Liquidity

MegaStrategy relies on Uniswap v3 to provide onchain liquidity for both MGST and Convertible Tokens. By pairing these tokens with ETH, the protocol ensures that price discovery remains closely tied to Ethereum’s broader market dynamics — particularly important given MGST’s leveraged exposure to ETH and the CV’s embedded option on MGST.

Why ETH Pairing?

Simple – there is no second best.

Sure, that's a nod to Ethereum's dominance in DeFi – but here are more practical reasons:

Strategy Synergy

  • Because MGST and CVs gain or lose value in tandem with ETH, this pairing reduces impermanent loss compared to other assets (where price fluctuations in ETH would incur bigger divergence)
  • Pairing with ETH also means we don’t have to reserve stablecoins for CV liquidity pools. This maximizes the protocol’s leverage and preserves any stables the treasury may hold for more appropriate activities – such as buying ETH or repurchasing debt.

CV Pricing

  • When ETH's price spikes, CVs trade increasingly like MGST. Anchoring liquidity in ETH accommodates this shift, as both assets tend to move in the same direction.
  • Conversely, if ETH's price plunges, the CV becomes more stable – trading near its redemption value. By managing liquidity ranges, the pool can facilitate price discovery even in distressed scenarios.

Providing Liquidity

MGST/ETH Pool

  • MGST is inherently a leveraged play on ETH, so an MGST/ETH pair keeps MGST’s value aligned with its core driver
  • Liquidity providers can set a price range on Uniswap v3 that suits their risk tolerance, accounting for MGST’s volatility

CV/ETH Pools

  • Convertible Tokens can behave more stable or volatile depending on the price of MGST relative to the CV's conversion price
  • By positioning liquidity in a targeted range, LPs can capture fees from trades against ETH – reflecting the CV's transition from stable to volatile

Protocol-Owned Liquidity

MegaStrategy provides liquidity for MGST and CV tokens for efficient price discovery.

  • MGST liquidity proportional to 10% of circulating supply
  • CV liquidity proportional to 5% of each tranche

The protocol does not plan to offer liquidity mining incentives for MGST or CV liquidity. Instead, each pool's liquidity is expected to arise organically from traders and arbirageurs who see opportunities in the protocol's strategies.

Risks

Impermanent Loss

  • Even with correlated assets, IL can occur if price moves outside the chosen range
  • However, the correlation may help reduce IL relative to pairing with stablecoins, where ETH volatility typically inflicts higher IL

Price Volatility

  • ETH volatility can translate into wider swings for MGST and CVs
  • LPs must be prepared for rapid movements, especially if ETH rallies or collapses sharply

Distress Scenarios

  • If the treasury becomes distressed (ex: ETH tanks and debt is high), CVs may trade near their lower tick on Uniswap v3
  • Lower liquidity levels at these ranges requires swift action from governance to adjust liquidity or perform market operations

Key Takeaway

ETH is the Right Pairing

By aligning liquidity with ETH, MegaStrategy ensures that both MGST and Convertible Tokens remain fluid and accurately priced across market cycles — from bullish expansions (where convertibles behave like MGTS) to bearish downturns (where convertibles revert to more stable behavior).