Continuing the discussion from Proposal: Move v2.1 liquidity to v3:
Q: Can we migrate all protocol-owned liquidity that is not owed to v2 stakers - after considering position-specific IL - to assist with the v3 deficit?
TLDR - Since v2 positions are exposed to impermanent loss, the amount owing to v2 stakers is the current staked balance minus the IL-incurred on a position-wise basis (the IL-adjusted staked balance). Any TKN in the vault above this amount, if protocol-owned, could be migrated to v3 to assist with the deficit. Importantly, this method does not touch user funds.
- Has some Protocol-Owned Liquidity (POL)
- Has a current v3 pool
- Would have a positive v2 vault balance post-migration
- Get current stakes on v2 (includes the rate - price - at which the TKN was deposited)
- Get the current rate (price of the TKN) and evaluate the IL-incurred per position (%)
- Multiply the IL by the user stake to get the IL-incurred and subtract from the user stake to get the IL-adjusted stake balance.
- Get the number of pool tokens owned by the protocol for each pool
- Get the total pool tokens owned by users
- Evaluate the POL% and multiply by the current vault balances (TKN and BNT)
- For applicable pools, the amount to migrate is the the v2 vault balance minus the IL-adjusted stake balance to a maximum of the POL TKN amount
Analysis Block: 15542900
Total Pools Analyzed: 348
V2 Pools with POL: 100
Total Value of v2 TKN POL: $11.1M
V2 Pools with User Stakes: 126
Applicable pools (as above): 51
Pools with Positive Migration Amount: 42
Total Value of Amount to Migrate Capped by POL: $8.9M
Associated POL BNT (could be burned): $10.3M (21.9M BNT)
Of the $8.9M in TKN to migrate, $3.7M of this is in LINK. Once migrated to v3, this will improve the v3 deficit by around 17%.
Figure 1. Proposed value of TKN to migrate per pool. The value of protocol-owned liquidity to be migrated is shown in block colors while the total value in excess of user stakes is shown outlined. Y-axis on log scale.
Figure 2. Current v3 surplus per pool (red).
Figure 3. Current v3 surplus per pool (red) overlaid with the v3 surplus post-migration (green). Y-axis truncated at (-1,1).
Figure 4. Current v3 surplus per pool (red) overlaid with the v3 surplus post-migration (green).
Alleviating the deficit on v3 is a top priority, however, identifying a fair and impactful way to do so is difficult. Migrating TKN POL liquidity without touching v2 user funds is a morally-sound method for addressing the v3 deficit. Additionally, a significant amount of associated POL BNT on v2 could be burned which assists with the protocol-wide deficit.
Note: While this value was calculated for every token on v2, it is applicable to only those with protocol-owned liquidity, a positive v2 vault balance post-IL migration and a current v3 pool.