Proposal Summary
This proposal aims to repurpose the allocation of the Protocol-Owned Liquidity (POL) loan to buy back LQ tokens (vested and unvested) held by Seed round investors.
Proposal description:
Currently, there are 9 months remaining in the vesting schedule for the original venture capital funds. This represents 9 tranches out of the original 24, totaling 488,250 LQ. (Liqwid sold 6.2% of its total supply, equating to 1,302,000 LQ, and 488,250 LQ remain unvested based on the proportion of 9/24 months.)
At the current LQ price (~$0.8), this represents a value of approximately $390,600. Upon completion of the OTC buyback transaction, the repurchased LQ will be added back as collateral within the POL loan. Given the current ADA price (~$0.36 per ADA), this would be equivalent to approximately 1.1 million ADA. The POL position on Minswap currently holds 1.2 million ADA and 0.5M LQ, meaning the value is sufficiently covered.
Reasoning:
The current Protocol-Owned Liquidity (POL) position in Minswap’s LQ-ADA pool is the primary source of liquidity for LQ. As a result, this pool absorbs most of the selling pressure, which now primarily comes from seed round investors, following recent tokenomics changes that reduced LQ inflation. These investors are currently 15 months into their 24-month linear vesting schedule (62.5% complete), with tokens unlocking monthly. The proposed OTC token buyback would allow Liqwid DAO to repurchase both unvested LQ tokens from seed round investors and any vested tokens they have not yet sold.
Much of the selling pressure is coming from these investors, as they are directly selling their tokens into the POL pool on Minswap. By repurchasing LQ tokens at the current price, this would alleviate significant sell pressure, stabilizing the LQ price and improving its trajectory. This stabilization offers several key benefits: a stronger price for LQ as collateral, increased value for LQ stakers and holders, and improved future financing terms for Liqwid.
Repurposing Liqwid DAO’s POL loan position to buy back LQ tokens from seed round investors provides more immediate value to the DAO compared to the current Minswap POL position. Removing these seed round investors, who represent the largest structural sellers of LQ, would significantly reduce monthly sell pressure that the Minswap POL position is currently absorbing.
Following the approval of this proposal, the following actions would be performed:
- Remove the ADA-LQ part of Minswap
- Use the already borrowed ADA to buy back the LQ (if some ADA are needed to complete the transaction, borrow more)
- Once the transaction is completed, resupply the acquired LQ as collateral in the POL loan until it reaches a health factor of 2. If some LQ are remaining, then send them back into the treasury.
- Then borrow new ADA and add LQ as collateral to deploy in Minswap a POL liquidity around $380k (total 500k ADA and 500k ADA worth of LQ).
We currently hold 441,000 LQ in the POL as part of the ADA-LQ pair. At today’s prices (LQ: $0.90 and ADA: $0.38), we would only need to use 211,000 LQ for the transaction. As a result, the remaining 230,000 LQ would be returned to the POL loan as collateral.
Risk parameters
The loan parameters are the same as voted previously, with the current maxLTV of 70% (see Vote 52 and Vote 54).
To further mitigate liquidation risk, this proposal seeks to grant the Core Team with ability to provide additional LQ collateral to increase the loan protection and if needed also use ADA from the treasury reserve to repay some of the debt. This would allow the core team to respond immediately to rapid price swings.
Current Loan Health Factors (based 24. Sept. 2024)
| Collateral | Debt | Current Health factor | |
|---|---|---|---|
| POL Loan (in tokens) | 1’913’265 | 1’959’080 | |
| POL Loan (in USD) | 1’530’612 | 705’269 | 1.52 |
| Team Loan (in tokens) | 9’930’122 | 1’262’427 | |
| Team Loan (in USD) | 7’944’097 | 454’474 | 12.24 |
| ADA price | 0.36 | ||
| LQ price | 0.80 |
Risk Considerations
This risk of liquidation is being mitigated by removal of LQ selling pressure from seed round investors who collectively represent the largest entrenched selling group and granting the core team with the ability to add additional LQ collateral.
Specifications
Liqwid Labs developers have completed the necessary testing and technical requirements needed to implement the loan updates outlined in this proposal.
Conclusion
Liqwid core team supports these updates to repurpose the POL loan to buy back the seed investors and provide liquidity in the Minswap ADA-LQ pool.
- Yes, I support this proposal.
- No, I do not support this proposal.