SIP | Improve $RARE liquidity on Decentralized Exchanges

Governance Proposals Approved
1
  • Author: Brennan Mulligan (RareDAO Foundation)
  • Status: Approved
  • Type: Treasury Management
  • Implementer: RareDAO Council & RareDAO Foundation
  • Sponsors: SuperRareJohn
  • Proposal link: TBD
  • Created Date: February 7, 2025

Summary

We propose allocating $500,000 in treasury funds to create full-range liquidity pools on Ethereum and Base for the $RARE/ETH pair using Uniswap v4. This initiative will increase dex liquidity, enhance price stability, and reduce slippage. It complements our established centralized exchange market-making efforts and lays the foundation for healthier $RARE markets overall.

Background

Through previous community proposals (SIP-7 & SIP-17), we have secured strong market-making relationships that boost liquidity on centralized exchanges. However, our decentralized exchange (DEX) liquidity remains very low, resulting in high slippage and price volatility.

This SIP seeks to launch an official effort to significantly improve DEX liquidity. By deploying treasury funds into full-range liquidity pools on Uniswap v4, we aim to achieve greater price stability and trading efficiency, ultimately benefiting all $RARE users.

Specification

Liquidity Allocation

  • Total Amount: $500,000 in treasury funds.
  • Network Split: $250,000 for Ethereum and $250,000 for Base.
  • Pairing: Funds will be matched evenly between $RARE and ETH in each pool.

Process

  1. Price Determination:
    After the proposal period, a time-weighted average price (TWAP) of $RARE will be used to calculate the precise amounts of $RARE and ETH required for each network.
  2. Fund Transfer:
    The calculated amounts will be transferred from the Treasury to a Foundation-controlled externally owned account (EOA).
  3. Pool Deployment:
    The Foundation will deploy two full-range liquidity pools on Uniswap v4—one on Ethereum and one on Base—and deposit the funds accordingly. Full-range liquidity is chosen for its simplicity and broad coverage, ensuring liquidity is available across all price levels with minimal ongoing management.

Why Uniswap v4

Uniswap v4 delivers improved capital efficiency and dynamic fee structures over previous versions, enabling more effective liquidity deployment with lower slippage.

Benefits

  • Increased Market Depth:
    Broad, full-range liquidity reduces slippage, enabling smoother and more efficient trade execution.
  • Enhanced Price Stability:
    A deeper liquidity pool across the entire price spectrum stabilizes market conditions and mitigates sharp price swings.
  • Transparent Treasury Utilization:
    Direct deployment from the Treasury, with on-chain verifiability, fosters community trust and clear accountability.

Drawbacks

  • Opportunity Cost:
    Allocating $500,000 to this initiative means those funds cannot be redirected to other projects or investments in the near term.
  • Passive Management:
    While full-range liquidity requires minimal day-to-day oversight, the pools will still need periodic reviews to ensure they continue to meet market demands.
  • Limited Fee Optimization:
    Full-range liquidity may generate lower transaction fee revenue compared to highly concentrated liquidity strategies, although our primary goal is reducing slippage rather than maximizing transaction fees.

Implementation

  1. Price Calculation:
    If approved, calculate the TWAP of $RARE over the proposal period to determine the exact amounts of $RARE and ETH required for each network.
  2. Fund Transfer:
    Transfer the computed amounts from the Council multisig to a Foundation-controlled EOA.
  3. Liquidity Pool Deployment:
    The Foundation will two full-range Uniswap v4 liquidity pools (one on Ethereum and one on Base) and deposit equal amounts of $RARE and ETH into each pool.
2 Likes
2

It sounds good I think. I do know the pools need more liquidity in order for the usefulness of RARE to increase.

5 Likes
3

Thanks for your input Bard!

1 Like
4

I would highly recommend creating not only a base pool on uniswap but on the main base dex Aerodrome. Multiple dex will also make the token tradable on the most efficient DEX l2 aggregator ODOS.

I would suggest to modify the proposition in this sens and either split the allocated 250k or allocate 250k more to a Aerodrome base pool and to make sure it is therefore available on not only uniswap and Aerodrome but aggregator dex like odos.

2 Likes
5

Great suggestions!

We’ve actually been looking at aerodrome, but would like to dive deeper there with their liquidity mining incentive program which is more mechanically complicated.

I decided to propose this version of the SIP due to its relative simplicity just so we can get something out ASAP as a foot in the door, then continue to iterate from there. All that to say, I think both of your recommendations would are likely targets for a followup proposal.

Do you have any specific input on how you’d like to see an Aerodrome pilot program structured?

So far we’ve been thinking about seeding an initial pool with a modest amount of liquidity, then participating in their voting / incentive game to attract outside liquidity too the pool through $aero emmissions - increase the efficiency of the capital we apply while also growing the number of $rare holders. As I mentioned above though, this is just another level of coordination compared to setting up a couple of full range pools on uniswap.

3 Likes
6

Concerning Aerodrome, I’m not familiar with how pool setup works but yes as you say it would be something to get into asap in a followup proposal.

3 Likes
7

As a council member I would like to sponsor this SIP.

1 Like
8

Thanks for sponsoring this proposal @SuperRareJohn. This proposal will move forward to the next process for community voting.