Summary
This is a proposal for Shade Protocol to create an Interchain Account (ICA) on Neutron that is controlled by Shade’s governance. While there are many reasons why Shade might want an ICA on Neutron, an immediate reason to create the ICA now is to enable Shade to enter into a liquidity sharing agreement with another protocol without the need for a trusted multisig to manage the deal.
Note that this proposal DOES NOT commit Shade to any deal with any other entity. Establishing the ICA simply removes the need for Shade to have to deal with this in the future, thereby reducing the deal friction between Shade and any other crypto-native organization that Shade would eventually like to partner with.
Protocol-to-Protocol Liquidity Sharing
Protocol-to-protocol liquidity sharing is becoming increasingly important, as evidenced by the Hub’s three liquidity deals (Hub props 800, 853, and 858), the liquidity deal between Osmosis and Neutron (Osmosis prop 700, Neutron prop 28), and the numerous liquidity deals struck by Stargaze, Sommelier, and other crypto-native organizations. However, all of the deals above require multisigs, which cause numerous issues.
Issues with Multisigs
Deal Friction
Recruiting the people necessary to manage the multisig adds time to the dealmaking process. This process can be a major source of friction if the two parties cannot agree on who should manage the multisig and how the multisig should govern (e.g. 2 of 4 vs 3 of 5).
Increased Liability
Even if the two parties agree on who they would want on the multisig and how it should be governed, the people they want on the multisig may not want to serve on the multisig due to liability concerns or be unable to serve on the multisig for regulatory reasons.
Trust Vulnerabilities
Even if the two parties find willing and able multisig members, both parties are counting on the individuals continuing to act in good faith. An extraordinary amount of effort is dedicated toward making protocols trustless – having a trusted multisig manage an increasingly critical part of a protocol’s strategy is contradictory to the core ethos of crypto.
Administrative Risk
Even if the individuals on the multisig continue acting in good faith, members of the multisig could lose their passphrase, have their accounts compromised by a malicious actor, or execute an incorrect message that leads to a loss of funds.
Operational Overhead
Even if the administration is done accurately, the administration drains the time and attention of the multisig members that could be spent on more productive activities.
Slow Response
Even if the people on the multisig have nothing better to do than manage the multisig, the manual work required means that the funds managed by the multisig members cannot respond in real time to on-chain events. This precludes the introduction of automated mechanisms, which limits the possibilities for algorithmic monetary policies.
Multisigs for protocol-owned liquidity (POL) are only a temporary stopgap. Covenants are the long-term solution.
Covenants: the Long-Term Solution
Covenants are contracts that facilitate interchain agreements. They enable multiple parties (e.g., DAOs, dApps, chains, and protocols) to enter into deals with one another without the need for an intermediary multisig. Currently, these deals can include token swaps, single-party POL (e.g., Hub prop 800), and two-party POL (e.g., (Osmosis prop 700, Neutron prop 28).
Missing Piece: Interchain Account
In order for Shade to strike deals with other crypto-native organizations using Covenants, Shade must first establish an ICA on Neutron. This proposal is to establish Shade’s ICA on Neutron. The creation of this ICA DOES NOT commit Shade to any deal with any other entity. Establishing the ICA simply removes the need for Shade to have to deal with this technical step in the future, thereby reducing the deal friction between Shade and any other DAO that Shade would eventually like to partner with.
Shade only needs to create one ICA on Neutron to engage in an unlimited number of Covenants. Also, even though the ICA is on Neutron, the ICA on Neutron would enable Shade to engage enter into deals with any other entity that has a ICA or Polytone proxy account (PPA) on Neutron even if Neutron is not a counterparty in the deal. This level of interoperability is made possible by Covenants.
Conclusion
Let’s make it happen.
Who we are: Timewave
Timewave is a team dedicated to increasing the scope and scale of interoperability between crypto-native organizations. If you have ideas for how we can further this mission, we would love to hear from you: @TimewaveLabs.
