[RFC] Square (0xPlasma Labs) – 66% Liquidity Farming + 33% Gas Refund – Proposal Discussion

Dear Uniswap v3 community,

At 0xPlasma Labs, we are excited to participate in the important governance discussions surrounding the distribution of the ARB token. As a key contributor to the development of Uniswap v3, we present a proposal aimed at capital efficiency and optimizing the benefits of the Uniswap protocol.

The core of our proposal is to split the ARB airdrop into two distinct parts:

1. 1/3 of the ARB is provided for a gas refund Initiative developed explicitly for Uniswap v3 on Arbitrum.

2. The remaining 2/3 of the ARB flows in this direction Create incentives for liquidity providers on Uniswap v3 pools on Arbitrum.

The proposed gas refund initiative offers significant benefits to traders on Uniswap v3 by encouraging a broader user base to trade directly on the platform. At the same time, the Arbitrum ecosystem will benefit from this distribution through blockchain transaction fees, which will have a positive impact on both the Arbitrum DAO and its broader community. Because Arbitrum is a scaling solution for Ethereum that ensures high speed and reduced transaction fees, this initiative, especially when transaction fees are around $0.1, can bring significant benefits to small traders.

implementation of the proposal

The gas reimbursement initiative would be implemented as part of the ARB airdrop distribution strategy. It is proposed to allocate one third of the total ARB tokens (1,459,396 ARBs) to compensate 100% of gas feesrelief around 16.953.070 gas-free user transactions. This forecast is based on the current number of transactions in the Uniswap v3 Arbitrum contract (315,697).

In terms of distribution, gas compensation could be managed through snapshots taken each month and distributed via a Merkle drop, similar to the mechanism used by 1 inch (see 1 inch cumulative Merkle drop tool for more information: a Overview).

Expected benefits for Uniswap and the Arbitrum community

1. Advanced user adoption: The prospect of a gas refund is likely to attract a wider range of users, particularly small traders for whom the refund could significantly offset trading costs. This in turn encourages a more diversified user base and promotes improved liquidity and robust market dynamics within Uniswap.

2. Increased transaction volume: As the Gas Refund Initiative encourages users to do more trades through Uniswap v3, it could significantly increase the overall transaction volume. Larger transaction volumes contribute to pool stability, making Uniswap v3 a more attractive platform for long-term traders and arbitrageurs.

3. Sustainable growth of the Arbitrum ecosystem: This initiative, based on the Arbitrum Layer 2 solution, ensures that the distribution of ARB tokens eventually flows back into the Arbitrum ecosystem via blockchain transaction fees. This circular economy benefits the Arbitrum DAO and the wider community as an increase in transaction volume potentially translates into higher transaction fee revenue. These funds can be reinvested into the Arbitrum ecosystem for further development and growth.

This strategy provides a double benefit: it greatly increases the collaborative potential of Uniswap v3 and the Arbitrum ecosystem while encouraging their individual growth.

We aim to present a comprehensive strategy to expand the liquidity pools within the Uniswap network through the deployment of a methodically curated liquidity farming mechanism. Our main goal is to increase user engagement, incentivize liquidity provision and then increase the depth of liquidity pools, in the best interest of all stakeholders.

Our proposal is to use the Quadrat protocol for active liquidity management in conjunction with the Quadrat Booster protocol to motivate liquidity providers with additional incentives. This plan is based on a conservative farming mechanism that offers liquidity providers a two-fold advantage. First, it will help Mitigation of potential impermanent loss (IL) on Uniswap v3 pools and second, it will provide additional reasonably priced offers to the providers Rewards for their contribution to liquidity.

We have conducted an analysis of the current Uniswap v3 pools, focusing on the top 10 in terms of Total Value Locked (TVL). The analysis revealed different degrees of liquidity distribution within the pools. For example, the ETH/USDC 0.05% pool has a balanced liquidity distribution with a TVL of $58.7M and an APR of +/-10% of around 23.21% and therefore requires no incentives.

On the contrary, the ETH/USDT 0.05% (TVL = $17M, +/-10% range APY ~28.10%), ETH/ARB 0.05% (TVL = $17.34M, +/-10 % Area APY ~49.73%) and ARB/USDC 0.05% (TVL = $4.5M) Pools exhibit unbalanced liquidity, which we believe could benefit significantly from the implementation of the Quadrat active liquidity management protocol.

Given that the UNI token is not incentivized by the protocol, we recommend setting up a farming initiative for UNI token holders and the UNI pool on Arbitrum. This would create a UNI/ARB 0.05% farming campaign. In addition, we note that the ETH/UNI 0.3% pool (TVL = $529.79K) has severely imbalanced liquidity and would benefit from the application of the square protocol.

About the square and booster protocol

Additionally, we would like to expand our offering to include our highly capital-efficient Quadrat and Booster protocols. These protocols aim to optimize resource allocation while delivering a higher APY for liquidity providers. Designed for active liquidity management, the Quadrat Protocol allows for a reduced incentive amount to yield a higher APR. On the other hand, the Booster Protocol, an extension of Quadrat, incentivizes Quadrat strategies using the ERC-20 token or strategy LPs. The booster protocol is highly customizable and we can set additional liquidity boosting periods and liquidity lock times to ensure liquidity remains in the Uniswap v3 pools for longer periods.

More info: square and booster | dApp dashboard

We eagerly await your valuable feedback and hope to make a meaningful contribution to the continued growth and success of the Uniswap network.

Best regards,
ilia.eth | 0xPlasma Labs

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