Overview:
A multi-asset constant market maker pool (CSMM) comprised of three synthetic assets (uUSD/uXTZ/uBTC) will be established to provide users with zero-slippage spot trading services with a 0.3% fee, based on real-time prices from Oracles.
Specific Proposal:
1、YLP Token
The LP token of the CSMM pool will be established as the YLP token, with the target ratio of the three assets in the pool set as (uUSD: 40%, uXTZ: 40%, uBTC: 20%). The YLP token is equivalent to a basket of token fund shares.
2、YLP Buy
1）YLP can be purchased through XTZ/USDT/tzBTC/uXTZ/uUSD/uBTC, where the actual process of purchasing is injecting the token into the pool and minting YLP. The XTZ/USDT/tzBTC assets will be converted to their corresponding synthetic assets by the front-end system using 3Route before being injected. (Key: This appears to the user as a purchase operation.)
2）To maintain balance, the purchase fee rate will be adjusted dynamically based on the deviation between the proportion of uUSD/uXTZ/uBTC assets in the pool and the target ratio, with a lower fee rate for a larger deviation downward and a higher fee rate for a larger deviation upward, with a fee rate range of [0%, 0.5%].
3、YLP Sale
1）The sale process of YLP is burning YLP and returning uXTZ/uUSD/uBTC based on the user’s choice. (Key: This appears to the user as a sale operation.)
2）To maintain balance, the sale fee rate will be adjusted dynamically based on the deviation between the proportion of uUSD/uXTZ/uBTC assets in the pool and the target ratio, with a higher fee rate for a larger deviation downward and a lower fee rate for a larger deviation upward, with a fee rate range of [0.5%, 0%].
4、YLP Earning
1）Suggest to stop the 70YOU reward emission from the current uUSD/uBTC CPMM Farm and instead allocate it to the YLP staking pool.
2）Suggest to allocate 2% from the interest earned from synthetic asset Lending (this ratio should be adjusted dynamically based on the detachment of the synthetic asset) and automatically swap it to YOU. 1% will continue to be allocated to the unified YOU staking pool, and the remaining portion will be fully allocated to the YLP staking pool.
3）0.3% of Swapping fees, where 0.25% will be automatically swapped to YOU and allocated to the YLP staking pool.
4）It is also suggested that during the cold startup phase, the weekly 5000YOU emission from the minting rewards in YIP-010 be allocated to the YLP staking pool. After the cold start phase, this reward can be used for other purposes such as supporting market maker plans.
5、Swap
1）Swap users can buy and sell between uUSD,uXTZ and uBTC through the CSMM pool
2）Swap user can buy at most 10% of the asset in the pool
3）Swapping with 0.3% fee and no slippage
4）Swapping price by the Oracles
5）The pool will be used by 3Route and Temple wallet when users Swapping between USDT,XTZ,tzBTC…
6、YOU Holders’ Benefits
1）0.3% of Swapping fees from the CSMM pool, where 0.05% will be automatically swapped to YOU and allocated to the unified YOU staking pool.
2）One-time fees from the purchase and sale of YLP, which will be automatically swapped to YOU and allocated to the unified YOU staking pool.
Analysis content:
1、Feasibility:
1）From the LP’s perspective, since YLP is equivalent to an index fund composed of (uUSD: 40%, uXTZ: 40%, uBTC: 20%), the acceptance of liquidity providers is high, and there is a strong willingness to participate.
2）YOU’s rewards are attractive enough before the transaction fee revenue is sufficient to support the TVL.
3）The synthetic assets in the pool originally come from the Saving pool, and it is reasonable to distribute part of interest income. The distribution ratio of interest income also helps the synthetic assets pegged and guide the orderly flow of funds between the Saving pool and the CSMM pool.
4）From the trading user’s perspective, due to the current 0.5% slippage for $1000 trades on DEX, there is enough attraction for high demand trades above $1000, the higher the transaction volume, the greater the attraction.
5）By dynamically adjusting YLP’s trading fees, liquidity providers are encouraged to buy more of the assets with a smaller proportion in the pool or to exit the assets with a larger proportion, thus balancing the asset ratio in the CSMM pool.
2、Advantages:
1）YOU can receive great buying pressure support. The YLP purchase and sales fees and 0.05% transaction fee revenue greatly increase the yield of the YOU pledge pool.
2）Three synthetic assets participate more deeply in the trading process, increasing the use case and benefiting the further growth of the scale.
3）Currently, the TVL of XTZ/USDT in the Tezos DeFi system is only in the million-dollar level, only suitable for transactions of a few thousand dollars. There is an advantage for transactions above $1000.
4）The trading volume also brings more trading volume to three CFMM pools, such as uXTZ/XTZ, uUSD/USDT, and uBTC/tzBTC.
5）Provides users with a new index fund product.
6）The modification to the original Youves system is minimal and risks are manageable.
3、Risks
- When the proportion of uBTC and uETH is lower than the target ratio in a unilaterally rising market, or the proportion of uUSD is lower than the target ratio in a unilaterally falling market, YLP will have some lose. We need to take some measures to help the CSMM pool quickly restore balance
- Other possible arbitrage risks, such as users buying and selling during periods of violent price fluctuations. The system maybe can terminate the transaction by judging the degree of price fluctuation.
Reference information
GMX on Arbitrum
And special thanks for @coredump 's help.