VSP#3: Approved Virtual Reserve List

VSP#3: Approved Virtual Reserve List

Proposal Summary:
VirtuSwap DEX solves the problem of indirect trades, by enabling liquidity pools to hold for a limited scope (in time, value, and asset class) tokens that are not native to the liquidity pool (“Virtual Reserves”). In the background, and not at the expense of the traders, the pools trade the reserve tokens between themselves. To better understand the process and benefits from it, please read VirtuSwap WP and LP attached in the links section below.

To avoid exploits of the system by sending pools scam tokens, the pools will accept non-native tokens only from a list of tokens that were pre-approved by the VirtuSwapDAO to be an Approved Reserve Token (“ART”).

This proposal aims to establish the benchmark and procedure to whitelist tokens for the ART list; and set the mechanism by which a token can be removed or added from the ART list.

To unlock the power of Virtual Reserves powered trading this proposal aims to propose the first list of tokens approved to serve as reserves. Moreover, the proposal specifies the governance process required to alter the list or blacklist a token that is in the ART list.
If approved, the proposed ART list will be binding for all Virtuswap Liquidity Pools, across all chains the DEX will be deployed.

Part I: First ART list and reserve swap mechanism
In order for a token to serve as a reserve it must satisfy two conditions:

Condition #1: the token must be whitelisted to be part of the virtual reserves. For now, we propose that any token with market cap greater than 20m US$ can be part of VirtuSwap virtual reserves.

Condition #2: VirtuSwap DEX must have at least one pool in which the token is one of the pool’s two native tokens. This condition is required for the pool to be able to swap its reserves.

Only tokens that satisfy condition #1 and condition #2 will become part of the ART list which is used across liquidity pools of the protocol.

Part II: Decision Types Related to Virtual Reserves:

  1. Adding or Removing a token from the ART list:
    Adding or removing a token from the ART list will be done via a Parameter Decision.
    Thus, a token that satisfies conditions #1 & #2 above (i.e. marketcap > 20m US$ + at least on liquidity pool on VirtuSwap that has the token as a native asset) can be proposed to be included in the ART list by a Parameter Decision. In a proposal to add a token to the ART list, you should include any information about the token and its credibility as well as financial characteristics that will help the community assert that the token is legitimate. This can include team reputation, tokenomics specification, token utility, volatility of token returns, depth of pools involving the token on VirtuSwap and elsewhere, and any other information to justify adding the token to the ART list. The moment a proposal to add a token to the ART list is approved and executed, all Liquidity Pools of the VirtuSwap DEX will be able to accept the token as Virtual Reserve.
    Blacklisting a token from the ART list is also done by a Parameter Decision. The proposal should include any information about risks associated with the token, such as information implying scamish behavior related to the token or the team behind it; hack of the associated value layer embedded in the token price (like de-peg of stablecoins); increased volatility and/or reduced pool TVL; and any additional information that could help the community members decide to remove the token from the ART list.
    It should be noted, that the downside of removing a token from the ART list is that fewer transactions could be accepted in VirtuSwap Liquidity Pools, thus limiting value both for LPs (in the form of fewer fees); and traders (in the form of lower liquidity available for trading). Adding a token to the ART list, will result in the opposite.

  2. Setting the Maximum % of Virtual Reserves and how to change it:
    We propose that for the time being, the total virtual reserves that a liquidity can hold at any given point in time will be set to 2% of the pool’s TVL. We think this threshold will unlock the benefit of Virtual Reserve backed trading (i.e. making all trades direct); while limiting risks that could be imposed to LPs in case there is a significant risk with one of the reserves a pool is holding.
    We also propose that changing the maximum cap of total reserves a pool can hold will be altered only by an Ownership proposal. Changing the Virtual Reserve maximum cap will apply across the protocol to all VirtuSwap pools, and could alter the risk imposed on LPs. Therefore, the high threshold for approval of an Ownership proposal is needed. A proposal to alter the maximum cap of total reserves a pool can hold should have significant justification and reason, therefore such proposal should be highly elaborated and explained.

References/Useful links: