Discussion on active liquidity management on AMMs for GHO with Mellow Protocol

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Mellow, a platform for automatic trustless DeFi strategies, is proposing to implement their audited strategies, Pulse V2 and Tamper, for GHO pairs on the Aave community. The strategies aim to mitigate Impermanent Loss (IL) and manage liquidity, with potential risks acknowledged and security measures in place, and they are seeking community feedback for further refinement.

Nick from Mellow, a platform specializing in automatic trustless DeFi strategies, has initiated a dialogue with the Aave community about implementing their strategies for GHO pairs. Mellow's protocol, launched in November 2022 and audited by Chainsecurity and BlockSec, has demonstrated its effectiveness in active liquidity management (ALM) for Lido and zkBob across various platforms, including Ethereum, Polygon, Optimism, and Arbitrum. The protocol is compatible with almost any AMM with concentrated liquidity, such as Uniswap and Quickswap1.

Mellow has proposed two strategies: Pulse V2 and Tamper. The former keeps the interval within the pool of the corresponding AMM protocol active, mitigating the impact of Impermanent Loss (IL) on profitability. The latter, designed for correlated asset pools, maintains two positions within the pool and actively updates and rebalances the liquidity between them based on the current market price1.

For volatile pairs, Mellow suggests two methods to manage significant IL: deployment of protocol-owned liquidity and pool incentivization. For correlated pairs, where IL is less significant, they propose the same methods but with reduced incentives for pool incentivization. They also recommend listing strategy LP tokens on AAVE as collateral to enable leverage for the strategy and attract liquidity to the pool1.

However, potential risks, including smart-contract risk, were acknowledged by Nick1. S0xn1ck further elaborated on the risks, particularly those associated with hacking the vaults and strategies contracts. The Vaults system, audited by Chainsecurity and BlockSec, serves as a base layer of security to prevent potentially harmful actions of the strategies. The Pulse V2 strategy has undergone an internal audit and is currently used in production to manage the liquidity of Lido and zkBob. The audits are publicly available on Mellow GitHub1.

S0xn1ck also proposed the use of Mellow for active liquidity management for GHO pairs on Uniswap, Quickswap, and Kyber on Ethereum, Polygon, Optimism, and Arbitrum. As GHO releases, the Mellow team will deploy the strategies to showcase the performance and real data. They are seeking feedback from contributors and the community to discuss the parameters of the strategies, pairs, and deployments of the strategies1.

Posted 7 months ago

Last reply 7 months ago

Summary updated 2 months ago

Last updated 04/12 15:05