Single Asset Provision to Telx

Council Proposals TELxIP
1

Single Asset Provision

Draft TelxIP – v1 (TyAkemi 20Nov24)

The following is a very high-level concept and will require technical discussion & costing for this to progress

Abstract Summary

Currently Telx is supported by 6 Liquidity Pools (facilitated through Balancer), which enable miners to provide liquidity through a combination of a few specific assets and in return offer varying rates of rewards. However, this it is a complicated, multi-step process, which many potential users find restrictive and prohibits general participation in the platform. This in turn leads to reduced liquidity which can cause underlying issues with price volatility, difficulty trading and even price manipulation.

This proposal attempts to make the process of providing liquidity easier for the general user through simplifying the actual process, and extending the number of assets that can be provided by the user, leading to increased liquidity

Background to the Problem

Personal Observations when using current Telx

I often have spare coin/token that I could provide as liquidity to gain APR (assuming the coins are all on Polygon – and if not, there is an additional step of Bridging to polygon)

Issues / Problems to overcome

  • That coin may not be coins participating in 1 of the 6 current pools
    • so first I have to swap – which is obviously quite easy to do but may require 1 (or 2 at most) swaps to get those coins into one of the participating 7 coins in the current pools (currently Tel, wBTC, wETH, wMatic/POL, DFX, USDC & BAL).
  • I then have to decide in which Pool to invest – which is in practice a difficult decision due to:
    • Varying rates of IL wrt each coin – so need to understand how IL works
      • This in turn boils down to a complex guess since you have to estimate how one coin will perform pricewise wrt the other coin (over the timeframe in which you want to invest)
    • Different rates of return from each Pool
    • Different volume throughput / different fee generation
    • potentially different rates of future reward allocation that could alter during the investment timeframe

So, all in all this is a fairly complex step and in itself can put people off participating!

  • then its a 2-step process – which again the user needs to understand:
    • Provide Liquidity to Balancer Pool
      • Need to know the mechanics of that , - optimisation, and in what ratio to provide 2 / 3 coin combinations
    • Then take LP token from Balancer & remember to Stake in Telx
      • Necessitates jumping between platforms

Overall – quite an involved process, user needs to make a lot of decisions along the way, and so can be just “too hard “ for potential participants !

Not hugely complex once you get your head around the steps, but I’m sure off putting to a number of users who just want to see some return for their coin.

Specification of the Solution

Proposed Design Objectives for Single Asset Provision (SAP)

Simple User Interface – to attract more users and make it easier to deposit liquidity (one click) so that Telx can take advantage of this Generic Liquidity provided.

This makes it easier for the user to provide LP and may even be extended as a in-app feature to enable mobile user to provide LP from the Tel app using the simple 1-click concepts

Basic Idea

To provide Liquidity

  • Connect your wallet to Telx
  • Have a Telx form to select coin and amount to invest
  • Click submit.
  • Need some sort of dashboard so user can track their investment

To withdraw Liquidity

  • Give the user the option to withdraw Liquidity in Tel.

Claim Rewards

Rewards are accumulated as now (every block) based on fixed rate of Total LP (determined as part of TELX Council rewards issuance) and can be withdrawn anytime

It will have to be decided through Telx & Treasury Council whether to increase overall Tel issuance to provide rewards for this pool or re-adjust current Tel issuance levels to accommodate this additional feature.

Mechanics

User is providing Liquidity into a Generic (virtual) Pool that offers a fixed rate of return of Tel as reward

In the background

  • The coin the user is providing is swapped (via maybe 1 or 2 routes into Tel (the measurement of liquidity invested)
  • That Liquidity is then directed to an actual pool based on the following premise

Premise - Not all liquidity pools are equal

  • Different pools have varying trx volume throughput
  • Different pools have varying liquidity requirements
    • Calculate each pool’s ratio of volume/transaction (voltrx ratio)
  • Using his ratio should enable pools to be “balanced” by bringing each pool’s voltrx to as close a similar level as possible
    • New Liquidity provision should be directed to pools with a lower voltrx to bring them up to balance
    • Same applies for withdrawing Liquidity – should be taken from a pool that has high voltrx ratio to bring it down to balance

This idea would obviously require some degree of smart contract work and UI development so will require some technical input for feasibility and costing (see below)

Resource needs

Tbd – Technical Team

Financial requirements – cost

Tbd – Technical Team

Timeline (milestones and significant target dates)

asap

Rational behind proposal

If the overall process is easier for the user, this will encourage new miners to participate leading to increased Liquidity, reduced volatility, & better trading prices

It will also expand the exposure of Telx and opportunities for new users onboarded through MNO’s in the future

Provide a useful first step to expose the concepts and benefits of Defi to new and existing users.

Risk and mitigation strategy

tbc

Potential alternatives (if relevant)

The alternative is to reject this proposal, maintaining status quo, and so missing the benefits and advantages this proposal would bring to Telx

Feasibility (consider Legal, Technical, Economic, Financial, political impact)

Tbd – Compliance Council

Clear Implementation Plan – potential Conflicts and Dependencies

Tbd in consultation with the technical team

Metrics for success / KPI factors

The following metrics can be used to measure success

  • Overall Total Liquidity
  • Staked Liquidity in the new generic pool
  • Overall Volume
  • Fees

Proposal monitoring / development implementation checkpoints

Periodic checks on number of minors using the generic pool and volume of Liquidity provided – should both increase over time

Overall Telcoin Mission alignment and Values

There is close alignment with the overall objectives of Telx

2

I like the proposition.
I have one major concern though: what about the IL the users would possibly (and very probably) encounter in the process?
Let’s say I provide 1m TEL to this SAP, and the smart contract swaps 20% of it to provide liquidity in the pools.
TEL’s price then goes up (compared to the other assets), and now my LP tokens (managed by the smart contract) only represent 750k TEL and the value of 200k TEL in other assets.
Would I accept to withdraw my investment in full TEL and accept the loss of 5% of my initial?

My point is that it simplifies the process of providing liquidity, sure. But it doesn’t prevent a participant from suffering Impermanent Loss.
I can already foresee less savvy users whining about how they were promised a 20% yield from the process, but had their yield turn to zero due to IL, and not understanding why.

3

Hii William - thanks for your response.
I think the risk of IL is present whenever and however you provide Liquidity to an AMM pool. It is the nature of the beast. I’ve struggled with the concept of IL and IG (Impermanent Gain) over the course of me personally investing in LP, and what I’ve found is the time you invest in any pool makes a difference - the rewards clawed back plus the fees help off set the IL - So you cant just consider the underlying price of the Assets to measure IL without taking into account the value of the rewards and fees to measure the overall success of your investment . I’ve been in the current TEL-DFX-USD pool since inception and currently I’m looking at an overall IL of approx -18% but overall when you take into account the rewards over the period a 17% profit. So I feel there is a sweet spot where the level of rewards/fees over the time you’ve invested fees balance the IL and make the overall investment good. It’s finding that level that’s the key. I’ve some ideas how to track all that and I’m hoping the dashboard I’m proposing will present the user with a degree of comfort and give good visability to how their investment is tracking. So IL will just be something that is there in the background but overshadowed by the overall return

4

Interesting idea. Are there any benefits or ecosystem advantages in ensuring
that the only/single asset provision is $TEL?

For this scenario and ease of use, users would need to use their existing $TEL holdings, acquire $TEL from the market and/or swap existing assets to $TEL prior to providing liquidity.

More established and technical users could continue to provide liquidity the way they do now.

5

Hi Boo…I hear what you are saying …but the idea was to allow any asset that is supported thru the Tel app, to be used, really to avoid that additional step of manually swapping to Tel. Of course they can use Tel as the SAP but it was to encourage users and make it easy for them to invest the assets they normally couldn’t use. The ecosystem would benefit since TVL would increase and more Tel would be acquired by the swapping into the exisitng “real” pools happening in the background

2 Likes
6

Thanks for clarifying. All good here!

1 Like
7

Seems like a lot of work just to avoid swapping to TEL on the app which is very easy and cheap. I understand the thought of a general pool where everyone could toss in some TEL and it would be put into whatever to level out liquidity pools but wouldn’t you want to put it into the best performing pool getting the most fees? Poor performing pools could be changed out to different better pair combo that might draw more interest

8

HI - thanks for your response. Its not just about swapping Tel…which I agree is very easy and straightforward through the app. The Tel wallet app is not web 3 and cannot connect to either Balance or Telx.
The main objective is to make it easier for the general user who is unfamiliar with Defi, Liquidity pools, and the inherent decisions, risks, and complexity that go along with providing Liquidity through the Telx platform. The general user may not understand how AMM pools work and the fact that currently you have to interact with two separate platforms , Balance and Telx and connect a different Web3 wallet to achieve any interaction makes it a cumbersome and involved process for the uninitiated.
If this proposal is accepted and implemented, it may also provide a stepping stone for extending LP provision to the app in the future

9

There is an updated version of the proposal (V2) posted on the Discord channel…which can be found here

This follows a discussion I had with Grant and Markus on 22/11/24

1 Like
10

There should be no hope of removing the risk of IL. There is no system by which a user can earn tel without risk of IL.

11

I have never stated anywhere that the risk of IL can be removed. In an earlier reply above to William I explain how by presenting the returns differently - you can help remove the fear of IL (which I would argue puts off a lot of potential providers).
“I think the risk of IL is present whenever and however you provide Liquidity to an AMM pool. It is the nature of the beast.”
“So IL will just be something that is there in the background but overshadowed by the overall return”

12

Yes, I understand. I intended to respond to William’s implied suggestion that there’s a way to remove the threat of IL. I do not believe that is possible.

13

all good. I think we’re on the same page here. You can never remove IL it’s inherent in the way AMM pools work. What I’m suggesting with the SAP proposal - would hopefully move it to the background and put the focus on overall returns to the foreground