As an important component of the LBI re-launch, a liquidity pool has been a priority to set up and build. It's been in operation now for around 6 weeks, so its a good time to check in on it and see how progress has been. Let's see how our pool is going, and think about some possibilities.
At this moment, the LBI/LEO pool has had 6327 LBI added to it, paired with 26370 LEO. Currently, here is how it looks on BeeSwap
Looking at Tribaldex we can get some more information.
The first thing to note is that LBI is priced in the pool at a premium to the "Asset Backed Value" (ABV). Just an hour or so ago, I put out the daily thread with the asset backed value per token:
/@lbi-token/re-leothreads-gfp6pxbw?referral=lbi-token
So we can see that LBI is valued at 3.771 LEO each, and its trading in the pool at 4.167 currently. So, the token is trading at 10% above asset backing, which is a great sign to me personally. It shows that people are buying LBI out of the pool, and placing a premium on the token. On the Beeswap screenshot above you can see that the pool has an APR currently of 1.459%. So we can clearly see that people are not aping into LBI for the massive yields. Dividend yield as seen in last week's update was only 1.74%, so again, no one is bidding LBI up for its massive yield.
Yes, the goals are to build up both of those yields over time, but at this point it is clear that LBI is a low APR investment - for the short to medium term anyway. So, people buying in to LBI now, and prepared to pay a premium to the ABV for the tokens must be confident with the fundamentals of LBI.
The other important consideration is the depth of the pool. While having 6300 LBI and 26000 LEO liquidity is nice, it is still only a bit over 3% of the total LBI supply. It is still a small, shallow pool - which is not surprising with just under 1.5% APR. Buying just 100 LBI out of the pool, an amount worth around $12, would cause a price impact of roughly 2%. So it is still not possible to buy LBI with any great size via the pool.
What is needed to take the next step is bigger rewards. Trading volume is ok, with 10,000 LEO worth of volume since the pool was set up. There has been some arbitrage trade I've seen between the pool and the order book market. But again, no LP providers are going to get rich of trading volume and the swap fees it generates. So, there is really only one way to attract more LBI tokens to be put in the pool, and that is through higher incentives.
Where does the APR come from?
Many tokens incentivize their liquidity providers via inflation. New tokens get minted, and added as pool rewards. The dilutionary effects of this have played out over and over again, across many blockchain eco-systems. Prices of reward tokens almost invariably trend towards a 0 value. It has happened everywhere, but you only need to look as far as CUB DeFi for an example. I won't go into it, but anyone that has been around LEO for a while will remember.
LBI has no inflation. Our token is fully minted, no more can ever come into existence. In fact, LBI is deflationary. A small portion of our weekly income is used to buy back and burn LBI tokens, every week. So there is no dilutionary inflation to use to entice people to add to the pool, which is a very good thing in my opinion. What we do have is a project that generates income, and a portion of our weekly income can be used to incentivize the LP. From last weeks income report, we can see that 5% of our weekly income goes to pool incentives.
The APR for the pool is small, but it is sustained from real income. Each week, I add SOME of those LP Reward funds to the pool distribution contract. The reason I only put some of them is each week is that the current LP distribution contract runs out in 49 days. When I set up the next one, I want to ensure there are funds available to add straight away, so the APR does not fluctuate too much.
What can we do to make LBI LP's more attractive?
Hypothetically, there are a few things we could do. This is where I'm keen to get LBI token holder feedback.
Change the distribution mix. We could tweak our distribution percentages to have more of the income split going to pool rewards each week. Here is a hypothetical, using last weeks income distribution from above:
I highlighted in yellow the numbers I changed. So with just a small tweak, slightly dropping the dividend and re-investment amounts led to being able to double the funds available for LP rewards. It is important to remember that tokens held in the LP are still included in the weekly dividend distribution, so these tokens receive both dividends and pool rewards.Add other rewards. Currently, we have added BBHO tokens to the pool reward contract. These are earned from content and curation from @bradleyarrow's new BBH tribe. These tokens are not recorded on our balance sheet, or income. They get added to the pool contract as a bonus for our liquidity providers. We could add other tribe tokens also, quite easily. We earn some ARCHON, PIMP, NEOXAG, POB, CENT. None of these are on our balance sheet, and could be bonuses for the pool. The question is would that really entice more liquidity? I have my doubts, but it is an option.
Add another pool. Here is the big idea for this post. What if we set up an LBI/SWAP.HIVE pool? I know there are LBI token holders that don't want more exposure to LEO, so enticing them to add to the LBI/LEO pool will be hard. An LBI/HIVE pool might be a much easier sell for these investors. The LBI tokens these days are much more than just a LEO backed token. In fact, LEO is just over 25% of the funds assets. While I was of the belief that the LEO pair was the best option, and I still do hold that belief, a second pool with a HIVE pair could be appealing.
Benefits of a second pool.
Attractive to a wider range of investors. Not everyone likes LEO. Not everyone wants more LEO exposure. HIVE is a common thread for our target investors, and an LBI/HIVE pool could hold appeal beyond the LEO community.
Arbitrage. With an LBI/LEO pool and an LBI/HIVE pool, there opens up the potential for increased arbitrage trading. Price discrepancies between the two pools can be easily traded (likely by automated bots). This would generate more swap fees that liquidity providers would earn. Manual traders may review the daily LBI asset backing thread on Inleo, and initiate trades through the pools based on those numbers.
Options. Easier access to LBI tokens beyond LEO holders could make investing in the fund more attractive.
Downsides
Splitting the available funds between two pools may make both less attractive. Without adding more rewards to the mix, yields on the two pools may not become sufficient to entice people to add funds.
Lack of interest. One deep pool is overall a better experience for traders, investors and holders alike than two shallow pools. Possibly there is just not enough LBI tokens in the hands of active investors to make a second pool viable.
Moving away from our base. LBI is a LEO based project. It's in our name, and a part of our history. As it is, the fund is much less "LEO" than it was previously. By further shifting away from our LEO home, we could risk loosing the support of some of the LEO OG's, who are also LBI holders.
Cost. Setting up a new pool would cost around $100 at current BEE prices. Will it be worth that kind of expense?
Questions for LBI holders.
Would you support setting up a second LP, with LEO/HIVE as the pairing?
Would you support any changes to the "Distribution" of income to add more LP rewards?
Would you like more tribe tokens added as pool rewards?
I'd love lots of feedback in the comments section below.
Thanks for taking the time to read this post, and for all the support for LBI's content.
Cheers,
JK
To learn more about LBI, here are a few recent posts for your information:
@lbi-token/lbi-weekly-holdings-and-income-report-week-8-week-ending-22-sep-2024-5ie