Proposal to Add sdYND/WETH Pool to Uniswap

[snowkidind]

Proposal to Add sdYND/WETH Pool to Uniswap

Summary

This proposal seeks to deploy a Uniswap V3 sdYND/WETH liquidity pool to address the liquidity constraints of the existing sdYND/YND pool on Curve Finance. The Uniswap pool will enable arbitrage opportunities, stabilize price parity between sdYND and YND, and provide additional liquidity provider (LP) opportunities, further insulating the YieldNest ecosystem from potential liquidity depletion.

Problem

The current sdYND/YND pool on Curve Finance is the only mechanism for exiting sdYND back to YND. This creates a structural issue: If demand for YND decreases or multiple entities unwind their sdYND stakes, the pool risks rapid depletion of YND. Without an alternative liquidity venue, this could lead to significant price disparities and liquidity shortages between both tokens, threatening the stability of the sdYND ecosystem.

Proposed Solution

Deploy a Uniswap sdYND/WETH pool seeded with full-range price liquidity. This pool will:

• Allow arbitrageurs to sell sdYND directly for WETH, ensuring price parity between sdYND and YND by absorbing disparities in the Curve pool.

• Provide a secondary exit path for sdYND holders, reducing dependency on the Curve pool.

• Attract public LPs and arbitrageurs, enhancing liquidity and market efficiency.

Benefits

• Ecosystem Stability: The Uniswap pool mitigates the risk of YND depletion in the Curve pool, ensuring smoother exits for sdYND holders.

• Arbitrage Opportunities: Arbitrageurs can profit by maintaining sdYND/YND price parity across Curve and Uniswap, stabilizing the ecosystem.

• LP Opportunities: The pool offers a new venue for LPs to participate, increasing liquidity depth.

• Price Volatility Absorption: WETH pairing enables broader market exposure, reducing sdYND price volatility during unwind events.

Strategy

• Cost Neutral Deployment: The pool will be seeded with full-range liquidity to minimize initial costs and encourage public participation.

• Public Integration: Full-range liquidity ensures accessibility for arbitrageurs and LPs, fostering organic market activity.

• No Additional Incentives Required: The pools design leverages market forces (arbitrage and LP participation) to maintain liquidity without external subsidies.

Next Steps

• Community discussion and feedback on this proposal.

• Vote to approve pool creation and liquidity seeding.

• Deployment and monitoring of pool performance.

Conclusion

The creation of a Uniswap sdYND/WETH pool addresses a critical liquidity risk in the sdYND ecosystem. By enabling arbitrage, attracting LPs, and stabilizing prices, this solution strengthens YieldNests resilience and fosters a more robust market environment.

[Msojumper]

As far as I understand, anyone can create an sdYND/ETH pool. However, once there is more liquidity in the sdYND/YND Curve pool you should be able to route a sdYND —> YND —> ETH transaction fairly efficiently.

That said, it’s probably not in the protocol’s best interest to create a sdYND/ETH pool.

I think it’s important to have deep liquidity in the sdYND/YND pool to maintain a reasonable peg. In certain times this pool will likely be incentivized to attract LPs for this purpose.

If traders started exiting sdYND to ETH via a direct sdYND/ETH pool instead, this could drain liquidity from sdYND/YND pool, weakening the peg, causing high slippage and less predictable exits.

There may be more complex game theory to having an sdYND/ETH pool on Uniswap or Curve, but that would be above my head.

[snowkidind]

It seems like it would be more intuitive to the system to provide the arbitrage opportunities within the protocol, e.g. instead of leaning on uniswap, could have a sdYND / ynETHx pool

I was thinking it might be nice to be able to directly swap your SDT reward tokens for ynETHx too, without going through WETH.

[Msojumper]

After your comment I noticed a YND / ynETHx pool was added on Curve to streamline sdYND/ynETHx swaps. Once there is more liquidity I’m sure the slippage will be much less.