Minswap is the largest DEX on Cardano with the most liquidity and volume and we would like to increase the LQ token’s onchain liquidity by incentivizing LQ/ADA LPs using their Triple Farm feature.
The LQ yield from the Minswap triple farm will be returned to the Liqwid DAO treasury wallet.
The ADA and MIN yields will be used to increase the DAOs protocol owned liquidity. Additional LQ will be sent from the DAO treasury to pair with the monthly ADA yields, increasing the DAOs nominal POL and compounding the farm incentives to accelerate the growth of Liqwid DAOs POL.
Reasoning
The main reasoning for launching a Triple Farm is to incentivize active Minswap LPs to increase the LQ/ADA pool’s liquidity.
A total of 420,000 LQ (2% of token supply) will be distributed to LQ/ADA LPs, with the incentives distributed linearly over 12 months.
To bootstrap Liqwid’s POL by pairing assets deposited into the DAO treasury with LQ in the DAO treasury to LP in the Minswap LQ/ADA pool. This would allow the protocol to own its liquidity and earn yield on it from the launch of the Triple Farm.
Do you support this proposal to launch a Minswap Triple Farm incentives for the LQ/ADA LPs and start Protocol Owned Liquidity for Liqwid DAO treasury?
Regarding the POL, to fully flesh out the proposal:
Explicitly mention that non-Ada tokens owned by the treasury will be converted to LQ
Explicitly mention what will be done with the rewards accrued by the LP. It is implied that trading fees and LQ rewards go back to the DAO. Is this the desired outcome, or perhaps should the interest accrued be distributed to LQ stakers?
What about MIN rewards:
do they end up being distributed to LQ stakers as MIN or Ada,
do they end up boosting Liqwid protocol MIN supply (owned by the DAO, to be used for Minswap governance proposals favorable to LQ)
Are they converted to Ada and zapped back in the LQ-ADA LP?
As a liquidity provider, I don’t like to provide liquidity 50/50 in bull market (I expected huge impermanent loss on UNIV2).
50/50 pools are ok when the price is a trading range.
In case of major bull market, LP 50/50 will loose money versus holding token.
So governance has to fund loss by farming token, which are sold, which decrease the price of LQ…
On EVM chains, balancer has solved this problem , using 80/20 pools as staking contract https://medium.com/balancer-protocol/the-8020-initiative-64a7a6cab976
This 80/20model hosts a range of benefits including:
Deep Liquidity
Asymmetric upside and reduced impermanent loss (IL)
Efficient incentive programs
Hedging and price appreciation
Actually price is of LQ is at all time low versus ADA and USD. => we should at least expect a 20x price increase in case of a bull market. So lot of loss for LP pool on LQ/ADA
Why using Minswap 50/50 pools rather than VyFi 75/25 pools, with Dexhunter, the Dex Aggregator screens the best price/liquidity for the trade.
I recommend to modify or implement a 75/25 staking contract boosted, with governance rights and reduce current staking contract.
A lot of DeFi on ethereum is using 80/20 pools as staking and governance rights :
-Aave
-Paraswap
-Radiant
-Paraswap
I was about to agree with the proposal until @Cryptoinvest brings up his counter proposal.
I believe in terms of pricing, LQ could be around its bottom for the cycle. I also believe should the protocol delivers on its milestones and nothing catastrophic happens to either Liqwid or Cardano, we may never see the current price of 4.6ADA/LQ again.
Assuming LQ will 20x from current price close to 100ADA/LQ sometime in future*.
The impermanent loss would be as follows;
For a 50/50 weightage as per Minswap = 58%
For a 75/25 (LQ/ADA) weightage as per Vyfinance = 38%
In extreme case, assuming LQ reach 200ADA/LQ (40x)
50/50 = 70% IL
75/25 = 48% IL
*Timing does not matter in this case, it can be this cycle or next 1/2/3 cycles.
Of course, any of these impermanent loss arguments won’t matter if we believe LQ will revisit this price level again in future. i.e. any weightage of 50/50 or 80/20 or 98/2 does not matter if LQ falls to 4.6ADA again.
I would prefer (at least for the time being) to have any of the rewards from this POL (MIN, ADA, and LQ) to be plowed back into LP tokens, making LQ/ADA liquidity pools deeper.
Please find a link on L2 pool from VyFi Dex 75/25 , which is very close to Balancer 80/20 pool.
type or paste code here
Thanks
As I said, Aave, PSP and other are using this concept
One token staking Aave = 5.24 %
Aave 80/ETH =12.82
It cost "only " 7.58% for the DAO to have a HUGE liquidity available on the staking contract.
Otherwise, staking doesn’t bring liquidity for the LQ protocol
Triple farm on Minswap will cost of lot for the DAO and have a huge impermanent loss in bull market
I am surely no expert on these matters, but I would like - just as an idea - throw the idea into the discussion to create some liquidity by running one of Genius Yields Market-Maker-Bots. Don’t kniw exactly how this compares to providing liquidity to an AMM dex, but more or more of the “major” protocols have setup an MMB recently. (IAG and LENFI for example.)
if we are talking IL risk wouldn’t the real answer be to use Axo or Genius Yield and not a weighted pool at all? The problem with VyFi is their DEX TVL is so small compared to Minswap. All large LPs on Cardano are currently using Minswap and liquidity begets liquidity (even when IL risk exists). Also as ADA and LQ are correlated IL is much less of a risk.
I want more details as the proposal is missing key information. The 2% will also come from the Dao Treasury.
Why/How was 2% chosen? How do we know that is enough and not too much?
The IL should be weighed out on the total amount and long-term. If it’s truly significantly different, then the best place should be the answer. The paper napkin math above indicates it’s worth having a look at how the rewards from the triple farm offset it. Would / Could MinSwap create a 80/20 or like pool?
Indigo has a nice direction page on SWAPs for their tokens. Regardless of where this goes, it will increase users’ ability to direct them to where they need to be, similar to the JPG. Store on the staking page. Would be a nice UI add in V2
To build off your and @heinrichs details of what the POL looks like.
I would also like to know the Sweet Spot for liquidity depth / how much. We should have a target, again with IL involved, it would make sense that we would want to stop suppling to the POL once a threshold is achieved and forgo any future IL.
Most Minswap Triple Farms in past have done 1-5% of their tokens per year as a liquidity incentive. Lenfi extended their initial 6 month program so has done 1.52% of their token supply in incentives for 12 months. 2% seems reasonable for 12 months especially given the strong need Liqwid has to improve LQ’s liquidity profile (for more stable rewards model, for use as collateral, any future Safety Pool use) and when you consider the current monthly inflation of LQ is already close to 2% it actually seems 2% for 12 months DEX liquidity incentives is very appropriate.
The reality is while LQ liquidity does need to improve one could argue we are in a better place to make a targeted decision on what DEX should receive these incentives. As you point out in your messages in the governance discussion channel in Discord Liqwid community has discussed this before (both pre-launch and at launch) and we have seen Minswap emerge as the unanimous DEX leader, to ignore their clear liquidity network effect would not be wise after all this time. Another point: 80/20 is essentially the same as simply holding LQ, and it’s terrible UX for traders as slippage is much higher than a 50/50 pool. So while we can talk about cost savings it’s at the tradeoff of delivering a high slippage poor trading experience.
On IL also Minswap V2 will bring some improvements for LP returns: Dynamic Fees, higher fees for sellers than buyers, Stop Loss/Take profit, etc. I am also of the opinion combining Minswap 50/50 pool with the centralized exchange market makers contracted by the Liqwid DAO Association means arbitraging is continuous meaning on large moves the “impermanent” loss is muted as arbs capture the spread between onchain and CEX price.
If you want to get LQ exposure without IL risk you can just stake your LQ? Same applies to 80/20 Pools, essentially its pretty much just holding the token itself, its nothing much worthwile, leads to higher slippage and worse UX. The Liqwid DAO urgently needs to address the liquidity issue, if the LQ token is not liquid its less valuable and less effective when used for incentivisation of liquidity.
From their announcements, Minswap V2 will bring some improvements for LP returns: like Dynamic Fees, and Stop Loss/Take profit. Their position as the number one DEX on Cardano is indisputable currently, and splitting incentives would lead to splitting liquidity which wouldnt be ideal. Order Book DEXs are more capital efficient, but the amount of liqudiity and trading they handle is very low. Look at the Volumes on AXO and Genius for the last 24 hrs.
Going for increasing POL of LQ/ADA Liquidity, to be owned and managed by the DAO, is th ebest path no doubt. But for the short mid-term, this Liquidity the DAO would add would be miniscule. Using some inflation to incentivise liquidity seems justified, especially as in return you get increased liqudiity + increased circulating supply (something that has been criticised about LQ tokenomics).
If we direct all rewards to a single DEX that already accumulates most of the liquidity, we will be generating 1 single point of failure ourselves. If the DEX is hacked, fuck the price of LQ
If we direct the rewards to all DEXs in proportion to their LQ/ADA liquidity quota, we will be respecting the preferences of all Liqwid users who farm and we will diversify liquidity
Honestly speaking, I think there needs to be a better gauge for this. Minswap has been building for the last 2.5 years actively and has provided nothing short of amazing user experience and has been the backbone for the ecosystem. They also seem to be taking community feedback very seriously as well as security. I understand there are other dexes as well, but frankly I have never been able to figure out how to use Muesli, Teddyswap does not even seem legit, Sundae just completely stopped with their pr relations and I feel like Pi is the only one holding it together there, etc. Don’t get me wrong there are good dexes like Axo which are going to have to prove themselves, but the tech aside, I think its the team and their transparency that matter the most. Minswap has been communicating clearly and putting the community first time and time again. So in my humble opinion I think this makes sense and if other dexes want the same farm, then anyone interested can also put up a forum post regarding this.
