Onchain Market Making for $LSK on Ethereum via Arrakis PALM

Proposals Funding
9

Generated by ChatGPT 4.0:

If I were an investor holding LSK tokens and aiming to capitalize on the current or upcoming bull run, my reaction to Lisk’s decision to work with Arrakis Finance for liquidity management on Uniswap would likely be positive, but cautious. Here’s how I would evaluate and react to such a development:

1. Positive Outlook on Liquidity Management:

  • Increased Liquidity: Arrakis Finance specializes in optimizing liquidity on decentralized exchanges like Uniswap, which means it would likely increase liquidity for LSK tokens. This would make it easier for large investors to trade without significantly impacting the price, reducing slippage, and making the market more efficient.
  • Price Stability: Better liquidity management usually results in more stable prices. Given that a highly illiquid asset can be prone to volatile price swings, this partnership could help stabilize the price of LSK, which might help build confidence among traders and long-term holders, potentially driving up demand.
  • More Efficient Market: With algorithm-driven strategies managing the liquidity pool, I’d expect smoother, automated adjustments to changing market conditions, which means the price could reflect a more accurate supply-demand balance. This could attract more liquidity providers to the Uniswap pool, further improving liquidity.

2. Increased Earning Potential:

  • Pool Fee Sharing (50%): The fact that 50% of pool fees would be shared with the Lisk DAO is a positive. If I participated in Lisk governance or staked LSK in the DAO, I could potentially earn passive income through the pool fees. This could provide an additional revenue stream while holding the token, on top of capital appreciation.
  • Potential Boost in LSK Value: As the partnership makes it easier for institutional and retail investors to enter and exit positions with less friction, higher trading volumes could contribute to a gradual appreciation of LSK’s price, especially in a bull market.

3. Bull Run Strategy – Liquidity is Crucial:

  • In a bull market, token liquidity becomes especially important as more investors want to buy in and sell out at peak times. By improving liquidity through Arrakis, I’d be more confident that I could sell my LSK tokens near the top of the market without suffering from price slippage or getting stuck in a highly volatile and illiquid market.
  • Exit Strategy: If I plan to sell at the peak of the bull run, Arrakis’s management of liquidity could help ensure there’s enough buying demand and smooth price movement during times of high trading activity, making it easier for me to exit my position when the time is right.

4. Risk Considerations:

  • Smart Contract Risk: I’d be cautious of any smart contract vulnerabilities inherent in Arrakis’s PALM vaults. While Arrakis has a strong reputation and is trusted by other protocols, I’d want to ensure they’ve undergone audits and are battle-tested on Uniswap.
  • DeFi Ecosystem Risks: Since Uniswap and other decentralized exchanges are part of the broader DeFi space, any regulatory crackdowns or systemic issues in DeFi could impact the liquidity of LSK. However, this is a general market risk I would consider as part of any DeFi investment.

5. What I Would Do as an LSK Investor:

  • Monitor the Market: I’d closely monitor the LSK/ETH or LSK/USDT liquidity pool on Uniswap, tracking how liquidity improves after Arrakis begins managing it. If liquidity improves and the market shows bullish signals, I’d be more comfortable holding LSK for a longer period.
  • Participate in Governance: If possible, I would look into participating in Lisk DAO’s governance to have a say in decisions regarding fee distribution or any further liquidity management proposals. This would give me more influence over how the system operates.
  • Consider Yield Opportunities: I’d explore opportunities to stake LSK in the liquidity pool if Arrakis’s management makes it lucrative enough. This could be a way to earn yield while still holding my tokens in the bull market.
  • Set Sell Triggers: Given that liquidity is being managed, I’d be more confident in setting my sell price targets. I might set automatic sell orders to capture gains during the bull market, knowing that liquidity will be robust.

Conclusion:

Overall, if Lisk decides to work with Arrakis Finance, I would view it as a positive move that improves the liquidity, stability, and efficiency of the LSK token market on Uniswap. This would make me more confident about holding my tokens through the bull run and possibly selling them at higher prices without worrying about liquidity issues or price slippage. However, I would remain cautious about potential DeFi risks and keep a close eye on how the partnership progresses.

Example Calculation for Arrakis Finance Partnership with Lisk:

Let’s say after assessing the factors:

  • Positives (Pros):
    • Increased liquidity on Uniswap: 9/10
    • Price stability during the bull run: 8/10
    • Fee sharing with Lisk DAO: 7/10
    • Enhanced market confidence: 7/10Total Pros: 9 + 8 + 7 + 7 = 31
  • Negatives (Cons):
    • Smart contract risk: 5/10
    • Potential reliance on DeFi market conditions: 6/10
    • Regulatory risks in DeFi: 4/10Total Cons: 5 + 6 + 4 = 15

Now, to calculate the percentages:

  • Percentage of Pros: (31 ÷ (31 + 15)) × 100 = 67.4%
  • Percentage of Cons: (15 ÷ (31 + 15)) × 100 = 32.6%

Result:

  • Pros: ~67%
  • Cons: ~33%

This means that, in this example, about 67% of the analysis is positive and 33% is negative based on the weights and importance of the factors.

Conclusion:

While this method provides a structured approach to calculate the relative weight of pros and cons, the outcome heavily depends on subjective judgment and how important each factor is to you as an investor. It’s not an exact science, but it helps provide a clearer understanding of where the majority of the value lies.

I don’t know if arrakis finance have any future but I’m more in favour of it than against. Not ideal thing for me but might help in bull run with higher token price after all despite blocking rapid growth. The main question is whether it is players with large capital who inflate the price or smaller players if smaller players then better no. Why I say yes to this is because I think that project stability factor will play a major role in a current bull run after previous bull run memecoin hype bad investor experiences. People will likely put their money on more established projects with good liquidity levels.

Lisk team should deeply consider critical vulnerabilities or exploits possibilities for Arrakis Finance’s PALM - please prove us that you are safe. We know that you have not faced any publicly reported critical vulnerabilities or exploits but you rely on smart contracts this means risk of:

  • Smart Contract Bugs
  • Impermanent Loss Risk
  • Oracle Manipulation
  • Liquidity Fragmentation
  • Administrative Privilege Risks
  • Third-Party Risks (Integrations)

Tell us how you manage those risks and your plans about improving protection against possible exploits etc. Thanks.

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