Firstly, thank you for your proposal and keen interest in the Arbitrum ecosystem.
Introduction and Rationale
Automated Liquidity Managers (ALMs) are growing to become a foundational sector of DeFi. As v3’s (concentrated liquidity) complexities are difficult to manage for the average user, ALMs provide great products that allow for the inclusion of all market participants while significantly contributing to deeper liquidity across ecosystems. Active management is often beyond the knowledge/skill-base of the average LP. ALMs like Gamma Strategies can provide a seamless approach to increase fee capture and reduce IL for passive LPs.
Gamma Strategies initially launched on Arbitrum in December of 2022 and now has ~$6.2M TVL combined across Arbitrum DEXs including: Uniswap, SushiSwap, Zyberswap, Ramses, and Camelot (they will be adding Pancakeswap as well). It may also be worth noting that prior to their merge with Gamma Strategies, Visor and the VISR token somewhat live with low liquidity on Arbitrum in 2021.
Looking at some of the WETH and ARB narrow strategies, Gamma Strategies 30-day performance (without LM rewards) vs. HOLD strategies are:
| Exchange | Pair | Time Frame (Days) | TVL | Fee APR | Gamma vs HOLD |
|---|---|---|---|---|---|
| Camelot | WETH-USDC | 30 | $293.4K | 5.7% | 1.7% |
| ARB-USDC | 30 | $153.2K | 21.7% | -1.1% | |
| Ramses | WETH-USDC | 30 | $194.6K | 3.6% | -1.4% |
| WETH-ARB | 30 | $135.7K | 11.7% | 1% | |
| Zyberswap | WETH-USDC.e | 30 | $236.9K | 7.35% | 2.8% |
| WETH-ARB | 30 | $74.8K | 7.92% | -0.6% | |
| Uniswap | WETH-USDC.e | 30 | $61.4K | 3.2% | 0.5% |
| ARB-USDC | 30 | $3.2K | 32.2% | 0.8% | |
| Sushiswap | WETH-USDC.e | 30 | $0.22 | 9.8% | 16.2% |
| WETH-ARB | 14 | $1.9K | 23.5% | 6.8% |
This data suggests that Gamma narrow strategies have improved fee performance with minimal IL versus holding.
Gamma Strategies is requesting 750K $ARB to incentivize liquidity into their Arbitrum vaults (250 $ARB being emitted as rewards every month for 3 months). DEXs included in these incentives include those mentioned above and potentially PancakeSwap. Gamma intends to choose pairs by speaking with AMMs, learning what pools are already being incentivized, and dedicating resources to under-capitalized pools.
Benefits of the proposal include:
- The inclusion of Arbitrum native DEXs - Camelot, Ramses, and Zyberswap.
- 100% of the $ARB received will go to vault LPs
- Under-capitalized pools will be chosen for incentives
We generally support Gamma Strategies’ proposal to receive $ARB incentives. However, a larger combined grant with Arbitrum native DEXs would be more meaningful.
Major Concerns
Potential Redundancy of ALM-based Proposals
- There are many ALM providers hoping to service LPs on Arbitrum and funding each individually may be redundant.
- We believe a group proposal between ALMs, such as Uniswap Proposal 45, (potentially in cooperation with a DEX) would be the most effective and inclusive use of ARB distribution.
Minor Concerns
- Gamma Strategies may choose to incentivize DEXs that are not native to Arbitrum (Uniswap and Sushiswap)
- The criteria for choosing pairs to incentivize is unknown.
- More empirical data is necessary to determine the effectiveness of Gamma Strategies in long-term benefits to LPs.
Summary
Castle Capital appreciates the efforts put forth by Gamma Strategies. While we generally support the proposal, we believe a larger combined grant with Arbitrum native DEXs would be more meaningful. Moreover, we believe detailed information on how pairs will be chosen and the overall performance of Gamma Strategies needs to be provided before funding.
Our recommendations can be summarised as follows:
- Provide detailed information on how Gamma Strategies intends to choose pairs that will be incentivized
- Provide granular data on performance for strategies and/or pairs that are likely to be included in the execution of the proposal
- Combine this proposal with those of Ramses, Camelot, and/or Zyberswap (or other ALMs) to make them more meaningful
We hope that our comments are constructive and are seen in a positive light for the benefit of the broader ecosystem.