RFP 3: Improve RDNT On-Chain Liquidity for v2 - Fund Allocation

Radiant Foundation Proposals (RFPs) Archived RFPs
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Abstract
One of the issues facing the Radiant protocol in the early days has been the need for a deep on-chain liquidity pool for the RDNT token, with current total liquidity on-chain currently at ~$1M. While the liquidity pool is sufficient for small buys and sells, it is prohibitive for larger buyers and sellers. For example, a $25K buy of RDNT leads to a 4% price impact, which is not conducive to attracting funds and larger buyers and sellers.

While the initial approach was to attract external LP through heavily incentivized emissions, that proved to be an inefficient method, as the incentivized emissions in RDNT only led to a marginal increase in LP liquidity. The feedback that the community gave on this could be summarized as follows:

  • It did not make sense to LP when the single-sided RDNT token locking provided a compelling value in terms of protocol fees
  • The 50-50 pool has too much impermanent loss given the volatility of the RDNT token, and thus is not attractive to potential outside LPs
  • Using a WETH pair prevents LPs from taking advantage of the staked ETH yield, which has shown to be very compelling

While working on Radiant V2 architecture, critical community feedback discussed ways to improve liquidity, reduce slippage, and create a fairer exchange for users who provide value to the protocol.

Motivation
Improving on-chain liquidity would provide a more seamless experience for Radiant Protocol users as well as new entrants to Radiant across Arbitrum, BNB, and future chain deployments.

Specifications

  1. Shifting the current 50-50 Arbitrum RDNT-WETH pool (0.3% fee) on SushiSwap to an 80-20 RDNT-wstETH pool on Balancer Protocol (0.5% fee)
  • This proposal will lead to meaningfully less IL than on a 50-50 pool, and the “ask” of LPs in terms of putting up ETH is meaningfully less than the 50-50 pool
  • While the price impact on 80-20 pools is greater than 50-50, the additional capital this will attract will more than offset the price impact changes and on a net basis, will improve liquidity and reduce slippage overall on-chain
  • Using an LSD (liquid staking derivative) on Balancer would make this eligible for one of Balancer’s core pools, which means that Balancer’s portion of the protocol fees (50%) would be refunded in the form of bribes to the LP pool
  • A slightly higher trading fee is also a disincentive mechanism for instantly dumping RDNT earned through emissions and is more in line with the volatility profile of the RDNT token
  • Changing the WETH pair to wstETH (wrapped staked ETH through Lido) allows LPs also to take advantage of staked ETH yield on top of the fees they are earning as an LP, removing the opportunity cost of becoming an LP with WETH
  • There isn’t an adequate Balancer-equivalent on BNB Chain, so that LP pool will need to be 50-50 RDNT-WBNB, or potentially a staked wBNB derivative
  1. Radiant V2 Functionality - Requiring Locked LP tokens instead of single-sided RDNT to earn protocol fees on all chains
  • Solely locking RDNT tokens does not improve liquidity of the protocol; rather it serves to delay tokens coming into the market. By requiring locking LP tokens instead of single sided RDNT, the liquidity profile will meaningfully improve for the RDNT token
  • The exchange of value here has been imbalanced, as it makes sense for those with “skin in the game” to be the ones that are the beneficiaries of protocol fees. These are the users that provide liquidity and enable the protocol to operate more seamlessly
  • This would apply to Arbitrum when re-launched with v2 functionality, BNB, and any additional chains the Radiant protocol deploys to
  • With LP tokens capturing all of the protocol fees, the feedback would be to eliminate Pool2 emissions entirely, as a way to further reduce RDNT inflation (LP staking emissions have already been reduced 85%)

Steps to Implement

  • Upon launch of v2, move current Arbitrum 50-50 RDNT-WETH Sushi pool (0.3% fee) to an 80-20 RDNT-wstETH Balancer pool (0.5% fee)
  • Shift protocol fees from single sided staking RDNT lockers to locked LP tokens (Balancer Pool Tokens for Arbitrum, PCS for BNB, etc.) to earn protocol fees
  • Reduce “Pool2” emissions to 0

Timeline
These changes would be put into effect upon the v2 launch of the protocol. Would do so gradually so there would be some overlap of 50/50 and 80/20 pools, but locking LP tokens would be implemented at launch of v2

Overall Cost
Minimal. This would be a shift of existing liquidity.

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Great approach to improve Liquidity and also reward users who provide value to the protocol (Totally agree that single rdnt locking does not provide any value to the protocol).

Also in the future I would look to implement a protocol owned liquidity mechanism, because liquidity is still dependant on investors money. (Same RDNT-wstETH LP for a discount on ETH from Platform Fees).

Best regards!

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Good idea @Gerhard , a compliment to this that would allow for more PoL is something that the protocol should consider. There are some open-source tools that allow for this as well.

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Yes, logical advices imo.

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Please give more option for the single-sided RDNT token locking because some people as me don’t want to lost my token through IL eventhough little token.
Willing to lock in long-term period to receive reward, example: 3 months, 6 months, 1 year. This will help the protocol locking the token in long-term instead of 28 days right now

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how on earth single sided RDNT locking doesn’t provide any value to the protocol, since the first day u encouraged users to lock tokens " locking RDNT will always have the lion’s share" u can’t force ur users to face IL in a bear market no matter what fees u offer, at least make it even between locking and LP, or offer RDNT/USDC LP, but neglecting single sided lockers from protocol fees is a suicide, and i want this issue to be up to vote, as it’s supposedly a DAO

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I think it’s great but I am curious about a couple things. Are we keeping the 4week initial lock time like rdnt has now, but with LP? Or will it be tiered like 1 month, 3 months, 1 year, etc? Also is it beneficial or necessary to have both weth/rdnt and wsteth/rdnt options? I would prefer the wstETH but I imagine some may prefer just weth.

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Having our liquidity splitted when it is so small right now wouldnt be such a good idea I think. Maybe if we manage to make it deeper it would be better. Also the wsteth approach is not bad as steth keep gaining value over time and helps pushing rdnt up.

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Thanks for the comment @Andyhoang1

This is being taken under consideration as part of the feedback cycle, as well as comments from all tokenholders.

“helping the protocol through locking longer” isn’t necessarily true though. Whether the tokens are locked or liquid, it doesn’t improve liquidity, or make cross-chain any easier (through liquidity on other chains). It simply delays selling.

Many DeFi 1.0 protocols, including Radiant in its launch, took this approach, but the feedback from tokenholders and advisors has been pretty overwhelmingly towards an approach whereby protocol fees are more reserved for users that are providing utility to the protocol through more direct mechanisms

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Please refrain from using hyperbolic language like, “neglecting single sided lockers is a suicide”.

Let’s address other points:

“U can’t force ur users to face IL in a bear market” - the protocol doesn’t “force” anyone to do anything. If the approach doesn’t agree with you, always free to leave at any point. There’s no forcing mechanism, anywhere.

“Or Offer RDNT/USDC LP” - You’ve shown your concerns about IL, but don’t seem to understand basic IL principles that there would be greater IL with RDNT/USDC than RDNT/ETH or RDNT/wstETH

“I want this issue to be up to a vote, supposedly its a DAO” → this is exactly what will be happening, and you’ll be able to make your voice heard through a vote.

Thanks for the feedback!

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Ok thanks, now that you explained it that makes sense not to split it between two and wstETH sounds like the better option.

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i really don’t know what hyperbolic language means but it sounds bad :sweat_smile: pardon my language as i am not a native English speaker, so some words might seem aggressive, however no harm intended. about the IL if the 2 sides like RDNT/ETH both are volatile wouldn’t that cause more IL than a one side volatile asset. and really how staking just RDNT isn’t beneficial for the protocol. and no, I am not leaving anytime soon.

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In response to @3antar, it is important to mention that the LP would be in 80/20 proportion and not typical 50/50, this reduces IL of price swings greatly (this is a great approach for new tokens that faces grat volatility).

If you want a fast example but lets say that rdnt price grows 5x from now and steth stays constanT, normal IL on this case would be around 25%. However for 80/20 LP the IL would be 12%. Also that means you can form LPs without risking that big proportion of your ether and still get trading fees.

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Here’s a good video to watch that explains in more detail than I can:

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Something to think about regarding impermanent loss:

Let’s take a look at the 7d price lines for the “big 3”:
image

See how they tend to move in tandem? When thinking in terms of IL between an LP pair, it’s not much about the price volatility of each of the individual tokens, but the price volatility of the individual tokens in relation to one another.

With that in mind, factor in market tides. When the price of BTC and/or ETH goes up (or down) week-over-week, it is often indicative of general market behavior.

Now that we’re thinking in terms of relational volatility, let’s look at two overlays:
image

The top shows two volatile assets (BTC/ETH) in relation to each other over a 7d window, whereas the bottom shows one volatile asset paired with a stable (BTC/USDT). Because stablecoins by design don’t react to overall market conditions, the relational volatility between the BTC/USDT pair is significantly higher.

This is what @arosenthal4 is referring to when he explained that there would be greater IL potential with an LP pair such as RDNT/USDC vs RDNT/ETH.

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I am not a fan of this proposal as written. While I understand the need to fix the payouts, I really wish people that run these projects and come up with ideas would consider tax consequences first. I realize these are somewhat country dependent, and I come from a USA perspective, but many countries have similar structures. Let me explain by way of some examples:

First, when I claim rewards I have to report fair market value (FMV) of the rewards as income, which is taxed at the highest rate. The nice thing about receiving a mix of stable coins (DAI, USDC, and USDT) is that I can convert those into cash and it just about (but not quite) pays the income taxes I owe on the rest of the rewards (RDNT, WETH, and WBTC). This allows me to keep my volatile coins and only have to pay short or long-term capital gains on the difference in price from when I claimed them (the basis) and when I sell them.

When I but LP tokens on a liquidity pool platform I am forced to incur a sell event for the tokens swapped for LP tokens (i.e., ETH and RDNT in this case). This forces a capital gain/loss event at the time of the swap. Similarly, when I convert the LP token back into the native tokens(s) used to buy it, there is another sell event (for tax purposes), and another capital gain/loss event. In addition, I have to report income on the difference between the original price of the LP token and the selling price when converting back into the native tokens (ETH and RDNT). I prefer to avoid this, particularly with ETH, because ETH value may rise again in substantial quantity, and I’d have income tax on the difference.

I really like the approach taken by Midas investments and strongly encourage the team and members to read their docs. Midas provides you with your own unique wallet address when you stake native coins (stable or volatile). Under this scenario, there are no taxable transactions for deposits (sending money to the platform) or withdrawals except for the interest earned (whether in native MIDAS tokens or the original token deposited (like USDC). The user gets to choose whether they want to receive MIDAS tokens for a higher interest return, or the deposited tokens for a lower (but still good) interest return.

It would be nice if the team could figure out some way to keep the current distribution scenario (RDNT, ETH, BTC, DAI, USDC, and USDT) while allowing the DOA treasury to manage all the investments behind the scenes so users do not have to buy and sell LP tokens at all. There could also be variable lock up periods (e.g., 7-day, 14-day, 28-day, 3-month) that pay different rates. This gives the users maximum flexibility with minimum tax consequences.

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the market has changed no one’s easily buying into crazy high emissions anymore. my proposal is to allow wstETH/RDNT and ETH/RDNT LP tokens minting against ETH and other stables. what really matter is to cut the max supply to 1/10 of the current ceiling and allow LP token holders to get rewarded with 80% protocol fees and all swap fees
allow single sided staking to get 1/10 of the current token emissions + receiving 20% of the protocol fees. TVL and liquidity flood gates will open if you did this. which will fit into the real yield narrative.

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I agree we should keep liquidity in the one place.

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I don’t agree that single staking doesn’t bring value to the protocol. It keeps $RDNT far away from market. If you trust protocol and want to earn by using it You need to buy the $RDNT and lock it. In my opinion what we can do better is to set up the longer peroid. The longest time - the higher fee share. The penalty mechanism is pretty cool. I agree that LP providers bring more value to the protocol. We can incetive people to provide LP by setting up higher fees share. Inflation is high - enough for everyone ;).

The mechanism should be straight - the more vaule You bring to the protocol you will earn higher % of fee share.

:grinning:

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A question: are you saying 80% RDNT 20% ETH, or are you proposing 80% ETH 20% RDNT? Not clear to me.