We propose that Synapse should look to augment the current nUSD & nETH liquidity pools by using actively managed concentrated liquidity pools. To do so, the Synapse DAO should engage with liquidity partners who will provide locked, fixed term liquidity in pools that LPs are incentivized to actively rebalance when needed. We propose Nima Capital to be the first liquidity partner, providing $40m of actively managed stablecoin liquidity for a 12-month term.
One month ago, Googly made a proposal highlighting the current inefficiencies of Synapse’s emissions and liquidity: https://forum.synapseprotocol.com/d/242-recalibrating-syn-emissions
SYN emissions currently inflate the circulating supply at 5.7%, or $12mm at the current price, per annum. Those emissions are directed towards nUSD pools, collectively home to ~$55m in TVL. While the distribution of emissions per pool is meant to direct liquidity towards pools with the highest utilization (and away from those with the lowest utilization), in practice, this has not materialized. Why? Markets are inefficient.
How can we fix this? We think the root of utilization disparity lies not with an inefficient distribution of incentives, but rather, with the lack of active, quantitatively driven liquidity rebalancing.
Under the current stableswap AMM implementation, 95% of the total liquidity is typically unutilized due to the nature of the AMM curve.
This means that the majority of SYN incentives are wasted as liquidity is only drawn upon in tail scenarios. By building actively managed concentrated liquidity, a-la-RFQ, we believe we can increase liquidity efficiency by 20-50x compared to current utilization & spreads. However, this requires controlled liquidity & active management, and, as a result, is not feasible under the current passive third-party liquidity provision model.
Therefore, our proposal is as follows:
- Nima Capital provides $40mm of twelve-month locked stablecoin liquidity.
a. This TVL will be programmatically rebalanced as required to tighten quotes on the most utilized pools.
i. We believe $40mm of actively managed stablecoin liquidity can be 20-50x more efficient than today’s 55mm in passive stablecoin liquidity.
- Nima Capital receives a SYN grant from the DAO via the Foundation of the currently planned stablecoin emissions and 33% of bridge & swap fees for the duration of the term, aligning a long-term capital partner with the DAO.
a. Note, this replaces SYN emissions and does not add to them.
b. We believe programmatic rebalancing will create a long-term structural advantage for Synapse DAO, resulting in increasing efficiency of liquidity, tightening quotes for users & reducing SYN inflation.
- Work alongside protocol contributors to build a new liquidity model which increases quote efficiency by an est. 20-50x.
In summary, in return for Nima’s provision of locked TVL, we believe we can:
- Maintain the annual SYN inflation rate.
- Increase liquidity efficiencies through programmatic rebalancing & new liquidity models.
- Tighten quotes on Synapse’s most utilized pools.
- Remove the risk of liquidity reversions as a result of broader market conditions.
About Nima Capital
Nima Capital is a single-family office with private and public equity investing platforms. The firm has a flexible mandate to invest across the capital structure, across investment stage, and in any industry vertical.
Nima Capital’s liquid crypto team focuses on automating various DeFi functions such as on chain market making, just in time liquidity, node operations and mempool reliant trading. The firm has previously been one of the largest users of core protocols such as AAVE, Compound, Yearn, Convex and Canto among others.