The last few days have been seriously great for ARTH. We’ve finished one full expansion and half a contraction cycle. However, there are a few things identified by the team out which we’d like to propose the community two major changes.
The suggestions presented here will not only help control debt but will also further help bring the system back into contraction.
Suggestion #1: Motion to increase the epoch interval from 12hrs to 24hrs.
As mentioned before, the protocol needs to work in such a way that the growth in demand needs to meet the growth in market cap. However, in the early days of the protocol (as is what we are in today), it will take time for the market to catch up with the changes made to the protocol.
Now that we are in the contraction phase, it’s imperative that we avoid printing too much debt since it takes time for the market to catch up with the protocol.
Conclusion: Increase the Epoch time from 12hrs to 24hrs
Suggestion #2: Allow the protocol to control the liquidity to make it cheaper to hit 1$
While it seems at the very first historic contraction phase, the protocol burnt through almost 200,000 ARTH tokens and instantly brought the price of ARTH back to 1$, we have found two core issues that relate to maintaining the 1$ mark.
Buying the 1$ is expensive as the liquidity of Uniswap is still high very high which means that we need to spend more Dai to get the protocol back to 1$
ARTH bonds are being manipulated by bad actors who buy before ARTH bonds are issued and sell when the price is brought up by ARTH bond holders.
To resolve this we need to figure out ways to penalize whales that bring the price down and instead reward those who help bring the price back up. The solution mentioned here is a very simple one however it does not eliminate the possibility of whales manipulating the protocol, it only deters them.
In this suggestion we propose allowing the protocol to control the liquidity of the ARTH pool. The way this works is quite simple, in that ARTH LPs simply deposit their LP tokens to the protocol’s smart contracts and if the protocol finds that it has entered into the contraction phase, it’ll pull out the liquidity from Uniswap allowing making it cheaper the price to get back to the 1$ mark. Once the protocol hits the 1$ mark again, then the smart contracts add back liquidity.
The smart contracts should ideally use the 12hr TWAP price to avoid market manipulation.
Any excess ARTH from IL is given back to the LP provider along with a small reward for helping the protocol get back to the 1$ mark. This is an additional incentive for LPs to help bring the protocol back during a contraction phase aside from just bonds.
Conclusion: Allow the protocol to control the liquidity and reward those who remove liquidity during a contraction
This solution should help in getting the price back to 1$ and paying off the debt of ARTHB holders, however I do believe that we still need some more debate on how to prevent whale manipulation (point 2)
Inspiration for having a protocol controlled liquidity comes from https://fei.money/