[HOPR] Proposal - Arrakis PALM Launch Partners

Update 10/Nov/22

The initial liquidity composition will be decided by HOPR governance.

Update 09/Nov/22

In order to provide HOPR community more context and details regarding liquidity management in general and specifically from Arrakis, please have a listen to one of the latest AMAs we had.
Arrakis AMA 04/Nov/22

Author

@barbarossa_Arrakis
@Squirrel

Summary

Join the Arrakis Finance Genesis House and use Arrakis PALM on Uniswap V3.

Introduction to Arrakis Finance and Arrakis PALM

Arrakis Finance is a liquidity management protocol that helps project tokens bootstrap deep and sustainable liquidity in the most cost-effective way.

Since launch, Arrakis has achieved

  • $1.3 billion in TVL across Ethereum, Optimism and Polygon

  • 25% Uniswap V3 total TVL

  • 80 projects have their liquidity managed via Arrakis vaults

Arrakis PALM - Protocol Automated Liquidity Management - is a service that consists of a suite of liquidity management strategies researched and developed by Arrakis Core strategists (Bene Gesserit). It aims to help projects bootstrap and maintain sustainable and deep liquidity.

By leveraging the concentrated liquidity nature of Uniswap V3 and the hyper flexibility made possible by Arrakis infrastructure, PALM is able to create market making experience that resembles Central Limit Order Book (CLOB), and help projects

  1. Bootstrap liquidity by acquiring more base asset inventory. For instance, HOPR can seed the liquidity with an initial composition of 95HOPR/5DAI (or any other base asset). PALM’s bootstrapping strategies will progressively balance it towards 50/50. HOPR can now allocate more of its base assets to building the core products instead of liquidity provision.
  2. Execute market making strategies in a cost-effective, transparent and automated manner, to ensure deep and sustainable liquidity. After reaching a healthy liquidity composition, PALM will shift the focus to actively managing multiple concentrated ranges around the current price, to minimize slippage and sufficiently support ongoing trading activities.

Arrakis manages liquidity via Arrakis vaults, which tokenize liquidity positions originally represented as NFTs in Uniswap V3, hence making them fungible, composable, and able to be easily integrated into any protocol.

What is the Arrakis Finance Genesis House?
The Genesis House is the launch partner program Arrakis has set up for Arrakis PALM. A select group of projects can participate and be the first to use PALM.

There has been ongoing discussion between Arrakis and HOPR teams regarding how Arrakis can best support HOPR to improve its capital efficiency and strengthen its liquidity on Uniswap. And both teams concluded that using the services from Arrakis by participating in the Genesis House would bring the most and best benefits to HOPR, which means that HOPR would achieve deep liquidity much sustainably, co-marketing via the Arrakis Genesis House would bring more eyes to HOPR, and on top of all that, we would take part in new novel technological experiments.

In terms of security, the contracts are undergoing audits right now and no liquidity will be deployed until audits are successfully completed. In addition, there will be a whitelist for the smart contract- only the HOPR multisig address will be able to interact with it.

Background & Motivation

Currently, the liquidity situation for $HOPR can be summarized as below:

Pair TVL Slippage/$100k Swap DEX Network
HOPR/DAI $7m ~2% Uni V3 Ethereum
HOPR/WETH $195k ~2% Uni V3 Ethereum

As indicated from the table, even though with rather abundant liquidity compared with many other protocols, there is still a slippage of 2% for just a $100k worth swap, which is a clear indicator that there is significant room for $HOPR liquidity management to be optimized.

Therefore, we as Arrakis propose to provide HOPR with the full spectrum of liquidity management services on Uniswap V3 with PALM, to create deep and sustainable liquidity for $HOPR without the need of any liquidity incentives.

Specification

Depending on the liquidity situation of $HOPR at the time of the service being initiated, in general, the liquidity management will be conducted in 3 phases:

Phase 1 - Accumulation of base asset
HOPR deposits minimum $100k worth initial liquidity into an Arrakis managed vault, with an asset composition ratio decided by HOPR governance. The underlying strategy PALM will focus on the accumulation of the base asset if the initial liquidity consists of more $HOPR.

Phase 2 - Redefinition of liquidity ratio
Once there is sufficient base asset accumulated in the vault, HOPR can request to redefine the liquidity ratio of HOPR/base asset based on its own then-current market outlook, and Arrakis will adjust PALM accordingly to achieve and maintain the newly defined ratio. HOPR also has the option to dedicate such decision makings to a market maker, e.g. Arrakis.

Phase 3 - Growth & Expansion
More liquidity will be needed with the growth of both the trading volume and the demand for $HOPR to be tradable on other DEXs or networks. Arrakis will help HOPR manage liquidity both vertically, i.e. maintain a deep and sustainable liquidity pool with more inventory from HOPR to accommodate the increasing trading demand, and horizontally, i.e. seamlessly manage liquidity in all avenues by automatic rebalancing and arbitrage among them, therefore unifying isolated markets and fragmented liquidity into an efficient cross-DEX and cross-chain liquid market.

For the services provided, Arrakis charges fees on two fronts on a yearly basis:

  • Management fee: 1% of AUM
  • Performance fee: 50% of trading fees generated

Values Directly Added to HOPR

  • Arrakis will effectively become the liquidity management arm of HOPR and use its domain expertise to provide dedicated liquidity management solutions, while the HOPR core team can save the technical & operational overhead and focus its resources on building HOPR.
  • Only a limited amount of initial base asset inventory (or possibly 0 if there is already an existing market on Uniswap V3) is needed for Arrakis PALM.
  • Arrakis’ liquidity management solutions will significantly improve the current liquidity situation of $HOPR, and at the same time eliminate the need of liquidity incentive, hence preserving the value of HOPR from constant selling pressure by mercenary LPs otherwise.
  • Arrakis will also assist and advise on any market making related decision makings, and the future growth & expansion of HOPR liquidity, to provide a full spectrum of liquidity management services.

Reference

Website: https://www.arrakis.finance/
Twitter: https://twitter.com/ArrakisFinance
Discord: Arrakis Finance
Telegram: Telegram: Contact @arrakisfinance

Poll

First a poll for temp check

  • For
  • Against

0 voters

27 Likes

very good idea i support this

2 Likes

How do you make an NFT fugible and is it really an NFT anymore if you do this? Defining the asset seems important when trying to work within the confines of standard monetary/trading/tax policies around the world. Just want to make sure HOPR does not become a target of a three letter agency due to manipulation.

2 Likes

Arrakis has been pretty successful. Previous high monthly growth and as mentioned 25% of uniswap tvl.

1 Like

can you detail around your relationship with existing protocols, do you have a dedicated team for each project?

1 Like

The proposal seems fair, but I would strongly suggest hopr think of a reasonable amount above the 100,000 minimum to start with. TVL is impressive and the names of protocols partnered with are as well (though it might be nice to know what tvl is per well known protocol). However, Hopr should be cautious of putting its eggs in one basket for risk. Since the Hopr team seems to suggests a total of 500,000 for this experiment https://forum.hoprnet.org/t/some-important-context/4128, I might suggest the major amount of that (350,000) would be to Arrakis as they clearly manage a great deal more than Gamma and have larger protocol clients.

2 Likes

First of all, thanks for the super detailed proposal, looks great.
I just have one quick question about the “50% performance fee”

Is that an industry standard fee, so to say?
I do not have much experienice on this field, but seems a lot.
Wish you all the best :slight_smile:

1 Like

I kind of understand that liquidity can be more efficiently provided via concentrated liquidity, which I think is the main tool for Arrakis to help the HOPR liquidity to be more efficient, however, as I’m not an expert on this field, it is hard to imagine how efficient it can be.

It would be helpful for me to evaluate the proposal if there is some concrete examples with some figures. For example, how much would it have an (positive) impact on the incoming trading fees of the current HOPR/DAI and HOPR/ETH liquidity on Uniswap v3 if they would be managed by Arrakis (based on the current LP amount and trading volume)?

Also, I’m curious to hear what pair and the LP amount Arraki would suggest to get a reasonable positive outcome.

I found this video (How Arrakis Is Changing the Liquidity Management Game with Ari Rodriguez | #TheDeFiScoop Ep. 13 - YouTube) and quite impressed by that. Automated Liquidity Management is the future and it would be nice if HOPR can be part of the journey even though there is always some risks.

4 Likes

our vault interacts directly with Uniswap vanilla contract, meaning that there won’t be any NFT created, which greatly improves gas efficiency. All liquidity in a vault has the unified positions, and it is the vault that is tokenized into ERC20 standard, and each token represents a share/ownership of the liquidity in that vault. We have integrated with some partner protocols where our vault token can be used as collaterals.

1 Like

The automatic and permissionless nature of our strategies, in this case PALM, makes our liquidity management solutions highly scalable, so there is no need to have dedicated personnel for each partner project. At the same time, especially during the initial stage of the vault deployment, we routinely communicate with each partner to reflect the performance and assess the circumstances. We are also providing support to partners on ad hoc basis.

2 Likes

Because this is still a somewhat niche market, there isn’t a standard per se, afaik. What’s worth noting is that this 50% is over the trading fee earned, which typically isn’t a meaningful amount given how much initial liquidity that is asked in this proposal.

Just to give a sense of the numbers, another partner with a similar liquidity situation to HOPR indicated to us that the trading fee they earned on their POL is about 12 ETH over the past 12 months.

2 Likes

Definitely fair comment.

Our latest testing shows that our strategy is able to bootstrap the base asset for a project token from a 5/95 ratio to roughly 50/50 over the course of 11 to 12 weeks, during which time the token price action has been through both ups and downs.

In the case of $HOPR, because of the fact that there is already existing liquidity on UniV3, it would actually make our strategy work even more effectively because of the greater volume that can be facilitated.

Regarding the base asset to pair $HOPR with, the ultimate decision obviously shall come from HOPR governance based on its own circumstances and preference. Assuming Arrakis could make a pick, given the existing liquidity, then $DAI may be a somewhat better option, just because it has a bigger TVL that Arrakis PALM strategy better can take advantage of.

As to the initial amount, anything above the minimum we set is going to help the strategy perform better.

3 Likes

We all knew that, Hopr had GSR as MM. Could you please tell us what advantage comparation with them?

2 Likes

Thank you for your quick reply :slightly_smiling_face:

Could you maybe elaborate on this one?
I think you mean the ratio of the two paired tokens, but I don’t quite understand the meaning of 5/95 ratio becoming 50/50 and its merit.
You mentioned in the proposal that the initial composition can be 95HOPR/5DAI, for example, which will be progressively balanced to 50/50 (50HOPR/50DAI?). Does this mean the the HOPR/DAI liquidity can be managed with 50HOPR/50DAI although 1HOPR is not equal to 1DAI in value?

I’m sorry if this is obvious question for others…

2 Likes

I read your proposal is very impressed but i do not see any information about of insurance or guarantee in case of your platform get hack. What is solution? All Hopr-Dao liquid put on it (if you win the proposal). Please explain or some information about that issue. Thanks.

3 Likes

Does Arrakis only charge fees and maintenance starting in Phase 3 or is there an upfront basis which is not mentioned in the proposal?

1 Like

Me, too

1 Like

very clear and transparent

1 Like

Since I personally don’t know how GSR operates, their track records, and the details of the MM deal between GSR and HOPR, I’ll abstain from making comparisons that lack of evidence, but only comment on what I do have knowledge of.

I think the most obvious distinction is the trustlessness Arrakis entails our partners, meaning that during the entire liquidity management process, HOPR retains the full custody of your liquidity and can withdraw it anytime without any social coordination needed. Arrakis is only managing on behalf of HOPR but not having any means to remove the liquidity under management. HOPR can even choose to revoke the management role from Arrakis at anytime - the true manifestation that code is the law.

The other distinction is the transparency. Because the strategy is operating on-chain, anyone can monitor the executions in real time, and even take actions if triggered by the observations.

Though I don’t know how GSR, or any other MM makes market on AMMs, I do have the confidence that we have the best infrastructure for market making dedicated to AMMs, as it is the outcome of lots of deep research and hard building, driven by the fact that the existing market lacks such infrastructure.

1 Like

I voted yes because it will improve HOPR’s liquidity. The main point should be paid to the security of the smart contract

2 Likes