🌊Liquidity Management

BRR's liquidity management is crucial for its stability and functionality within the Arcadefi ecosystem. This strategy ensures sufficient liquidity while balancing trading behavior and maintaining BRR's premium over its backing price.

Concentrated Liquidity on BRR/ETH Pair

Rationale

• Financial Connections: BRR's value is closely tied to the wider DeFi ecosystem, with ETH being the most liquid token.

• Flexible Liquidity: Unlike stablecoins, BRR's value fluctuates around a moving backing price, requiring a dynamic liquidity strategy.

• Targeted Bands: Liquidity is strategically placed in different premium ranges to effectively manage volatility and trading behavior.

Targeted Liquidity Ranges

BAND	Upper Bound Price	Lower Bound Price	Goal
Backing	(1 + buffer)x Backing	(1 - buffer)x Backing	Ensure sufficient liquidity to support trading at the backing price
Lower intermediate	Mean of Backing band upper bound and [Deviation_Threshold]x Backing	End of Backing band	Concentrate liquidity to incentivize trading and maintain a healthy premium
Higher Intermediate	[Deviation_Threshold]x Backing	End of Lower Intermediate band	Provide liquidity cautiously to manage risk and avoid unsustainable premiums
Beyond	Infinity	End of Higher Intermediate band	Provide liquidity to ensure protocol functions operate smoothly

Market Maker Incentives & Fees

• Backing: Higher fees (e.g., 1%) discourage selling and attract capital to maintain stability.

• Lower Intermediate: Lower fees (e.g., 0.3%) encourage trading and arbitrage, enhancing liquidity.

• Higher Intermediate: Moderate incentives and lower trading fees (e.g., 0.3%) to support positive price movements.

• Beyond: Higher fees (e.g., 1%) slow down trading, allowing supply corrective mechanisms to stabilize prices.

Reweighting & Volatility Scenarios

MARKET OUTLOOK	BEHAVIOUR
Stable Market (Low Volatility):	Liquidity is concentrated around the 1x premium range with predictable LP dynamics and fee generation
ETH Price Increase	Liquidity is adjusted to support trading in higher premium ranges, attracting LPs seeking better returns
ETH Price Decrease	Liquidity is adjusted to provide support slightly below the backing price to prevent sharp declines and attract buyers
SEI Price Increase	Liquidity is concentrated around higher premium ranges to take advantage of increased trading interest
SEI Price Decrease	Liquidity adjusted to support trading below the backing price, mitigating sharp declines and incentivizing buying
Bull Market Scenario	Liquidity is concentrated around higher premium ranges to capture trading activity and ensure sufficient liquidity for price discovery
Bear Market Scenario	Liquidity is concentrated around the 1x premium range and slightly below to attract buyers and maintain market stability

Opinion on Reweighting Index

• Automated target weights based on market conditions are sufficient, with a potential bias towards stablecoins during market downturns and volatile assets during rallies.

• Manual correction may not be necessary due to the system's adaptability to capital flows and market sentiment.

By implementing this liquidity management strategy, Arcadefi aims to ensure the stability and functionality of the BRR token within the DeFi ecosystem, fostering a healthy trading environment and sustainable growth.