Proposal 111 authorized the repayment of $3.5M of the $5.1M Protocol Owned Liquidity (POL) debt position and included a conversion to LQ tokens based on a 30 day average price. The terms were set to align this influx of capital with the long-term growth of the Liqwid DAO’s revenues by the token sale vesting schedule which lasts 1 year from the payment date followed by 4 equal trance unlocks spread 90 days apart.
With changing market conditions, investors have requested a return of $2.5M of the $3.5M of capital deployed during this transaction. The remaining $1M will follow the 2 year vesting schedule terms as described in Proposal 111.
Proposal
This amendment to Proposal 111 is to enable the return of private investors capital at their request. To accomplish this the POL position’s principal will grow by $2.5M.
The POL position has allowed for the Liqwid DAO to debt finance its growth and operations over the last 2+ years. Extensive cost reduction strategies have been enacted during this time including salary reductions, team restructuring and maintenance cost reductions to enable the Liqwid core team to deliver more with less. As Cardano’s largest lending protocol and primed to accelerate revenue with the mainnet deployment of upcoming products and Liqwid V3, the POL position has been a critical resource in Liqwid’s competitive positioning heading into the next phase of Cardano DeFi growth.
When the Liqwid POL position started the monthly cost to operate the protocol including infrastructure and core team salaries was approximately $130,000 similar to other large development teams built on Cardano. These monthly operations cost figures have been reduced to a current level of under $30,000 per month. This is an over 4.3x cost reduction per month while significantly enhancing the protocol’s security, reliability and user experience.
To enable this requested return of investor capital the POL position will need to be transitioned into a loan structure similar to the SNEK Cardano Treasury loan approved by DReps which allowed for an uncollateralized loan position. The existing LQ collateral backing the POL position will remain locked but due to current values the position will be under-collateralized. If this proposed amendment successfully passes the Liqwid App will be updated to reflect this change and the total amount will be borrowed from markets gradually over the next several months to not spike utilization above the optimal kink point rates.
Key points to consider:
The net $1M raised from the private investors has enabled Liqwid DAO to strongly reduce the POL interest accrual.
The $2.5M raised which is being returned have enabled aggressive reduction in POL interest costs for the duration from the moment of repayment to the moment of capital return.
The POL position now being undercollateralized is no different from SNEK’s Cardano treasury loan nor from when LQ was valued higher, because although LQ price allowed for value overcollateralization from a price standpoint, this did not allow for true overcollateralization from a liquidity standpoint.
At current and recent LQ prices from the TWAP price this strategic sale was approved at, the private investors would’ve received a significant portion of the total LQ supply, which in the long-term would’ve jeopardized tokenomics through concentration risk.
Conclusion
This proposal is an amendment to Proposal 111 to enable the return of private investor capital. $2.5M of the $3.5M will be returned to investors over the next 3-6 months. The remaining $1M will follow the strategic sale vesting schedule outlined in Proposal 111. The Liqwid Core Team strongly recommends the adoption of this proposal.
Why the core team strongly recommend this amendment?
Investors stepping back, so we should have programmatic back… I mean all the work was around the thesis investor wouldn’t invest in inflationary token…
This proposal is not for any restructuring of the current LQ Tokenomics. Also the current tokenomics are barely inflationary. There is a 1% staking yield as the only form of inflation.
Is Liqwid obligated to return the investment? Someone took a risk & made an investment looking for a return. Why, when price went down, are they able to cancel the majority of the investment? They took the risk.
OpEx reduction: Were people cut? Scope of development work? Is the reduction sustainable? Please explain this large reduction in operating costs, something changed…
If I take a negative view, I see an investor, that likely has more insights than I do, backing away from Liqwid…even with the potential future benefit of acquiring a large amount of LQ at a reduced rate. Suggest providing some updates on V3, RealFi loans, etc so that LQ holders can keep confidence in the future & know that this change will not delay these features.
Liqwid is obligated to hold a vote on the return of capital to investors who deployed funds with favorable long-term alignment to the DAO. This has little to do with price being down as LQ prices were down significantly when the capital was initially invested.
Liqwid core team developers have been restructured, some new developers at more competitive costs have been hired and some developers have been let go. Yes the reduction is sustainable as noted in the governance proposal the protocol has operated the same with these restructures and now an additional security audit completed and with new products rolling out which were built post restructuring.
You nor anyone else knows the full context of what motivated investors to initially invest nor what is causing them to request a return of some of their invested capital. The proposal already highlights work on V3 and upcoming products including RealFi is ongoing. None of the team restructures now this return of investor funds delays any feature whatsoever. Also just as you take the negative view there are key points highlighted in the proposal which make clear the objective reality and positive view of the current situation.
it’s not like there are many options:
If the return of funds is an obligation from the investment contract, then ok.
There are not much options for Liqwid to quickly get back $2.5 millions. Borrowing them from the Liqwid stablecoins pools might be the only feasible option.
overall it makes sense to frame it as a loan:
The $2.5 millions the investor gave and would be taking back can indeed be seen as a loan which enabled debt reduction and therefore lower interests.
100 % true the POL position was (is) never really well collateralized given the low $LQ liquidity.
Thanks for acknowledging the token concentration concerns several community members had at the time.
These are serious costs reductions. Well done. Hopefully survival mode actually allows on the mid-long term to improve the protocol and deliver new products, and grow revenue.
MORE TRANSPARENCY
I am going to be that guy again, below are some points that could be included for more proactive transparency. Please really consider that with the API and on-chain data, anybody can check stuff, so rather than having people/third-party entities eventually discover things themselves and question themselves, be transparent as much as possible and offer your perspectives before people form their own.
Current situation of the POL position:
If the POL position’s principal is to grow by $2.5 millions, this kind a of assume the POL position is still open. So what is the current situation of the POL position ? (this has not be always clear for all participants)
POL position costs estimations:
As Liqwid is looking for financial stability, it would help to evaluate the cost of the POL position (interests accumulation) against the current protocol revenue, so that community members can have a good picture of the financial situation.
Impact of the POL position on (stablecoin) Liqwid’s markets:
The current and future size of the POL positions are not small. Help people understand the percentage of Liqwid total borrowed that is actually coming from the POL position. Give some explanations of how the POL position impact the (stablecoins) markets, especially if it’s made of large long lasting borrow positions with eventually low (no?) interests repayments for now: impact on rates, impact on withdrawal liquidity, safety for (stablecoins) lenders, etc. (saying the new debt will gradually be borrowed to not spike utilization is not quite enough for me).
If the possibility of returning part of the funds was in the investor contract, this could have been shared with the community in the investment related proposals.
(I am not asking these questions/requiring these things for myself strictly. I want Liqwid users and enthusiasts to always have the maximum available information to understand well everything related to the protocol and the DAO).
JOKE/MEME:
Crypto bros can have fun with this one: the treatment difference for large investors with fund return agreements vs. the small guys buying on the market ^^ (DeFi far from living on DeFi/crypto principles)
Open question:
Is there really no largish investor(s) that can be found that is interested in actually investing in Liqwid ?
Thank you for the reply. For the record, I didn’t say I was taking a negative view, I said ‘if’ I was…
Hearing from you that this doesn’t impact ongoing sustainability or impact the near term features, is very important. If you & the team feels this is the right thing to do then I’ll trust you’re right.