Summary
Hop DAO should LP 25,000,000 HOP as single sided liquidity in the HOP/ETH 0.30% Univ3 pool on Ethereum. This will increase HOP liquidity and market depth while providing a natural source of diversification for the DAO.
Motivation
As Hop prepares for the launch of v2 and hopefully the ensuing growth of the protocol, now is the time to improve HOP liquidity and position the DAO for increased demand. Hop has not engaged any market makers or incentivized liquidity for HOP to date. I believe that this is the correct approach, however HOP liquidity is extremely low. This makes it difficult to enter positions and leads to significant price volatility. As of this past week, ~$500k of total buy orders would basically exhaust the entire Univ3 pool. This is a relatively small amount of liquidity and could prove problematic if Hop v2 significantly increases demand. I understand that some might say, āwow token shortage good, price go up bigā, but that approach is not sustainable. The current TVL of the HOP pool is approximately $280k. This proposal would increase the TVL by $1.2m which would put HOP in line with similar assets. Much of the TVL will be well above the current spot price of HOP which should limit potential adverse effects. As a community, I believe that having well aligned HOP holders is in our long-term best interest. Increasing HOP liquidity will create avenues for more participants to get on board in a reasonable manner.
Recent efforts to increase HOP liquidity are positive but still leave a ways to go. Single sided liquidity lets us LP meaningful amounts of HOP solely to the āupsideā of the price range. As the price of HOP increases, the DAO is gently selling HOP for ETH based on market demand. If the price of HOP decreases once this position is in range, there will be significantly more market depth to absorb selling. From my perspective, the biggest downside of this proposal is that it effectively creates resting sell orders for HOP that will need to be filled for the price to increase in the pool. I have tried to size the proposal appropriately to increase liquidity while not overburdening the market for HOP. The impact of additional HOP appears to be very reasonable. The next section explains the mechanics and practical implications for the position.
Mechanics of Execution
I will caveat this by saying that it is difficult to model Univ3 positions and that this should be generally accurate but may be slightly off ā please keep in mind that everything is priced in ETH terms so that is an additional variable that makes precision challenging. If there is a great tool for modeling Univ3 positions, please let me know because this was all done manually.
This proposal would take 25,000,000 HOP held by the DAO and LP in a range from just above the current spot price to tick #6400 which equates to roughly a $6 HOP price. To provide context for the additional liquidity, this will add ~$250k of depth between the current spot price and $0.10 HOP. As the price of HOP increases, the dollar value of the depth increases as well (e.g. there is about 2x as much additional depth between $0.10 and $0.20, etc.). The current liquidity is fairly concentrated near the spot price; this proposal would greatly increase the longer tail of liquidity throughout this range. For the purpose of illustration, if the entire range were to be filled it would yield about $31m in ETH for the DAO. This proposal will not provide any liquidity for people to ādumpā on at the current prices and only comes into range if the price of HOP increases. If we determine that the liquidity is having negative impacts on HOP or unintended consequences, we can pull the liquidity at any time (I assume this would require a subsequent vote).
I believe that this proposal is a positive step towards creating a more robust environment for HOP ahead of v2 while also providing a gentle means of diversification for the DAO. Please let me know if you have any comments, suggestions or concerns.
Voting Options
- LP 25,000,000 HOP in specified range
- No action
- Abstain