Arrakis PALM: Onchain Market Making for $MIMO
Parallel Blog
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April 4th, 2024

Introduction to a New Era of Market Making

In a recent and strategic move, the Parallel DAO has approved a proposal (MGP-20) that promises to redefine the landscape of onchain market making on Polygon PoS. This innovative approach involves the deployment of MIMO Protocol Owned Liquidity (POL) through Arrakis Finance's PALM mechanism, aiming for a more sustainable, efficient, and user-friendly liquidity solution.

Background and Rationale

Traditionally, the bulk of onchain MIMO liquidity on Polygon PoS has been concentrated on Balancer, significantly supported by the MIMO/PAR and MIMO/wETH 80/20 pools. These pools have not only facilitated liquidity but also harnessed $BAL and $AURA farming to enhance liquidity attraction through Balancer & Aura tokenomics.

Balancer's approach offered noteworthy benefits, including minimized impermanent loss and a steady yield without necessitating inflationary MIMO tokens. However, it also presented challenges, such as increased dependency on Protocol Owned Liquidity (PoL) from Parallel Protocol revenues and lower capital efficiency for users. To address these challenges and diversify MIMO liquidity, the proposal has brought Arrakis Finance into the picture.

Introduction to Arrakis Finance and PALM

Arrakis Finance stands out as a pioneering market-making infrastructure protocol, allowing for sophisticated algorithmic liquidity rebalancing strategies on Uniswap V3. Since its inception, Arrakis has marked significant achievements, including amassing over $1.7 billion in TVL at its peak and capturing more than 25% of Uniswap V3's total TVL.

The focal point of this proposal is Arrakis PALM - Protocol Automated Liquidity Management. This innovative liquidity bootstrapping tool leverages organic trading volume on UniV3, eliminating the need for liquidity mining incentives and enabling highly efficient capital use.

The Essence of Arrakis PALM

Arrakis PALM stands for Protocol Automated Liquidity Management, a system designed to manage liquidity on Uniswap V3 through sophisticated, algorithmic rebalancing. It enables the DAO to tap into organic trading volumes, creating a self-sustaining liquidity model that forgoes the need for external incentives. This approach not only saves resources but also stabilizes the token's market presence and fortifies the DAO's vision for a decentralized and resilient ecosystem.

Strategic Benefits and Innovations

  • Sustainable Liquidity Without Incentives: Leveraging organic trading volume enables the MIMO token to sustain its liquidity without the need for continuous incentives, a groundbreaking step towards a more autonomous liquidity model.
Parallel DAO Treasury deposits MIMO only into a PALM vault. By setting up limit orders, PALM will first bootstrap WETH to pull the ratio of MIMO/wETH towards 50/50 over time.
Parallel DAO Treasury deposits MIMO only into a PALM vault. By setting up limit orders, PALM will first bootstrap WETH to pull the ratio of MIMO/wETH towards 50/50 over time.
  • Flexibility and Efficiency: Initially, liquidity can be predominantly MIMO, which PALM will adjust towards a 50/50 ratio, enhancing buy/sell support.
The chart below shows how PALM bootstraps the base asset and pulls the ratio to 50/50.
The chart below shows how PALM bootstraps the base asset and pulls the ratio to 50/50.
  • Optimized Capital Efficiency: Through Arrakis PALM, the Parallel DAO aims to significantly reduce the capital required to maintain liquidity, thereby reallocating resources towards further development and growth.
Once the ratio of 50/50 is reached, the focus will be on further increasing the liquidity depth for MIMO, to minimize and equalize the price impact on both buy and sell side.
Once the ratio of 50/50 is reached, the focus will be on further increasing the liquidity depth for MIMO, to minimize and equalize the price impact on both buy and sell side.
  • Reduced Slippage for Users: The sophisticated management of concentrated liquidity on Uniswap V3 allows for larger trades with minimal price impact, improving the overall trading experience.
As indicated in the chart above, price impact for large trades will reduce over time, especially after the bootstrapping phase was completed
As indicated in the chart above, price impact for large trades will reduce over time, especially after the bootstrapping phase was completed
  • Transparency and Non-custodial Approach: Parallel retains full custody of the liquidity, with all PALM operations verifiable on-chain.

A Vision for the Future

By deploying 5 million MIMO tokens in a MIMO/wETH 1% PALM vault, the initiative sets a precedent for utilizing protocol-owned liquidity in a manner that's both innovative and reflective of the community's forward-thinking ethos. It underscores the commitment to maximizing returns, minimizing risks, and ensuring the long-term viability and decentralization of the MIMO token. This initiative reflects the Parallel DAO's commitment to innovation, sustainability, and community-centric development.

Conclusion

The MIMO-ARRAKIS PALM collaboration represents a significant leap forward in onchain liquidity solutions. As we embark on this journey, the potential for creating a more robust, efficient, and decentralized ecosystem has never been more palpable.

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