[Proposal] Rebalancing Liquidity and Strengthening Strategic Reserves with an $ARB-$RDNT Yield IQ Vault

Abstract:

This proposal advocates for the strategic redeployment of 1,004,408 $ARB tokens from the Radiant DAO’s treasury into a $ARB-$RDNT Yield IQ Vault. This plan aims to rectify the liquidity imbalance in the $RDNT-$ETH Uniswap V3 pool, amplify $ARB’s significance as a base asset on Uniswap V3, encourage long-term engagement from dynamic liquidity providers (dLPs), and progressively expand the Radiant DAO $ARB token reserve.

Specification:

The Yield IQ mechanism works in a straightforward yet efficient manner to deploy tokens into liquidity pools. This process starts with the deposit of the chosen token (in this case, $ARB tokens). These tokens are then placed into a concentrated liquidity automated market maker (AMM), such as Uniswap V3, for the purpose of earning trading fees. Importantly, no swap is conducted prior to this deployment.

In exchange for the deposit, liquidity provider (LP) tokens are issued to the depositor. Yield IQ, leveraging Chainlink Automation, manages these LP tokens through a dynamic algorithm that auto-adjusts the concentrated liquidity position. This auto-adjustment is informed by the inventory status of the single deposit asset and works to avoid over-selling this asset while maximizing income.

As trades occur within the liquidity pool, the depositor earns trading fees. This process serves to supplement any appreciation of the original token, thereby enhancing potential returns.

In the final stage, the Radiant DAO may withdraw their initial deposit and any earnings they have accrued at any time. This process involves the exchange of LP tokens for the depositor’s share of the assets in the liquidity vault.

By utilizing this method, we can deploy the $ARB tokens into the proposed pools, thereby enabling the Radiant DAO to earn trading fees, improve the liquidity of the $RDNT token, and strengthen both the Arbitrum and Radiant ecosystem.

Motivation:

The Radiant DAO treasury currently houses a strategic reserve of 1,004,408 $ARB tokens, representing 30% of the total $ARB token allocation from the Arbitrum DAO. The $RDNT-$ETH Uniswap V3 pool predominantly consists of $RDNT resulting in an imbalanced liquidity position that may dissuade potential dLPs. After our recent launch of Yield IQ on Arbitrum, we propose to utilize this reserve to create an $ARB-$RDNT Yield IQ Vault, a step we expect to optimize yields, rebalance liquidity, and solidify the Radiant ecosystem. Crucially, this move also aims to foster long-term dLP participation and gradually build up our $ARB holdings in the treasury.

Proposed Allocation:

In this proposal, we suggest allocating the entire strategic reserve of $ARB tokens (1,004,408 tokens) to the newly formed $ARB-$RDNT Yield IQ Vault. This measure will bolster liquidity in the $ARB-$RDNT pool, positioning it as the second-largest $RDNT Uniswap V3 pool, and setting it on course to eventually become the largest.

Utilization of $ARB tokens:

The strategic integration of these tokens into the $ARB-$RDNT Yield IQ Vault will address the liquidity imbalance and incentivize new users to engage with the Radiant protocol. It’s crucial to note that creating this Vault does not hinder the DAO from directing the strategic reserve towards other initiatives in the future as the tokens can be withdrawn anytime.

Vault Deployment:

Upon the proposal’s approval, the following steps will be activated:

  • A total of 1,004,408 $ARB tokens from the Radiant DAO treasury will be deposited to the $ARB-$RDNT Yield IQ Vault.
  • Yield IQ, leveraging Uniswap V3’s concentrated liquidity, will automatically manage the position in the range that the token price most frequently trades, ensuring high capital efficiency and optimized yields.
  • The Vault will be designed to generate both yield and trading fees, adding to the accumulation of $ARB tokens in our strategic reserve over time.
  • The Vault’s performance will be monitored regularly to gauge its impact on liquidity, yield generation, and $ARB accumulation.

Steps to Implement:

Once approved, the $ARB tokens will be relocated from the Radiant DAO treasury to the Yield IQ Vault. The performance of the Vault will be continuously scrutinized, allowing for the withdrawal of tokens if necessary.

Overall Cost/Impact:

The proposal entails a minimal cost, as it merely realigns existing tokens. The potential impact, however, is considerable, creating an opportunity to rebalance liquidity, attract new users, stimulate long-term dLP engagement, bolster the Radiant protocol, amplify yield generation, and progressively enlarge our $ARB token reserve in the treasury.

Timeline:

The process will be initiated immediately upon approval. The tokens will be transferred, and the Vault’s performance will be evaluated over a 90-day trial period. A decision to retain the Vault or retrieve the tokens will be based on this assessment.

About Yield IQ and ICHI

Yield IQ is perched on top of ICHI to optimize capital efficiency and yield generation using Uniswap V3’s concentrated liquidity.

Yield IQ’s deployment on Polygon has already proven successful, producing substantial yields and enhancing the ecosystem. To view its impressive performance on Polygon, please click here.

Voting:

In Favor: Endorse the reallocation of the strategic reserve of $ARB tokens into the $ARB-$RDNT Yield IQ Vault.

Against: Oppose the reallocation of the strategic reserve of $ARB tokens into the $ARB-$RDNT Yield IQ Vault.

Abstain: Undecided but contributing to quorum.

@cryptokimm thanks for putting this proposal up - it’s definitely a worthwhile consideration for the DAO.

Can you please apprise us of the following

  1. Any headline risks to the DAO’s treasury that may arise from this initiative?
  2. Whether, in a worst case scenario, say a hack on the protocols operational contracts, what would be the impact on this pool should RDNT price rapidly depreciate?

Many thanks!

I would suggest using Camelot as the main native DEX Arbitrum. Its functionality is more extensive compared to Uniswap and offers dynamic commission rates.

Good afternoon! Thanks for the questions! Happy to answer ~

For Question #1:

1)Strategy & market risk
Deposits in Yield IQ vaults are engaging in Liquidity provision, and thus are subject to risks associated with LP, such as divergent loss, costly arbitrage, and market volatility.

Yield IQ’s algorithm and vault contract is designed with these risks in mind.

To combat divergent loss & costly arbitrage, the algorithm prioritizes accumulation of deposit token, and it tracks token composition instead of price to limit the sale of the deposit token. When the market conditions causes LPs to sell the deposit token, the algorithm positions the liquidity to reduce the token available for sale while buying larger quantities of the deposit token back during pull back.

To control for market volatility, the algorithm identifies high or extreme market movements through monitoring TWAP. When high volatility is observed, it spreads out the liquidity to maintain stability. In extreme market conditions, the vault locks itself from further deposits and pause rebalancing to allow the team to evaluate the situation.

  1. Smart contract risk

The vault contract has been battle tested on major exchanges (e.g. Uniswap V3) across multiple chains for over a year. Multiple audits from high quality auditors have been conducted since launch, all passed with high remarks.

Certik Audit (2021, no code changes since): ICHI-Vault-2021-12-09 Audit.pdf - Google Drive
FYEO Audit (2023): ICHI Code - Quality Assessment Report (FYEO).pdf - Google Drive

For Question #2

In such worst case scenario, the $RDN drops in price against $ARB and thus any LP in this pool would effectively be buying $RDN and selling $ARB. Typical 50/50 strategy will sell out the $ARB very quickly as it rebalances after the token is sold through the price range and continue to be agnostic to price.

Yield IQ’s algorithm protects its users in this very case. It will

  1. observe that $ARB drops below 75% concentration, and thus spreads out $ARB liquidity to reduce the speed to sale, and concentrate $RDN liquidity so it buys larger chunk of $ARB in any pull back.

  2. observe high volatility in the $ARB-$RDN pair and spread out the liquidity to further reduce the speed of selling $ARB.

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