Executive summary
With this proposal, we propose to additionally deploy LSK to Base and deploy 1.5 million LSK to an WETH/LSK liquidity pool on Aerodrome using Arrakis Pro. The main motivation for expanding the deployments of LSK beyond the Lisk L2 and Ethereum is to make the LSK token accessible to the large number of retail users on Base, many using the Base App by Coinbase.
Motivation
By deploying LSK to Base and establishing a significant liquidity pool on Aerodrome, we aim to tap into Base’s rapidly growing retail user base, many of whom engage with the ecosystem via the Base App. This move will significantly enhance the visibility and trading volume of the Lisk token, making it easier for new users to acquire and trade it. While there might be a minor shift in trading activity from the Lisk Chain, the benefits of broader accessibility far outweigh these considerations. We therefore believe that this proposal will benefit all LSK holders and also the Lisk ecosystem as a whole.
Rationale
When deploying the Lisk token contracts as part of the token migration, we decided to only deploy them to Ethereum and the Lisk Chain. The main reasons for deploying to Ethereum were its status as the main hub of liquidity and that centralized exchanges generally prefer supporting a token on Ethereum over having to add a custom network. Additionally, we obviously deployed to the Lisk Chain as we wanted the majority of LSK tokens and DeFi activity to be on the Lisk Chain to generate activity and fees for the network. Moreover, all LSK utility like staking and onchain governance is only available on the Lisk Chain so generally it makes sense for LSK holders to hold their tokens there.
Seeing that Base and DEXs on Base have grown immensely since the launch of Base more than 2 years ago and are very popular among retail users, made us re-consider whether keeping LSK exclusive to Ethereum and the Lisk Chain is the best choice. While deploying LSK to Base and deploying liquidity there might indeed move some trading activity away from the Lisk Chain, we believe that making LSK easier accessible to the large number of retail users on Base outweighs these downsides. Additionally, Jesse from Base has indicated that deploying liquidity of a token on Base can support a Coinbase listing.
In terms of DEXs on Base, the most popular in terms of TVL and trade volume are Aerodrome and Uniswap (see DefiLama or Coingecko) and both would be very good options to deploy liquidity to. Splitting liquidity and deploying to both DEXs would not be a good strategy in our opinion as this reduces the liquidity and increases the price impact for traders for each of the DEXs. Further note that most order flow nowadays does not come from the UI of the DEX (Aerodrome UI / Uniswap UI) itself, but rather from DEX aggregators like 1inch, MetaMask, Li.Fi or also Base App (see also the orderflow for the ETH-LSK pool on Ethereum). So for the majority of traders, it should not matter much which DEX the liquidity is actually deployed to. Overall, we have a slight preference for Aerodrome and therefore suggest to deploy the liquidity there for the following reasons:
- On Base, Aerodrome is slightly ahead of Uniswap in terms of TVL and trade volume.
- Aerodrome seems to have closer ties to Coinbase as indicated by the investment of the Base Ecosystem Fund.
- When visiting the Uniswap UI, LSK is already visible due to the ETH-LSK pool on Ethereum. By deploying to Aerodrome, LSK will be additionally available on the Aerodrome UI.
In terms of the trading pair, we again propose to use ETH-LSK as ETH is the native and most liquid asset on Ethereum and therefore the routes for trades between LSK and any other assets will therefore have the best liquidity. Moreover, compared to choosing a stablecoin, there is a higher correlation between LSK and ETH prices which generally reduces impermanent loss for liquidity providers. For the fee tier, we propose to use the 0.27 % fee tier, same as the WETH/LSK pool on Velodrome and similar to the 0.3 % fee tier on Uniswap v4. We believe that with the currently expected trading volumes lower fees will not provide enough long-term sustainable revenue for liquidity providers. We also suggest using a concentrated pool again so liquidity can be concentrated sufficiently to offer low price impact trades even for larger order sizes.
For actively managing a concentrated liquidity position on Aerodome, we propose to use Arrakis Pro, which the Lisk DAO already uses for the liquidity on Uniswap v4 on Ethereum. For a detailed introduction to Arrakis and its advantages, we refer to the previous proposal for the deployment of liquidity to Uniswap v4. So far the liquidity deployment shows good results, both in terms of reducing price impacts for trades as well as vault performance, see also the diagrams below. We therefore think it is also the best option for managing the liquidity on Aerodrome.
Diagram 1: Uniswap v4 vault TVL and composition over time.
Diagram 2: Price impact and vault performance for Uniswap v4 vault over time.
Otherwise, we suggest to use the Treasury Council with the same setup as for the previous proposal.
Specification
The Lisk Team deploys the ERC20 contract to Base and requests the Aerodrome team to create an WETH/LSK C200, 0.27 % fee tier concentrated liquidity pool on Aerodome.
Arrakis then deploys a dedicated vault managed by the Arrakis Pro smart contract for this WETH/LSK Aerodome pool. The Lisk Treasury Council deposits 1.5 million LSK into the Arrakis Pro vault. Arrakis Pro will allocate the provided liquidity in a concentrated and fully active market making strategy to facilitate trading on Aerodome. The strategy initially operates to bootstrap WETH to establish a 50/50 inventory ratio over the first months. The primary objective is to create price stability by generating deep liquidity and reaching an even inventory over time.
Treasury Council
The Treasury Council consists of the following members:
| Name | Role |
|---|---|
| Jan | Chief Research Officer at Lisk |
| TBD | |
| Max | President at Onchain Foundation, Founder of Lisk |
| Oliver | Vice President at Onchain Foundation, Founder of Lisk |
| Luuk | Super Studio Founder |
| UZAMARU | Lisk DAO delegate, Moderator at Lisk Discord |
| przemer | Lisk DAO delegate, Moderator at Lisk Discord |
| Jash | Superchain Eco Lead |
The 8 Treasury Council members are the 8 signatories of an 5-of-8 Superchain Safe multisignature account that are the recipients of the tokens transferred through this proposal. The Treasury Council will transfer the received Lisk DAO funds from the multisignature account into the Arrakis vault on Base on behalf of the Lisk DAO and will handle the necessary technical steps such as bridging for it. If the Lisk DAO passes a proposal to partially or fully withdraw the funds from Arrakis any time in the future, the Treasury Council will handle the withdrawal and return the funds to the Lisk DAO treasury accordingly.
Member responsibilities and changes
Each member of the Treasury Council has the following responsibilities:
- Each member of the Treasury Council must be trusted members of the community, actively involved in the Lisk ecosystem and able to complete KYC.
- Each member of the Treasury Council is obliged to execute the decisions of the Lisk DAO as described in the proposals passed by the Lisk DAO without undue delay by signing the corresponding transactions for the 5-of-8 multisignature account.
- Each member of the Treasury Council shall only sign transactions for the 5-of-8 multisignature account that are in accordance with a passed Lisk DAO proposal.
- Any member of the Treasury Council and hence 5-of-8 multisignature account can be replaced by a new member if the Lisk DAO passes a corresponding approval. Each member of the Treasury council is then obliged to sign a transaction that updates the members of the 5-of-8 multisignature account accordingly.
Budget
We propose to not have additional financial compensation for their efforts in the council as this is already provided as part of this previous proposal.
References
- Aerodrome Website: https://aerodrome.finance/
- Arrakis Website: https://www.arrakis.finance/
- Arrakis Documentation: https://docs.arrakis.finance/
- Proposal “Onchain Market Making for $LSK on Ethereum via Arrakis PALM”: Onchain Market Making for $LSK on Ethereum via Arrakis PALM
