:
The SHD <> SILK pool is ShadeSwap’s most heavily incentivized pool, and it has the lowest TVL/$ incentive of all pools that have existed more than a month (most of our pools) meaning that this pair is not attracting as much liquidity per $ of incentives as other pairs. It is also the highest fee generation pair across ShadeSwap. If the protocol we’re able to deploy significant amounts of protocol owned liquidity to the SILK <> SHD pair, the protocol could reduce its overall emissions to the SILK <> SHD pair, generate additional yield for SHD buybacks in the future as well as provide an extra $500 of trading depth with less than 1% price impact.
Overall savings estimates:
- Current SILK <> SHD TVL: $339.9k
- Current SILK <> SHD LP reward emission rate: 210 SHD per day
- Vol/TVL (liquidity utilization ratio) over the past 2 months for SILK <> SHD: 14.95%
- Estimated TVL increase if proposal is implemented: $64k (+18.8%)
- Estimated possible emissions reduction: 39.5 SHD (per day); 14,432.5 SHD (annualized)
- Estimated increase in daily swap fees (assuming constant TVL and Vol/TVL): $28.7 per day ($10,480 annualized)
- This number goes up the more SHD price goes up.
Given that SHD is at its lowest historical price range, if we believe that activity and fee generation will increase in the future, this LP position could be advantageous for the protocol to acquire more SILK (via impermanent loss).
Alternatively, this SILK could be used for SHD buybacks although the lasting impact on the Shade Ecosystem would be fairly minimal. If 29k SILK were used to buyback SHD on the open market in a single swap, it would cause 19.63% price impact, moving the price from $1.11 to $1.328. While this SHD buyback would indeed be the largest single SHD buyback in protocol history (~24566 SHD at current prices), and would be quite a moral/marketing boost for the ecosystem, it is likely this would be short lived.
Overall, we believe that the use of current unrealized SILK interest fees to deepen liquidity in the SHD/SILK pool has the best short/medium/long term outcome relative to other possibilities. In the future if the protocol wishes to utilize the assets in the SHD/SILK LP in a different manner, this would still be possible as the protocol still owns the liquidity.
Onward and Upwards,
Shade Protocol Contributors.