[SCP-19] [Official Ideation Thread] Incentivized Liquidity Mining Program for HoneySwap on xDAI

This will serve as the ideation thread on Boardroom for 5 days as required by our governance process.

Backstory: Why are we doing ideation here? Boardroom and the Ceramic team have both now confirmed that our ideation room has a critical bug that is preventing from any new threads being made. This governance process is only temporary until the bug is fixed, and has been suggested by Willy and Jon.


[Proposal] Incentivized Liquidity Mining Program for HoneySwap on xDai

  1. Summary - As workstreams begin to launch, more and more DAO members and contributors will begin receiving compensation on xDai through Colony. This proposal will allow DAO contributors and leaders to offramp their earnings through L2 networks without the burden high gas fees on Ethereum and keep the initial liquidity of $200K provided ongoing.

  2. Abstract - The DAO has been in discussions with 1hive, the operators of HoneySwap, for several weeks now. They have graciously donated their insights, support, and even time for a community call with our DAO video. The proposal has received overwhelming support by active DAO leaders, and members already on Colony have voiced the need for FOX liquidity on xDai. What would have cost $100-$500 to offramp FOX and into a fiat/stablecoin/your-crypto-of-choice, will be significantly reduced to as low as a couple cents to $0.10 depending on your route. xDai liquidity opens up many routes that were previously inaccessible, as well as a gateway to other L2 networks.

  3. Motivation - The logic is quite simple — as a DAO who’s treasury is relying on xDAI, there should be sufficient liquidity for DAO members to do as they wish with their compensation. At the moment the only existing route to mainnet is through the Omni bridge, and it costs considerable gas to 1) move assets onto mainnet; 2) swap to another asset (or provide liquidity in existing programs). A double whammy in fees. At the time of this writing, it would cost around $375 to get FOX onto mainnet and another $100 or so for a swap on Uni.

  4. Specification - The following specs are being proposed after a week of open polls in our forum. Of course, now that it is in ideation, now is the time to voice any last minute concerns or suggestions.

    • The ShapeShift DAO will allocate one million FOX to fund an incentivized LM pool on HoneySwap for a target liquidity of $1-$2mil. The FOX/XDAI pair will be prioritized initially with a minimum of 70% of the allocated funds going to that pool.

    • The program shall be designed similarly to that of Uniswap’s LM program, except scaled down significantly.

    • The community has also voiced significant interest in a FOX/HNY incentivized pool. Depending on how well the FOX/XDAI program is doing, the DAO can decide to allocate up to 30% of the allocated FOX towards a HNY pool. If the numbers are not favorable, tokenomics do not make sense, or is strongly advised against by 1hive, then this 30% reserve will continue to fund the FOX/XDAI program until the funds are dry or until more funds are allocated in a future proposal (if needed).

  5. Benefits - The liquidity pool will grow and be sustainable for a longer period. Micro-payments are now possible for part-time workers / bounties as of today, and we would definitely want to keep that going. We build a strong and mutually beneficial relationship with 1hive.

  6. Drawbacks - Polygon-based incentivized pool will have to take a temporary seat for now, but rest assured, another proposal is already in the works.


YES VOTE: Commit the DAO to the HoneySwap incentivized LM pool as outlined above.
NO VOTE: Take no action.

Poll closed until revamped proposal is submitted.

  • Yes
  • No

0 voters

6 Likes

Hey @LPX - thanks for getting this posted. Before I vote it up you need to add clarity about the length of time of the program.

E.g 1 million fox over how many days?

1 Like

There’s a plethora of design considerations here:

1.) Hitting $1-2 million liquidity FOX/xDAI
2.) Getting the maximum utility and efficiency from deploying capital
3.) Aligning the incentives not just for the participants of the individual communities, but also aligning the two communities as a whole
4.) Liquidity can be very fickle, lazy or forgetful

One of the best ways to address the final three considerations is with DAO-owned liquidity.

DAO treasuries, as liquidity-providers, have predictable and strong hands. Two DAOs partnering to provide liquidity is particularly powerful. Joint liquidity provisioning is next level stuff. This is where two DAOs compose some kind of agreement about exchanging and providing liquidity. Soon the agreement and execution will be fully possible on-chain.

This stuff is powerful. Take a look at the work from the guys over at PrimeDAO; who are building tooling and infrastructure to make some of these strategies easier and more robust to employ. (Exploring DAO2DAO Collaboration Mechanisms | by BlockScience | PrimeDAO | Medium) ← operational definitions for “community swap” and DAO2DAO “joint ventures”

A theoretical win-win “community swap” and “joint venture” scenario:

1Hive and Shapeshift execute a community swap for $250,000 equivalence of FOX and HNY tokens. The treasury balance sheets at that time don’t really change, other than in the amount of risk they each carry. Each community is now carrying some of the risk of the other community’s asset volatility. In other words, both communities now are rationally incentivized to act in the other community’s interest, because they both own a stake in the other. Each community has also hedged their own risk, by transferring some of that risk to the counter party community. This act marries the two communities together.

Each DAO is now holding $250,000 of the other’s token. Now comes some capital efficiency magic. The DAOs now execute a “joint venture” for liquidity. Each DAO can provision liquidity in equal portions. 1Hive provides $250,000 FOX and $250,000 HNY and Shapeshift does the same thing. Now we have $1 million in liquidity for the HNY/FOX pair, and the DAOs only exchanged $250,000 in value. None of this capital has been given away for liquidity rewards to internal and external participants. We’ve also tied the communities tighter together, and created technical mobility. 1Hive bees and cunning Shapeshift Foxes can now easily mobilize financial and human capital between the two networks.

There has to be some thought put into a shared monetary policy for something like this to work. How many tokens are going to be minted, emitted, or released from the treasuries over a certain period?

Anyways that’s just some food for thought.

If there’s a really strong HNY/FOX pool - then incentivizing FOX/xdai can make sense for everyone.

5 Likes

Good question – I don’t have a benchmark to rely on for data for a pool of this size. I was hoping that someone well-versed in LP/LM would chime in. To be frank, I’m only trying to help the lone wolf that is providing the liquidity at the moment. Perhaps a 4-month period? As that is when most workstreams will be up for renewal.

@Kyle_Stargarden just opened up a whole new can of worms and dropped some great knowledge. Thanks Kyle.

Wondering what the community thinks about what Kyle just posted.

edit: Kyle, please feel free to make suggestions on what the best route forward would be.

2 Likes

Looks like this proposal will stay in ideation longer than originally planned – not necessarily a bad thing, and that’s what ideation is for right? :wink:

I will be working with Kyle to revamp the proposal into something beautiful that will serve in the best interest of both ShapeShift and 1Hive.

4 Likes

I love this idea @Kyle_Stargarden! Not opposed to doing an LM program in addition to this in the future, but this seems like a great way for both DAOs to align incentives and actually own liquidity rather than renting it.

In fact, I’m not sure if any DAOs have done something quite like this before (do you know?), but this seems like it could be a great experiment that could work really well for other DAOs looking to establish liquidity.

Curious what the rest of the community thinks. I would support this.

1 Like

Hey foxes, I’m hoping to gauge community support for proceeding with a $100k FOX:HNY token swap with 1Hive DAO as currently drafted here: An Opportunity to Partner two Communities and Strengthen the 1hive Treasury - 🌿 Proposals - 1Hive

Does the community support swapping $100k of FOX for HNY with 1Hive so both DAOs can deposit ~$200k worth of FOX/HNY liquidity on HoneySwap?

  • Yes, swap $100k of FOX for HNY to LP on HoneySwap
  • No, do not do any token swap

0 voters

2 Likes

[SCP-19] ShapeShift DAO x 1Hive Partnership (FOX/HNY LP)

  1. Summary - ShapeShift DAO and 1Hive DAO will execute a community swap of approximately $100,000 in equivalence of FOX and HNY (1Hive’s native token). Two DAOs partnering to provide liquidity is extremely powerful, especially when the culture and motives are aligned. By performing the respective DAOs’ token swap (herewith referred to as DAO2DAO, or “D2D”), we share the risk and rewards of the two DAOs.

  2. Abstract

    An excellent writeup of the mechanisms of a “D2D Collaboration/Joint Venture” by PrimeDAO can be read here. A great summary by Kyle from 1Hive of what a D2D venture would look like can be read here.

    In other words, both communities now are rationally incentivized to act in the other community’s interest, because they both own a stake in the other. Each community has also hedged their own risk, by transferring some of that risk to the counter party community. This act marries the two communities together.

    $100K of tokens will be swapped ($100K of HNY for ShapeShift, $100K of FOX for 1Hive). Without changing the overall balance sheet of the respective DAOs, we are able to provide much more liquidity because it would be in the best interest of our shared risk and reward.

    In addition, this joint venture opens up new doors for future potential projects which would be mutually beneficial to ShapeShift and 1Hive.

  3. Motivation

    There have been calls by the community and an overwhelming support in general for an incentivized FOX pool on xDai.

    A joint venture with 1Hive, the operators of HoneySwap, is a very rational move by ShapeShift DAO, as they are the largest and most liquid DEX for the xDai network, which our DAO is so heavily reliant on for payments.

  4. Specification

    The 1st of 2 proposals on 1Hive’s side is set to pass in a few days: 1Hive Proposal 1
    Because of how 1Hive’s governance and treasury works, a second proposal would need to pass to send the amount of HNY required for a full $100K swap.

    1. 350 HNY (approximately $100K) will be sent to a 6-member multisig, in which 3 signatories are from ShapeShift and 3 signatories are from 1Hive. Four signatures will be required for the execution of any multisig transactions. The proposed signatories on the ShapeShift is: willyfox, jonshapeshift, and mperklin.

    2. 665K FOX, assuming this proposal passes, would be moved to the aforementioned multisig. The amount was pegged at 950 FOX / HNY, as historically the price of HNY and FOX have ranged between 900-1000 FOX/HNY and the1Hive treasury needs to vote to move funds, and the process takes time.

    3. When the 2nd vote passes on 1Hive DAO, another 350 HNY will be unlocked and sent to provide liquidity.

    4. Liquidity will then be added to the HNY+FOX pool — 50% of the resulting LP tokens would be sent to ShapeShift DAO’s treasury, and the other 50% to 1Hive DAO’s treasury.

    5. This is where the power of a D2D collaboration comes into play — because our alignment of interest, the resulting liquidity would be approximately $400K.

    If at any point there is a misstep, miscommunication, or misalignment, assets would be returned back to the respective DAOs and the project re-evaluated.

    Time and Work Compensation: This proposal is the result of over a month of coordination, planning, and ideation from both sides of the DAO. Therefore, we have agreed that compensation for our time and efforts should be considered. We are requesting $2.5K in FOX to be split amongst myself (2/5th), monstrosity (2/5th), and kyle (1/5th).

  5. Benefits

    • More liquidity for contributors and leaders that are paid by the DAO
    • Diversifying the DAO’s treasury while partnering with another respected DAO
    • More liquidity of FOX on xDai at a “discounted price”
  6. Drawbacks

    • Taking on the risk of another DAO’s success
  7. Vote

    • YES - Allocate 665K FOX for the D2D joint venture, and compensate the parties involved in the making of this proposal.
    • NO - No action.
4 Likes

I’m a little confused on this math.

at a rate of 950 fox per HNY that would math out to 350 * 950 * 2= 665,000 fox for the 700 HNY equivalent. It’s only about a $1600~ difference give or take.

is this extra 5k fox for the allocation to the contributors?

I’m using the math/numbers provided by 1hive and their proposal. Let me double check with them real quick. Good catch!

1 Like

Thanks, LPX. I appreciate the effort on this end!

1 Like

Awaiting a response, but until then I think we can safely assume it was simply a human error. Either way, funds would be transferred to the multisig, so ultimately it would be up to the 3 signatories on our side to finalize the exact amount. Until I receive a response I’ll leave it be, but upon confirmation that it was an error (or an explanation is provided), I will correct the numbers! Thanks @PTT :+1:

edit: Got a response. At the time of their proposal 950 HNY was ~$105K. Since their governance process is a bit different from ours its hard to peg an exact amount to move from the treasury in a dollar sense, so there was some rounding involved.

1 Like

Numbers updated to 665K FOX! Thanks again.

3 Likes

Got it, I was just doing the math based on the numbers provided which is where things got funky obviously.

Thank you for looking into this so quickly!

2 Likes

You have no idea how excited to finally push this forward hahah… Been in the works since August. Shoutout to 1hive for their active participation and (hopefully) looking forward to a great partnership.

3 Likes

Corrections made on the HNY price – 350 HNY is approx. $100K, not $50K. To clarify, the first proposal (on the 1Hive side) would be to execute the token swap with FOX. The second 350 HNY when the second proposal passes would be used to provide liquidity on the FOX/HNY pair.