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    Migrating strategies from Polygon to Arbitrum as liquidity shifts

    As the Polygon liquidity on DEXes is decreasing, we are relaunching some of the existing strategies on Arbitrum.

    Preface

    Trading Strategy launched first on Polygon blockchain, where we deployed our first vaults. The landscape of blockchains has changed during the past year, with the launch of new popular layer two chains like Base and some of the early layer twos like Arbitrum growing stronger.

    The note contains liquidity from DefiLlama for selected EVM chains (mainnet excluded). L2s have severely fragmented liquidity across chains. Polygon's share has decreased from 2% to 1% in a year. Arbitrum has grown from 1% to 3%. Numbers are small because these are from the all-liquidity pie, which includes Ethereum mainnet, Tron and Solana. Numbers do not directly translate to tradeable assets, as liquidity on most chains is purely in its native gas token.

    Liquidity of BTC and ETH as critical trading pairs

    The most important trading pairs are BTC and ETH. Currently, Polygon does not have good WBTC market depth on any Uniswap-compatible decentralised exchange.

    For example, Polygon WBTC liquidity on Quickswap has gone down 90% this summer.

    Bitcoin liquidity is less than $1M on Polygon.

    Meanwhile, Arbitrum has deep Uniswap V3 CLMM liquidity for the WBTC-USDT pair with a cost-efficient 5 BPS trading fee.

    WBTC-USDT 5 BPS pool on Uniswap v3 has deep liquidity ($5M) on Arbitrum, exceeding the liquidity of many centralised exchanges. Other protocols, like Curve, may offer similar pools with even lower trading fees.

    Other Arbitrum benefits

    Moving automated trading strategies also to Arbitrum allows us to trade these pairs with better liquidity. There are also multiple additional benefits, like

    • Lower gas fees
    • No worry about MEV attacks
    • A more stable and robust chain with fewer minor chain reorganisations and other low-level issues

    As another difference, USDT (Tether) nominated pairs on Arbitrum are more popular than USDC (Circle) nominated pairs. This requires us to change our deposit and redemption flow, as Tether ERC-20 token does not support the same gas free transfer standard, EIP-3009.

    Enzyme goes Arbitrum and GMX

    Enzyme launched its asset management protocol on Arbitrum, and Trading Strategy was one of the launch partners. This enabled us to bring open strategies to Arbitrum.

    Enzyme has battle-tested vault smart contracts. Trading Strategy is currently using these for its open strategies.

    Read more about the Enzyme Arbitrum launch here.

    Enzyme also has GMX integration on Arbitrum, enabling perpetual futures (perp) trading as well.

    Future Polygon strategies

    In the future, new strategy deployments on Polygon will likely focus on trading pairs that are not available elsewhere.

    We also look forward to the Polygon chain abstraction solution, AggLayer, which might help with fragmented liquidity. Currently, these solutions are still under heavy development.

    Actions you, as the user, should take

    As a user

    • You do not need to act now - nothing is time-critical.
    • You will see a migration notice on strategies set to be relaunched.
    • You can leave the deposits in the existing Polygon strategies. However, because Polygon's liquidity is going down, the strategy's future performance will not be ideal.
    • In case there aren't positions to be opened on Polygon, deposits in related vaults will generate USDC yield on Aave. The current strategies have a risk-size model that prevents them from opening too large positions in low liquidity pools. Any excess cash is deposited in Aave.
    See ETH-BTC price surge strategy on Polygon.

    Future and further questions

    Interested to learn more or have feedback? Join our Discord chat for any questions.