Enhance INST Liquidity Through Protocol-Owned Liquidity Pool on Fluid DEX

Summary

This proposal seeks approval to utilize 5% of the total INST supply, currently held by governance, to establish a protocol-owned liquidity pool. The aim is to address the growing liquidity crunch caused by increased buying demand for INST, ensuring sustainable market depth and price stability.

Context

INST, the governance token of the Fluid protocol, is experiencing unprecedented buying demand, creating a liquidity crunch in the market. While this indicates strong market confidence, it poses a risk of exhausting available liquidity. Currently, the price of INST is approximately $5.5, and current market liquidity could be almost entirely depleted around the $6.5-7 price point.

To address this, we propose increasing market liquidity via a protocol-owned liquidity pool. This approach not only resolves the immediate liquidity issue but also ensures long-term stability and ownership over the pool, reducing reliance on external liquidity providers.

Majority of current liquidity in the current INST pool on Uniswap is of Instadapp’s biggest whale (7 siblings) which they received via the INST airdrop 3 years ago and has been sitting idle in the pool for the past 2-3 years. We really appreciate the “7 siblings” for becoming an LP and providing a deep healthy liquidity for INST. (Note: Fluid/Instadapp team has no contact with 7 siblings)

Proposal

  1. Allocate 5% of Total INST Supply: Governance will allocate 5% of the total INST supply to seed a protocol-owned liquidity pool.
  2. Pool Configuration:
    • Swap fee: 1%
    • Initial Price and Range: Upon deployment, the pool will start with:
    • Center Price: $17.320508075688775
    • Lower Range: $6 (or more depends on INST price)
    • Upper Range: $50
  3. DEX Pool Deployment: This liquidity will be deployed strategically on Fluid DEX.
  4. Benefits:
    • Prevents liquidity exhaustion amidst growing demand.
    • Stabilizes market conditions, avoiding unnecessary price volatility.
    • Strengthens governance control and sustainability of liquidity resources.

Note: range order will be created right above current INST price to avoid selling INST in the open market, allowing only new buyers to buy from this pool, having no effect on current INST pools & price.

Implementation Plan

  1. Team multisig will deploy the INST-ETH pool on Fluid DEX.
  2. Upon governance proposal execution:
    • Governance will transfer 5% INST to team multisig.
    • Team multisig will become auth of INST-ETH DEX and Vault to allow setting configs of pools according to market situation.
  3. Upon team multisig getting funds & becomes auth
    • Team multisig will set up the pool & vault.
    • Team multisig will create the one sided pool position with received INST.
    • Team multisig will send the pool position back to the governance treasury.

Voting Options

  • For: Approve the allocation of 5% of total INST supply for the protocol-owned liquidity pool.
  • Against: Reject the proposal.
9 Likes

In favour of this, although I think it would also be good to begin considering improving INST’s CEX visibility and listings and entertaining discussions with MMs

4 Likes

why set swap fee at 1%?

seems unnecessary, i propose 0.3% swap fee or lower

you want to incentivize trading/volume, fees can be made elsewhere

3 Likes

Seconding this, why favouring a 1% fee pool over a lower one?

Think this makes a lot of sense but similar to others would suggest considering a 0.3% swap fee - as the primary aim is to create good buying & selling UX.

2 Likes

On which network will the pool be deployed?
Currently, Inst is available on Mainet and Polygon.

If providing liquidity is the primary goal 0.3% fee would be better!
I think the proposal would make more sense to provide a range in ETH vs $, since we are in a general period of rapid $ re-pricings.

Target Range:

  • Lower Range: 0.00175 ETH
  • Upper Range: 0.01458 ETH

This should be executed asap.

2 Likes

The pool is of ETH-INST the range will also be in that. We mentioned $ value for easier understanding.

1 Like

I argue that one point in favor of maintaining the suggested 1% is avoid setting a precedent for the dynamic pair trading fee that favors INST trading over future pairs.

The main reason why the proposed fee is set to 1% is that the existing uniswap pool Is also set to 1% and INST token/liquidity is overall not very mature, higher trading fee should result in less volatility and will help to deepen liquidity of the pool if the trading volume is high. Over time, the trading fee can be reduced via a governance vote

2 Likes

Isn’t putting 5% of the supply already enough to dampen volatiliy?
Fluid branding is around better capital efficiency, putting the token on the 1% fee pool doesn’t seem very on brand.

All ok, but 1% fee is not suiting our Most capital efficient Dex protocol.

In favor. The important part is to get higher liquidity for now. We can always decrease the fee once we have a higher volume.