GIP-26: Partner with 1inch to increase GNO:1INCH liquidity
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GIP: 26
title: Partner with 1inch to increase GNO:1INCH liquidity
author: Karpatkey
status: phase 2
type: Meta
created: 2022-02-01
Simple Summary
This is a continuation of F117’s post.
As part of the growth of GnosisDAO’s strategic partnerships, increasing the liquidity of pairs with our GNO token and our partners’ is in our DAO’s best interest. This creates synergy between us and our partners, strengthening both our token and theirs in terms of potential price increase and reduced volatility.
Abstract
We would partner with 1inch and create a GNO:1inch liquidity pool that could be deposited on 1Inch protocol, running on Gnosis Chain. In this particular case, there’s the positive side effect that increasing overall liquidity in the Gnosis Chain also makes it more appealing for investors in the DeFi ecosystem as both tokens would support each other’s prices, creating long term economic alignment.
Motivation
1inch is one of the most popular DEX Aggregators in the DeFi ecosystem, and it lacks liquidity of the GNO:1INCH pair. We believe that creating this liquidity pool will be beneficial for both tokens, contributing to their long term price stability and providing users with sufficient liquid funds to exchange their tokens.
Specification
We’d work jointly with the 1inch team to create the liquidity pool in several batches to minimize slippage, aiming for 0.1%, to prevent arbitration that would result in loss of funds for 1inch and GnosisDAO.
Rationale
The iterative pool creation process is a best practice which results in slippage minimization and reduced arbitrage opportunities which lead to loss of funds from both parties, causing an evitable unwanted side effect.
The 1inch team will lead the process, since the pool will most likely be created in their platform.
What is the rationale behind a GNO:1INCH pair? Wouldn’t a GNO:ETH pair on one of the existing Gnosischain AMM be more liquid? For example, Swapr has already this pair. Gnosis could add their own protocol-owned liquidity to the Swapr pair.
who trades GNO:1inch? if liquidity is low (below few millions), no trasanctions will be routed via the pool. can expect this pool to not generate any added at this stage. although I’m a big fan of 1inch.
I am going to urge this community NOT to fall into the 1Hive HNY trap of trying to foster LP via GNO and every TOM, DICK and HARRY token.
The best way for communities to cross support each other are to do token swaps and then pair their tokens in something like a single TOKEN-STABLECOIN v2 LP.
Why?
Because almost every community token doesn’t have sufficient value to back other communities
Liquidity fragmentation just creates a lot of high slippage pairs which won’t generate trading volume.
Increases vs. decreased crypto Token price correlation
Less fees in Token1-Token2 LP pairs than Token1-Stable and Token2-Stable
Because DAO owned Token-Stable LP is actually a better investment in a community than Token1-Token2 LP
Over time with sufficient trading and DAO owned liquidity these Token-Stablecoin contracts will hoover up the remaining Token liquidity via fees which DCA’s the tokens and stablecoins over time.
As seen from 1Hive and Honeyswap trying to focus on HNY-Token pairs vs. trying to build strong liquidity in the Token-wxDAI pairs. What 1Hive ended up with is pretty fragmented HNY liquidity that also has strong price correlations and lower fee generation. It has done nothing for the HNY price (at all) and in fact has been a strong drain on the key Honeyswap HNY-wxDAI liquidity over time causing pricing pressure not just on HNY but every token coupled with HNY.
I can’t urge this statement strong enough:
“DAOs need to resist the urge to pair their tokens with other communities as this does not increase trading, or liquidity but in the end fragments and decreases it leaving each community built value vulnerable to various forms of parasitic value drains via inflation of other community tokens”
Instead if two communities want to support each other they should do a DAO token swap and then take Stablecoin cash to add to the communities primary v2 TOKEN-STABLECOIN LP helping bolster each communities value (via the size of the LP trading pool and cash it contains) and decorrelating token prices from each other as much as possible.
Hi @PhiMarHal. The rationale behind is to allow 1INCH traders use 1INCH with the deepest liquidity asset on Gnosis Chain, GNO. We will build liquidity with all kind of tokens with GNO on Gnosis Chain. We’ve already added GNO:ETH on Swapr, Elk, Honeyswap, Sushiswap and will continue to do so.
Hi @Cryptoanalyst. Right now nobody trades GNO-1INCH but this will change with 1inch joining Gnosis Chain and routing all kinds of tokens against 1inch, like ETH, BTC and xDAI.
I agree with you if we consider cases like HNY on Gnosis Chain and GNO on mainnet.
The most effective way to create liquidity is with pairs that are the most liquid ones in the networks. HNY and GNO are not very liquid on these networks so all of your points are valid.
This is not the case for GNO on Gnosis Chain. We are working to make GNO the most liquid token on Gnosis Chain. If we can achieve this, it makes sense to pair most tokens on Gnosis Chain to GNO.