Engaging a market maker

Overview

We want to enlist the help of a market maker, and this requires ~$2.5M in liquidity. This liquidity needs to be half PNG and half US dollars. To fund this liquidity we will

  1. Transfer 2.5M PNG to a new multisig wallet
  2. Turn on the swap fee switch that routes 1/6 of swap fees to another multisig wallet

Why do we want a market maker?

A market maker is required for

  1. Listing on large Centralized Exchanges
  2. Supporting market depth
  3. Qualifying for a Chainlink feed

We also need to convert ~1M of that PNG into US dollars, and we will outline a process for how we will do this below.

Topic 1: Listing on Centralized exchanges

Most reputable Centralized exchanges require that you have a reputable market maker before listing. It’s one of numerous requirements they have. For example if we wanted to list on Kucoin and BitMart and potentially others, they have a requirement that we have a market maker.

Topic 2: Supporting market depth and price action

To quote the ever helpful Investopedia:
Market depth refers to a market’s ability to absorb relatively large market orders without significantly impacting the price of the security. Market depth considers the overall level and breadth of open orders, bids, and offers, and usually refers to trading within an individual security. Typically, the more buy and sell orders that exist, the greater the depth of the market—provided that those orders are dispersed fairly evenly around the current market price of that security.

Market depth is one of the biggest requirements for Chainlink and with very good reason. Having market depth on different exchanges will help alleviate malicious actors trying to manipulate price.

Topic 3: Qualifying for a Chainlink feed

Having PNG as a Chainlink price feed will allow us great flexibility in adding extra utility to PNG. For example if we wanted to add PNG to the upcoming lending solutions such as BenQi and Vee Finance, having a Chainlink feed will allow that. This will greatly increase the ability of PNG to be leveraged across the multiple DeFi lego blocks within the ecosystem.

Further details on how we’ll acquire the working capital


For the keen eyed amongst you, you’ll have no doubt realised that Pangolin doesn’t own any tokens barring PNG. This presents us a unique challenge to raise the 1 million USD without negatively impacting the price of Pangolin and in a sustainable manner.

First we’ll setup two separate multisig wallets. The reason we’re doing this is to ensure the addresses are easier to audit and to ensure separation of concerns. The wallets are for:

  • Swap fees
  • Working capital

The Swap fees wallet will contain 1/6th (0.05%) of swap fees from trading volume on Pangolin.

We don’t have an exact quote from our market maker on how much USD is required, but I think a safe number to aim for is 1 million USDT. So let’s look at the last 7 weeks volume on Pangolin and how much money we can expect to make.

image

As you can see, we’d end up with approximately 100K USD over 7 weeks. This means we’ll need to pad out the USDT via swapping Pangolin on the open market. For this we propose a second multisig wallet which 2.5 million PNG will be transferred to. That wallet will then swap approximately 10K PNG daily into USDT. Then when the Working Capital wallet has the required working capital in both PNG and USDT tokens to satisfy the market makers requirements, we will transfer those funds across.

It’s at this point that the Swap Fees multisig will be revised. This will align with Leo’s post on Tokenomics https://gov.pangolin.exchange/t/improving-pangolins-tokenomics/1598

An important point to note here is that this working capital still belongs to Pangolin. Our market maker holds it on our behalf, but it’s still ultimately our money.

There’s a lot to unpack within this post and I’d imagine you may want to delve deeper into our thinking or some of the implementation details. Please don’t hesitate to ask questions, looking forward to hearing them and providing answers.

7 Likes

Hi Justin,
Thank you so much for this valuable topic.

What is the targeted time to gather this 1M? If I’m not mistaken, with above scenario we seem to be needing ~3 months. And the part about selling 10K continuously kind of frightens me. With today’s PNG/USD value this means 90 days of selling. Each 10K swap puts around 0.6% negative price pressure to PNG. In 10 days this will make ~6%. Although this seems quite small, I’m wondering if we’re shooting our own leg? Also isn’t 3 months a too long time for crypto? (I’m very aware that much more of this PNG had been swapped in just one shot causing dramatic decreases in PNG value, I’m just trying to avoid this picture)
I’m pretty sure this had been very well thought, but one can wonder if this can’t be done without causing a sell pressure to PNG. (eg. increasing the swap fee ratio, selling less PNG etc)
And one more thing, since I don’t know how it really works, this may be a silly question but why should we give USD to the market maker but not PNG? Won’t the market maker use PNG to make our market?

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Wondering if you can raise part of the necessary usd by selling png otc to the community ?

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Appreciate this feedback. Just wanted to try to answer a couple of your questions

increasing the swap fee ratio

The UniSwap contracts we forked have hard coded the swap fee %, so swap fees are fixed at 0.3% with the ability to divert 0.05% elsewhere

why should we give USD to the market maker but not PNG

Market makers need a 50:50 ratio of tokens:USD so they can be effective on both the buy side and sell side of the market. So we’ll be providing them an equal ratio of PNG and USD.

Screen Shot 2021-08-13 at 5.21.42 PM

Also want to call out that a 10k PNG sell to AVAX only impacts the price 0.04%, which doesn’t seem like a lot of impact. We could then take that AVAX to a CEX (like Binance) with deep AVAX/USDT liquidity to Swap for stablecoins.

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Excellent, this is a much more efficient way to fund this

Diagram with proposed amendment of swapping for AVAX within Pangolin, and then finally converting AVAX to USDT in Binance

Yes, definately agree… :clap::clap:

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