Introduce Concentrated Liquidity to Pangolin Avalanche

🗳️ Governance Proposal

TLDR: Move 4.3 million PNG from the on-chain treasury to fund seeding liquidity for a Concentrated Liquidity solution based on Uniswap V3 contracts and fund development costs.

What is the goal?

If this proposal passes, 50% will seed AVAX-PNG LP and will fund development costs. Concentrated liquidity offers more efficient markets and better flexibility for liquidity providers. The Uni V3 license expires on April 1, 2023, so we can offer these contracts on Pangolin.

What is changing?

The current contracts will run in tandem with V3, however, the updated interface will prioritize V3 for trades but will notify users if a better trade is available on V2. The swap feature remains the same, the change will only affect those providing liquidity.

In the upcoming months, our intention is to implement a farming solution that leverages concentrated liquidity, ultimately driving sustainable growth and increased efficiency for PNG emissions.

How does this impact users?

LPs will benefit by having a more flexible and capital-efficient AMM. Instead of allocating capital across the entire price range, LPs have full control over their desired liquidity-providing price ranges.

The Pangolin V2 contracts will remain operational in perpetuity, but we anticipate that V3’s advantages will attract the most liquidity and trading volume.

There is no obligation to migrate your V2 liquidity, but migrating may be beneficial as the majority of trading volume, and LP fee generation are expected on V3.

More about Concentrated Liquidity

Pangolin Concentrated Liquidity contracts are highly flexible and efficient automated market makers (AMM) that offer significant improvements over its predecessor. Key features include concentrated liquidity, multiple fee tiers, and increased capital efficiency, making it a more attractive option for liquidity providers (LPs) and traders alike.

Concentrated Liquidity

LPs can concentrate their capital within custom price ranges, providing more liquidity at desired prices. This enables them to construct individualized price curves reflecting their preferences. Users trade against the combined liquidity of all individual curves without increased gas costs per liquidity provider.

Capital Efficiency

With concentrated liquidity, LPs can achieve the same liquidity depth as v2 within specified price ranges while putting less capital at risk. The saved capital can be invested elsewhere or used to increase exposure within the specified price range to earn more trading fees.

Active Liquidity

In V3, if the market price moves outside an LP’s specified price range, their liquidity is removed from the pool and no longer earns fees. LPs are incentivized to continuously update their price ranges to cover the current market price.

Range Orders

V3 introduces range orders, allowing LPs to deposit a single token in a custom price range above or below the current price. If the market price enters their specified range, they sell one asset for another along a smooth curve while earning swap fees.

Non-Fungible Liquidity

As a result of custom price curves, liquidity positions are no longer fungible and are represented as non-fungible tokens (NFTs) in the core protocol. However, common shared positions can be made fungible (ERC20) via peripheral contracts or through partner protocols.

Flexible Fees

There are three separate fee tiers per pair (0.05%, 0.30%, and 1.00%), allowing LPs to tailor their margins according to expected pair volatility. Governance can add additional fee tiers as needed, providing further flexibility.

Next Steps

The proposal will go live for voting on 04/07/2023 here.

Users must hold and delegate PNG in their wallet.

If passed, the funds will transfer 72hrs later.

For questions or more details, join the community Discord.