Why mint SHD vs use SHD in treasury? If you’d use treasury to supply LP in the bird model, why wouldn’t you use treasury in the bond operation?
- I think it is better for the treasury to remain untouched (in this case, and others such as community grants) for future endeavours (funding, grants, operations, incentives etc…).
- Risk of IL when pairing it with SCRT: SHD is expected to appreciate much more than SCRT in the future, as SHD max supply= 10 Million, SCRT = 200 Millions for now. If we buy SCRT from users and pair it ourself with our treasury, when SHD will pump, we will be left with even less SHD in the treasury.
I rather see bond takers buying SHD (and giving it away) to provide it to the DAO than the the treasury wasting it and loosing it at the next pump via IL.
Would it change your perspective to know that 10m is not the maximum supply, but the starting supply? Only new SHD created will be through bonding.
If complexity of creating/depositing LP is a reason for choosing Bird over Waffle, I’d disagree with this argument.
Anyone who gets as far as Shade Protocol will be in to crypto, in to DeFi, have setup a CEX/Keplr wallet, traded on a DEX, etc. There are just so many hurdles and “difficult” steps to overcome before we reach Shade Protocol. It just seems crazy to me that we’d worry about “making things simple” at this stage.
Or we could use AnewbiZ suggestion to achieve the UX of Bird with the mechanics of Waffle:
Intuitively I like the buy pressure created by Waffle method. Providing SCRT/SHD LP to get discounted SHD makes us more emotionally invested in the success of Shade Protocol. Whereas if I can come along and drop $90 of OSMO to get $100 of SHD, I could just insta-dump, rinse and repeat.
Waffle helps build community, Bird encourages parasitic investing IMO.
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I agree that initial bootstrapping will certainly be those of us that know the ins and outs of DeFi. Along with a few that know enough to reach out for help in our SHD and SCRT communities. The mechanic of waffle certainly sounds best for price. However a UI is the key to getting new people, and new money into the protocol,. And if we want full adoption. We want people to eventually hear about us, then check it out and jump on in without getting overwhelmed.
If we can get the UI to feel simple, but execute the waffle mechanic it’s ideal. Best of both worlds. I am not a dev tho, and I can’t say if that is feasible with our time line. Now that said, we can always integrate such a thing later. After bootstrapping and solidifying our initial liquidity.
I know additional collateral types will be added later down the roadmap. So adding a bird type mechanic at a later date, once some outside interest arises is not out of the question.
I want adoption and i want solid foundational value.
I hrs this is why i days. I can support either. There is real value in simplified entry. But we are talking About a DeFi protocol that I believe is going to change the world, it’s reasonable that initial bootstrapping takes defi veterans.
One thing I know, we need this to be done right.
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AnewbiZ, this sums of my way of thinking really well. To me they buying of the Shade seems like a good thing, and I think in the long run it is possible to make it just as simple to use similar to how you can add to Osmosis LP with only 1 asset.
As I pointed out in the Shade Bond Issuance thread (Shade Bond Issuance - #11 by ChristianA), LPing is a very specific portfolio construction that takes a no-volatility position on the assets in the pool, so the act of selling SHD for LP, regardless of the waffle or bird model, means that we are taking a bearish position on SHD and a neutral but high volume position on whatever pair we sell the SHD for. It’s important to think about LPing with bonds in this way because if we don’t, we will run into a situation that effectively reduces down to “we are giving away $1 in exchange for $0.70” and that’s just bad management of money.
With that said, I don’t see any situation where the waffle model makes sense. Because of the fact that it is not always the correct answer to spend protocol funds on LPing, having the treasury full of assets that could be deployed however we want, including into LP, is a better decision. I would extend this to say that if we are selling SHD bonds to raise money in the treasury, we should only sell bonds for highly liquid, non-Silk stablecoins, otherwise we are playing hedgefund.
In the case of bootstrapping dex liquidity - as I also mentioned in that thread above, the constant product AMM is one of the most capital inefficient swap mechanisms (arguably, the most inefficient swap mechanism in common use right now). This means that to “bootstrap dex liquidity” in a meaningful way we would need to attract literally hundreds of millions of LP across all supported pairs - and in the process, the protocol would be taking a no-volatility position on all supported pairs using hundreds of millions of protocol funds. If you’re okay with this, I have a question for you: would you be okay if we decided to spend hundreds of millions of dollars on a bespoke coin portfolio of SCRT, BTC, ETH, USDC, and ATOM because “we feel the price will go up”? I believe most people would say no, but that statement is roughly equivalent to the protocol selling SHD for SCRT/SHD, BTC/SHD, ETH/SHD, USDC/SILK, and ATOM/SHD LP.
The conclusion this leads me to is that I believe it makes sense to:
- Use the bird model, so we don’t trap ourselves into losing positions.
- Make very informed decisions about what LPs we choose to bootstrap, because with current market conditions on secret, it likely only makes sense to bootstrap a single stablecoin pool. For reference, Trader Joe on Avalanche struggled to acquire a significant amount of protocol owned liquidity just for their own JOE-AVAX pair, and at the time they had almost 2 billion in liquidity, and were doing 500m-1b in daily volume, and had a revenue generating lending product that had around $500m in TVL.
To think about it another way: if we manage to sell $500k worth of bonds, we can make any number of decisions with that money, but consider these three decisions:
- Turn $500k into $1m of SHD-sSCRT LP, which has a 1% depth of only $2000, meaning a trade of $2000 will incur a slippage of 1%
- Turn $500k into $1m of sUSDC- SILK LP, which will have much better depth and also is a no-volatility pair
- Put the $500k into extending the runway of the team for 6 months (best guess number, i don’t know what the actual monthly spend is)
Personally the ROIC of #3 is probably far and away the best right now, but in the absence of runway problems, #2 (and other no-volatility positions like it) are the only things that make any financial sense for the protocol to LP in.
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I would argue that diversifying the Treasury with nonstables is a good idea (along with stables), why do you assume that it is a bad strategy in your post?
It is exactly by diversifying our Treasury that we can use our coordinated capital to our advantage across the cosmos and greater crypto sphere ensuring safety for our products and coin holders
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Well the treasury isn’t an ETF, it’s protocol funds. I do think it makes sense to deploy treasury funds, but the manner in which they are deployed is what we’re talking about I guess. To put it simply, if we have a dollar, we can only choose to deploy that one dollar in one way. We’re not a managed fund, we don’t have the resources to be a managed fund, we don’t have the community with the necessary expertise or desire to run a managed fund, and people aren’t here because they’re looking to deposit their money in a managed fund, so why should we treat our treasury like a managed fund? What if you walked into work one day and your boss said “sorry, i spent all the company money on bitcoin because it’s gonna go up, i just can’t afford to pay you right now, but just stick around and when bitcoin goes back up i’ll make up for it! you’ll see!” Would you work for free until bitcoin goes back up?
The protocol is not in the business of being an ETF or a quantitative market making firm, so it doesn’t make sense to view our treasury in that way. The money is better spent on things like grants, salaries, minimum-risk, highly liquid investments, etc.
Overall I think the idea of bootstrapping dex liquidity with bonds is sound, but I think we should 1. use the bird model so we aren’t only taking in LPs and 2. focus on non-volatile LPs like stablecoin pairs, because they are relatively low risk investment vehicles that achieve our goal of bootstrapping liquidity, and we can only reasonably bootstrap a single pool, maybe 2, with any significant amount of liquidity anyway.
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Ok I see your point, I think eventually we will have components of a managed treasury to provide additional stability to silk with growth potential but if we can only fund 2 pools I would choose sscrt/SHD and sUSDC/silk to simplify silk adoption and shade entry. Am I correct in thinking that these pools would provide most of the necessary components of the protocol?
or maybe STKD-SCRT/SHD??? so our protocol owned liquidity doesn’t suffer inflation?
Waffle model gets buying pressure to counter selling pressure from the airdrop. However I don’t think it was mentioned but there may be a way to get the best from both models.
How about an LP with 70%Asset/30%SHD and this ratio can be adjusted.
Waffle model actually does not create more “buying pressure” compared to the Bird model. OP mistakenly made this comparison.
I agree with your position. Buying protocol liquidity for an AMM seems like a hugely inefficient use of funds.
I challenge two of your suggestions:
- Contrary to what you suggested, the bird model also traps the protocol into a losing LP position (assuming it’s used for SHD-sSCRT).
- LPing is a no-drift position rather than a no-volatility position (an LP position with a lot of vol can still make money if there’s no drift).
What would you recommend?
If the Treasury doesn’t buy funds to use towards owning its own liquidity, it will have to continue emitting large amounts of SHD to incentivise people to provide liquidity on ShadeSwap instead.
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Waffle model does indeed provide a buy pressure in the fact that the users will need to:
- Buy SHD (here is your buy pressure)
- Buy SCRT
- Give it to the protocol (Here is your PoL that is crucial to lock deep liquidity within treasury)
- Receive after lock-period newly minted tokens that could be dumped on deeper liquidity (less price impact), and owned by the DAO (So the Protocol ends buying and selling back SHD to the market)
All the above is obtained while the treasury remains untouched and using classic bond/mint mechanism. This has already shown its efficiency during DeFi 2.0 summer
Like @Orageux101 said, it’s either owning our liquidity or renting it forever by emitting large amounts of SHD to attract it.
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@Waffle your argument for keeping the shd in the treasury is that the value of shd will increase over time and those shd will be worth more. but with bonds the treasury has (in effect) an endless amount of SHD in the treasury. I see no reason to slow ourselves down especially with so many exchanges launching now. I am beginning to think you are a DRO sleeper agent O.O
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I was thinking of buy pressure as something that outlasts bond maturity. I agree with you that in the waffle model the community will be forced to buy SHD, but the buy pressure will be offset by the extra SHD supply that will be introduced as a result. So by bond maturity there is no real buy pressure. And this offset is nearly identical for waffle and bird.
I don’t think there is a clear need for ShadeSwap. If there is, a clob exchange is the best option. If ShadeSwap needs to be an AMM, then I don’t see how owning liquidity is clearly any cheaper than renting it. It certainly could be cheaper, but there’s a reason why LPs need emissions. As @ChristianA said, LPing is costly.
Is a more accurate waffle vs bird comparison not
Waffle Model
SHD = $1
SCRT = $1
- $90 of SCRT purchased
- $90 of SHD purchased
- SCRT/SHD LP token minted ($180 worth, holding 90/90)
- 200 SHD being sold at 10% discount for $180 of SCRT/SHD LP
- 90/90 LP token received by treasury
Computation:
- -90 SHD pulled out of market (owned by treasury)
- +200 SHD put into the market (owned by bond purchaser)
- +90 SCRT gained (owned by treasury)
Net:
- +110 SHD put into the market (+200 - 90, this already considers +90 “buy pressure”)
- 90 SCRT gained
Bird Model
SHD = $1
SCRT = $1
- 90 SCRT purchased by market participant
- 100 SHD being sold at 10% discount for $90 worth of SCRT
- 90 SCRT received by treasury
- 90 SHD added to LP
Computation:
- +100 SHD put into the market (owned by bond purchaser)
- +90 SCRT gained (owned by treasury)
Net:
- +100 SHD put into the market
- 90 SCRT gained
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NICE so bird is 10% more efficient?