Currently we have an incentivized GRO/GVT LP pool earning around 110% APY (variable and forward looking). But I question the effectiveness of the pool as a source of liquidity. The LP pair (including the one outside of the incentivized pool), has around $2m liquidity.
Using the same link we can also see that the number of trades in that pool is not much (though generally $GRO itself doesn’t have had a lot of on-chain volume, but this is still less than usual). Most trades are contract activities, and I would think this would be heavily originated from MEV/arbitrage bots in general. Etherscan may have a more complete list of trades (includes liquidity removal/addition)
Part of why GRO/GVT pair has low volume is likely related to how “difficult” (including fees) it is to obtain GVT. The only way to obtain GVT is either by trading it for $GRO in the past, or minting new ones from the app. The first is more suited for active traders and arbitrageurs while the latter incurs high fees and overall UX blockers since you can’t use an aggregator like 1inch or Matcha.
Moreover, considering the fact that GVT has a higher known expectation of increasing in value vs $GRO (so far), most participants should be more willing to not trade GVT for $GRO in most situations. The likely case where there is going to be organic demand for trading GVT away for $GRO is when GVT is expected to drop in value a.k.a hack or something similar. But as we’ve seen this may allow unexpected front-running between GVT holders which leaves a sour taste (though can be argued to be fair game in a market). It also doesn’t help that it doesn’t create more GVT TVL.
But more likely than not, those who choose to sell GVT in such situations will likely want to trade GVT for some stablecoin, which means that $GRO’s overall price/liquidity will also be impacted. My instincts and opinions say that for a highly liquid this trade action will likely not move the needle (or slightly). But for $GRO which is essentially a micro-cap (as is most tokens), paired with the slippage inefficiency of constant product AMMs (Uniswap/Sushiswap) for larger volumes (relative to the pool) I feel like this would result in further downward momentum in addition to negative perception on $GRO after an incident.
In conclusion, I can’t find a good reason for continuing to incentivize the GRO/GVT pair. Even if we don’t incentivize it and every LP holder decides to remove their GVT and convert it to stables through the dApp, we would only be losing a theoretical $1m in TVL. This doesn’t include the fact that there may be restrictions from the dApp to maintain protection for PWRD, so it may not be a full drain of TVL (plus some might want to just stick it in the Vault pool). And the removal of the pool incentivization will increase the APYs for the other staking pools
Of course, losing some liquidity for $GRO is also not great. In total (from what I can) we have these liquidity:
Not sure what happened to the Uni V3 maintained by Visor… But as you can see we have around $8.5m which is not bad but it is also scattered which means each individual pool is less effective as a liquidity source. And liquidity is going to be more important (and important in general) as more of the rewards/airdrops enter the market, which from my Dune dashboard is right now at 4m $GRO (not all perhaps will enter the market). There is also the $GRO buybacks which can incur slippage. And finally there’s also the possibility of $GRO bribes through Convex in the future. Ideally we can bolster the current liquidity pools so that we don’t create more liquidity fragmentation and better support on-chain volume, better slippage and overall make $GRO attractive to trade
We can consider furthering incentives for liquidity for a more common LP pair e.g GRO/USDC, GRO/FRAX, GRO/ETH etc. We may even try to pair against a token/protocol where the incentives can come from the partner protocol. We can also consider to borrow using the treasury for something like Fei LaaS program (or just straight up borrowing from Aave/Compound/Rari/Reflexer). Being more aggressive with Olympus Pro program (consider GRO/USDC or a more common pairing for now). Or possibly just deploy some of the USDC and GRO in the treasury as an LP pair, but understandably this may be perceived as providing exit liquidity and is not attractive as.
Looking forward the community’s thoughts