Charm: Ecosystem Grant Draft Proposal

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CHARM FINANCE: Ecosystem Grant Draft Proposal

Charm Finance

Maintain and Grow Activity (active users, transactions, TVL)

Charm’s Alpha Vaults is the easiest way to provide and manage liquidity. With 1-click, anyone can create their own LP vault to manage the liquidity in any Uniswap V3 pool.

2,000,000 GLMR

2,000,000 GLMR will be used to incentivise the liquidity vaults created by Charm. The vaults’ code and strategy will be open-sourced, so that anyone can use its track record to create their own vaults. When the incentives end, users are more likely to stay because they will have know how to use Moonbeam and Alpha Vaults to earn yields and manage liquidity.

TVL, LP returns, and liquidity depth are the most important successful factors of a DEX. To increase liquidity depth and LP returns when Uniswap V3 is deployed on Moonbeam, liquidity managers must use Moonbeam to manage liquidity. To increase TVL, liquidity providers must use Moonbeam to provide liquidity. To be sustainable, LPs and managers must not leave after the incentive period ends.

Charm will achieve the above by helping others provide and manage liquidity using Alpha Vaults. The long-term outcome is a thriving ecosystem of LPs and managers at Moonbeam, all working synergistically to increase Moonbeam’s TVL, LP returns, and liquidity depth.

Charm Finance is the oldest liquidity manager on Uniswap V3, and the first to launch LP Vaults. The strategy introduced by Alpha Vaults is one of the most widely used within DeFi to manage liquidity; and its effectiveness, safety, and performance have been proven during 2+ years of continuous operation on Mainnet.

Charm’s investors include Coinbase Ventures, Dialectic, and Delphi Ventures, and its team has diverse backgrounds in asset management, trading, software engineering, and legal. The team have been buidling and investing in crypto since 2017.

The latest version of Alpha Vaults was tested on Mainnet and L2 for 5 months prior to launching on 13th July, and the results are summmarised in the attached. In total, 15 vaults were created, 7 of which are optimised for LP Returns (the Income Vaults), and 8 to increase liquidity depth (the Liquidity Depth Vaults).

With no token incentives:

  • The Income Vaults achieved average Net Returns** of 8% (22% APY)

  • The Liquidity Depth vaults achieved on average 37x better liquidity than Uniswap V2 or a Full-Range position.

**Net Returns = Fees Earned - Impermanent Loss - Protocol Fees

The following are examples of the LP vaults that can be created using Alpha Vaults:

  1. WETH/USDT 0.05% Vault (example of Income Vault):

Screenshot 2023-07-14 at 13.07.00

– Net Returns: 8.7% over 128 days, 22.7% APY

– Average liquidity improvement: 5.2x better Vs Uniswap V2 or Full-Range

  1. WETH/UNI 0.3% Vault (example of Liquidity Depth Vault):

Screenshot 2023-07-14 at 13.31.56

– Average liquidity improvement: 55x better Vs Uniswap V2 or Full-Range
– Net Returns: 13.1% over 132 days, with 34.4% APY

The results above were repeated for the other 13 vaults, and show a similar pattern of consistently high APY and liquidity depth with no token incentives.

What this means in practice is that LPs and liquidity managers are more likely to use the vaults when the incentives end. They are also more likely to use Moonbeam and Alpha Vaults to create similar vaults.

The grant will be used to incentivise vaults created by Charm using Alpha Vaults after Uniswap V3 deploys on Moonbeam. The vaults will be chosen based on the expected interest within the Moonbeam community, and after consultation with key stakeholders such as the Moonbeam Foundation and OpenBlocks. Prior to launch, the vaults will be backtested and the results shared with the Moonbeam community.

The incentives will be distributed over a 6 month period from the date of the first Moonbeam LP vault created using Alpha Vaults, and ALL the GLMR tokens will be allocated across the vaults. All LPs depositing into the vaults will be eligible for the rewards.

The vaults’ strategy will be open sourced and explained in plain English, so that LPs and liquidity managers understand how to use the strategy to create their own LP vaults.

The vision is that after the 6 months incentive period, Moonbeam will be have an active ecosystem of LPs and vault managers providing and managing liquidity on Uniswap V3. The metrics to measure success are:

  1. Total TVL of the vaults created using Alpha Vaults
  2. Number of vaults created
  3. Improvement in liquidity depth of the vaults created
  4. LP Net Returns
  5. Number of pools where an Alpha Vaults is created
  6. Number of projects using Alpha Vaults to manage liquidity

The goal of the incentives is to show Moonbeam users how they can use Alpha Vaults to generate yields and manage liquidity on Uniswap V3, so that after the incentive period ends, they can use the skills they acquire to create their own vaults at Moonbeam.

The ecosystem grant will add value to the Moonbeam Ecosystem by maintaining and growing activity (active users, transactions, TVL), because its primary purpose is to build a track record others can use to create their own vaults to provide and manage liquidity.

The outcome is a thriving ecosystem of independent LPs and liquidity managers at Moonbeam, all working together to increase Moonbeam’s active users, transactions, and TVL.

If the proposal is approved, all the GLMR incentives will be used to incentivise LPs in the vaults created by Charm. Over the incentive period of 6 months, regular will be provided to the Moonbeam community on the success metrics outlined earlier.

– The latest version of Alpha Vaults was launched. Links changed to reflect this.
– Removed references to specific pools, as these will be determined closer to Uniswap V3 deployment, and following further consultations with the Moonbeam community.

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Hey all,

What was the process for selecting these pools to provide incentives? Looking at the current defi ecosystem on Moonbeam, I’d say we tend to focus liquidity around GLMR or DOT, with a lesser focus on ETH and wBTC.

Of those pairs, most of the tokens are bridged tokens. Which version of these bridged assets would you be incentivizing? Note that there are many bridge options available on Moonbeam.

Also can you give some details on your results so far on other chains?

This is my first team hearing of Charm, so it’d be good to get some more info.

Hey we’ve actually been around for a while (oldest liquidity manager for Uniswap V3 and created the first LP vault) but have been busy building our decentralized platform to provide and manage liquidity. The docs are at Charm Overview - Charm Finance to find out more.

These pools are selected based our on the existing track record, and backtesting results. The other pools can be chosen based on how popular they are at Moonbeam - very much open to suggestions here.

With no token incentives, Income vaults did net returns of around 8.44% over 4 months (26.4% APR) on arbitrium, and 5.87% (16.17% APR) on Polygon. Liquidity Depth vaults did 22x better liquidity (vs Uniswap v2/Full-Range) on Arbitrium, and 53x on Polygon.

When we release our new product next week all the above metrics will be shared on-line.

With 5 incentivized pools, are the rewards 100K GLMR / Pool / Month?

If not, can you give details on what the remaining 1.5M GLMR will be used for?

And please give details on which type of bridged assets you will be incentivizing.

So sorry, it a typo - it should read 400k GLMR / Vault across the whole 6 months, so ALL the GLMR will be used to incentivise the vaults (assuming we do 5 incentivised vaults)

will research this and get back to you. The proposal above was presented based on the results we’ve seen to date on mainnet and L2

hey cryptoma20, Thank You for your proposal!

I have some important questions that the community is likely to have. Thank You in advance for your answers and your time!

  1. I’m not sure if you’re aware, but Gamma, a liquidity management provider, has recently submitted a grant proposal. I’m curious to know what are the main advantages of your service compared to Gamma? Could you please elaborate on that?

  2. Why is Charm’s TVL lower compared to competitors?

  3. How does Charm handle impermanent loss for liquidity providers within the vaults?

  4. What fees or commissions does Charm charge for its liquidity provision services through the managed vaults? are these fees fixed or variable, and how are they calculated?

  5. How does Charm ensure that the liquidity incentives provided through the managed vaults are distributed fairly among liquidity providers? Is there any mechanism in place to prevent concentration of incentives or favoritism towards certain members?

  6. If the grant amount you receive turns out to be less than 2M, how would this impact your plans and strategy moving forward?

  7. Have you considered the possibility of using liquidity incentives for a longer duration, like 9 or 12 months, instead of the proposed 6 months? how do you think this longer incentive period might impact Charms’s ability to achieve its goals?

  8. How does Charm ensure the long-term sustainability of its services beyond the six-month period covered by the liquidity incentives? are there plans to generate revenue or establish a self-sustaining business model for the platform?

  9. What security measures does Charm have in place to protect the funds and assets of liquidity providers participating in the managed vaults? how do you ensure the safety and integrity of user funds?

Some advantages are:

  • Cheaper - protocols fees are fixed 5% swap fees for vaults created by Charm, and 1% for vaults created by anyone. Vs 14% fees for Gamma.

  • Easier to use - anyone can provide and manage liquidity with 1 click.

  • Infinite choice of vaults, because anyone can create a vault for any Uniswap pair with 1 click.

  • Better performing without incentives (see proposal). So liquidity and LP returns are more sustainable.

  • More transparent - everything is on-chain, including the strategy and performance metrics.

  • Safer - Longest safety track record with 2+ years with no security or operating issues

Basically Charm’s decentralized solution makes it more likely LPs and liquidity managers will not leave Moonbeam after the incentives end.

See Charm’s FAQ for more info

Because we’ve only released 3 vaults for testing purposes, which we’ve done over 2+ years to make sure our new product (launching next week) is safe, secure, and performs well. During this period, our open sourced LP strategy (passive rebalancing) is used by most of our competitors to manage liquidity.

This is done entirely by the vault using what is called a Limit Order, which ensures the asset that is causing impermanent loss will be sold as quickly as possible, so that over time, the impermanent loss is reduced.

Charm’s whitepaper explains the above in more detail.

The fees are 5% swap fees for the vaults created by Charm, and 1% for vaults created by everyone else. This is a fixed fee, and is calculated based on the amount of Uniswap fees earned by the vault.

The fees section of our docs provide further details

One way to do this is to have an uncapped vault, because this can let the incentivised APY gravitate toward its equilibrium state - eg if reward rate is high this will attract more stakers which will then lower reward rate to the equilibrium state. The exact method will also depend on other factors such as the vault’s strategy or its strategic important for Moonbeam.

No impact on plans and strategy. We will still help Moonbeam users provide and manage liquidity, but this will be more effective if incentives are being used to ‘seed’ a larger initial liquidity.

Yes this is a possible, and won’t impact the long term goals we are helping Moonbeam to achieve, because the vaults are designed to be sustainable after the incentives end. Incentives are likely to make these goals quicker to achieve, as it’ll be able to bootstrap more ‘seed’ liquidity.

I think you mean charm here : ) The Charm vaults’ strategy are on-chain and open source, so the purpose of the incentivised vaults is to provide a track record that others can use to create their own vault using Alpha Vaults, so that they can earn yields and manage liquidity themselves.

This approach will generate a self-sustaining ecosystem of LPs and liquidity managers working collectively to increase Moonbeam’s TVL, liquidity depth, and user base.

Charm is the safest liquidity manager with the longest track record for security and user protection. The security measures are:

  • 2+ years of mainnet operation without security incidences

  • Received 3 audits (2 from Peckshield, and 1 from Certik).

  • Un-upgradable contracts, which has been thoroughly battle tested for 2+ years without security or operating issues.

  • Full transparency. Because all the vaults’ infrastructure, strategy, and performance metrics are on-chain.

  • Self custodial. LPs and liquidity managers have full custody of their vaults and funds. There are no reliance on 3rd parties to manage liquidity.

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Thank you so much for the detailed answers! I really appreciate it!

yeah, so sorry for the typo! :slight_smile:

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i would recommend focus on the native assets too( xcUSDT, DOT, GLMR) on these that are the most recurrent for route the Cross-chain swaps , managed by squid router, so we can get the better experience for these that come from other chains, as well the native that dont want to interact with brigded assets, due past experience

how this translate to the LPs, can give some metrics( apr with X amount of tvl, etc) , Is there a situation where the incentives are not distributed?

Thanks for the feedback! We’ll take it on board in the final proposal.

I think all LPs will receive incentives as long as they stake, although the amount will depend on the total amount staked by everyone (which will change during the course of the incentive period), and how long they remain staked.

I can’t think of a situation where the incentives are not distributed during the incentive period, if all the incentives are being fully released (eg on a linear basis) from the start until the end.

Great! That’s on the Alpha Vaults v2 or also on v1?

heyo this is on Alpha Vault v2, to be released next week! Technically v1 is also self-custodial but you can only LP for v1, for v2 you can be both liquidity manager and LP and both are self custodial.

I agree with this statement. Focusing on native assets such as xcUSDT, DOT, GLMR would be better.

thanks for feedback! Will incorporate in final proposal

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Hello there ,

I’d like to throw a few more questions at the Charm team. I’m hoping to get some further insights and clarity on certain aspects of the proposal. It would be fantastic if you could share your thoughts with us.

  1. In the event that the deployment of Uniswap V3 on Moonbeam does not occur as planned, what contingency measures do you have in place? Are you open to integrating the Alpha Vaults into alternative platforms such as Beamswap or Stellaswap? How would you ensure a seamless transition and maximize the value of the grant in such a scenario?

  2. As part of your grant proposal, have you defined specific expectations or targets for key metrics such as TVL, transaction volumes, and new user acquisition? Could you outline any milestones or targets you have set for these metrics to measure the success and progress of the project?

  3. Ensuring user retention and attracting new users beyond the incentive period is crucial for the sustainability of the Moonbeam ecosystem. What strategies do you have in place to mitigate the potential loss of users once the incentives end? How do you plan to continue attracting new users without liquidity incentives? Additionally, who do you consider to be your target audience for Charm Finance and the Alpha Vaults?

  4. Could you provide an overview of the steps involved in deploying Charm Finance on Moonbeam? How will the frontend integration of the Alpha Vaults on Moonbeam look like? Are there any technical considerations or challenges that you anticipate during this deployment process?

  5. It was mentioned in a tweet that Alpha Vaults v2 are also being deployed on other blockchains where Uniswap is already available. Are you running any incentives program on these chains as well? If so, could you provide more details about these programs and the rationale behind expanding to multiple blockchains?

Please note that you have until July 14th, 11:59 PM UTC to make changes to your proposal. A list of changes based on community feedback should be added to the “Updates’’ section of the proposal and any changes should be reflected in the text of the proposal itself.

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Thanks for questions! Here are some quick thoughts:

Yes we are open to integrating with other platforms, as long as their code is the same as Uniswap V3. Most of the code is based on the strategy, and that is universal across all concentrated liquidity platform, so this will great assist in porting the product and incentive schemes to other DEXes.

It is difficult to predict these metrics in advance, as this very much depend on other factors such as the usage of Uniswap v3 on Moonbeam in general. But what i can point out is the excellent performance we’ve already had during 5 months of testing (as outlined in our proposal), and our plans to open source the strategies to help others get the same performance, so this will greatly assist TVL, transaction volume and new user acquisition on Moonbeam.

Alpha Vaults’ excellent results outlined in our proposal were achieved without any incentives, so this increases the likelihood of users staying at Moonbeam after the incentives end. The purpose of the incentives is to therefore help Moonbeam get even more users and traction because it can see a larger initial liquidity.

It is out hope that by open sourcing our strategy, more people will know how to use Alpha Vault to generate excellent performance themselves, and this will then grow in to a vibrant ecosystem of LPs and liquidity managers.

I would say the target audience is all LPs who want to earn yields from liquidity provision but finding it too difficult to do it themselves, and all liquidity managers looking for an easy way to increase the Liquidity Depth of their tokens.

Deploying Alpha Vaults v2 on Moonbeam should be straight forward, as we’ve build our script to ensure easily deployment across all platforms. We will most likely integrate Moonbeam into our own front end (just like how we integrated other L2s). The technical challenges will most likely relate to the small differences between Moonbeam and EVM, which we will work with the Moonbeam developers to resolve.

No incentives programs with the other chains just yet (as our product is not yet live).

For example Stellaswap, that is the DEX that currently have the most liquidity, is using algebra, so that means that you cant partner with them?

not at launch as we will be initially focused on Uniswap v3 and forks, but for sure can explore integrations afterwards

It does not seem like the best option, since as I mentioned previously, Stellaswap is the one with the most liquidity and active users, it will not be integrated in the first instance

Since Uniswap v3 is still far from being launched (with proper liquidity), the Grant would end up being wasted and other projects would unnecessarily suffer. My suggestion is for Charm to initially integrate StellaSwap, Beamswap, and Uniswap, and then request grants.