Draft Proposal: Increase Liquidity through Revised vXRUNE Staking Mechanism

Summary

Propose revising the staking mechanism for vXRUNE so that the only way to receive vXRUNE is to provide liquidity in either the XRUNE-RUNE Thorchain pool or the XRUNE-ETH Sushiswap pools. This removes the option to single stake XRUNE in the governance contract in exchange for vXRUNE.

Motivation

  • Thorstarter’s stated purpose is to act as a liquidity relayer between the Thorchain ecosystem, which is constrained by design to a limited number of short tail assets (e.g., BTC, Doge, ETH, etc.), and the Ethereum ecosystem, which can accommodate long tail assets that cannot launch directly on Thorchain (e.g., THOR, TGT, BRO, Skyrim, etc.):

  • It’s other related purpose is to act as an incubator and IDO platform for those very same long tail assets. As stated in the lightpaper, Thorstarter will do so by providing these new projects deep liquidity right from the start. This means not just deep liquidity in the XRUNE-TKN pool that Thorstarter will help seed but also in the XRUNE-ETH and XRUNE-RUNE pools that are the gateways for any Thorchain or Ethereum investor to be able to buy TKN.

  • Unfortunately, despite feeding 400-800% APY in rewards to the XRUNE-ETH pool, there is still less than $5m in liquidity in the pool:

    image

  • This means that there’s less than $2.5m worth of XRUNE in the pool. If a project wants to raise money through Thorstarter, its potential investors would first buy XRUNE using ETH through the XRUNE-ETH pool and then use the XRUNE to buy TKN in the Thorstarter-seeded TKN-XRUNE pool. Given the liquidity in the XRUNE-ETH pool, a raise of any significant size would not currently be possible. For example, Tokemak recently raised ~33m through a direct sale/launch. While that’s a large raise, even $10m or $5m would not be possible currently.

  • Thorstarter needs, therefore, to boost liquidity in its core pools before it can conduct any IDOs of meaningful size. I will focus on the Sushi pool for the remainder of the proposal since, for minimum viable product, the Sushi pool is what is needed to be deepened while the TC pool remains disabled but this proposal applies to both pools.

  • There is currently over $9m worth of XRUNE sitting in the single staking XRUNE rewards contract:

    image

  • This is despite the rewards being reduced to this staking contract significantly compared to the Sushi LP. I think if we do nothing, what we will see happen when the Venture DAO goes live is that those who are single staking in the rewards contract will either move their XRUNE to the Venture DAO governance contract to receive vXRUNE or they will continue to stake in the rewards contract for 24% APY.

  • If even half of the single staking amount can be convinced to LP instead, TS would somewhere between double ($10m) and triple ($15m) the size of the Sushi LP pool. So the question is how to convince these stakers to do so.

Proposal

  • There are two options I readily see: (1) increase the rewards to the XRUNE-ETH SLP and/or (2) require that, in order to receive vXRUNE and participate in the Venture DAO, participants must provide liquidity to either the XRUNE-RUNE TC LP or the XRUNE-ETH SLP.

  • The issue I see with option 1 is that continuously increasing the XRUNE rewards to the LP pools is unsustainable long term. It’s an inflationary pressure on the token and, at some point, the pools need to be deep without continued rewards. We’ve also seen that even 800% APYs have not convinced single stakers to LP so it’s not clear what number would be needed to move the needle. However, given that we are still in the early bootstrapping phase, I think this is still a reasonable option.

  • Option 2 does not have the sustainability problem. If the Venture DAO is as successful as we all hope, the LP fees, harvested gains and governance will make vXRUNE valuable, which will in turn drive more participants to buy XRUNE and LP in the core pools to participate in the Venture DAO.
    This creates a virtuous cycle. It’s possible even that we can ramp down rewards to the pools if the benefits of participating in the Venture DAO are sufficient to drive deep liquidity on its own.

  • Another benefit for option 2 is that liquidity will be staked and held by the Venture DAO. While it’s possible to return your vXRUNE and withdraw your LP tokens, those who are participants in the Venture DAO through the LP are likely to end up as longer term liquidity providers and holders than those who are chasing high APYs. As an aside, I think we should also consider the possibility of Thorstarter buying the LP tokens with vXRUNE (similar to OlympusDAO) as another way for the project to ensure long-term liquidity but I’ll leave that for a separate proposal.

  • Finally, I think that single staking into a rewards or governance contract is less beneficial to the overall project than providing liquidity for the two gateway pools for the overall platform. It’s my belief that rewards and profits should be granted to participants who are performing a service for the platform and that applies to inflationary rewards (such as XRUNE emissions) as well as to Venture DAO profits. Correct me if I’m wrong but currently, by simply staking your XRUNE and taking no risk, you get (1) LP fees earned from the Venture DAO’s TKN-XRUNE pools, (2) harvested gains earned from the Venture DAO’s sales of TKN after vesting, and (3) governance rights in the Venture DAO. When there is a very important service that XRUNE holders could be performing that is essential to the success of the project, it seems reasonable to ask that participants at least take some IL risk and perform a liquidity providing service for the platform in order to earn these benefits and rewards. Those who want to just hold XRUNE and ride its price up or down can do so as well but don’t need to be provided rewards to do so.

For the reasons above, I propose revising the staking mechanisms for vXRUNE so that the only way to gain vXRUNE from Thorstarter is by providing liquidity to the main XRUNE TC and SLP pools.

Poll

  • Leave vXRUNE staking mechanism as is but increase the rewards to the XRUNE-ETH SLP and (when live) the XRUNE-RUNE TC LP.
  • Revise staking mechanism for vXRUNE so that vXRUNE can only be received by staking in either the XRUNE-ETH SLP or the XRUNE-RUNE TC LP.
  • Leave everything as is.

0 voters

4 Likes

By the way, there is a third option, which is using the Tokemak project to drive ETH liquidity into the pool. This was a proposal by OIGregg that didn’t gain much traction, perhaps because Tokemak is so new and relatively unknown. I didn’t want to complicate this proposal by including it but it’s worth consideration, especially if all else fails.

3 Likes

I voted in favor of your proposal, it makes sense to me, but if anyone as a good reason to think it could hurt the project, I’d be ready to reconsider.

1 Like

Why make simple when you can complicate everything !
Please Girls and Boys I still didn’t found how to convert my XRUNE to vXRUNE, so before make plans in the comet lets simplify things for average people !
Thank you.
Yacine.

There is currently a lot of liquidity in the XRUNE-RUNE pool that is frozen due to recent Thorchain issues. I think that if there was the ability to unfreeze that then there would be a lot more liquidity in the XRUNE-ETH pool.

I think before changing anything too drastically and forcing members to take on IL risks I think it best to wait and see how much liquidity XRUNE has once everything is operational again.

Further, I don’t think it is within the mantra of the project to force additional risks (IL risk) on users just so that they can participate in initial offerings. I think the single sided staking is a low risk and attractive way for a large portion of Thorstarter users to timelock supply and partake in new ecosystem projects.

2 Likes

I think it’s true that, if the XRUNE-RUNE pool were live, the liquidity would balance out a bit more between the XRUNE-RUNE pool and the XRUNE-ETH pool. However, keep in mind that when both pools were live after launch, the XRUNE-ETH pool had less than $2m in liquidity while the XRUNE-RUNE pool had over $20m. I think this is a reflection of the fact that most initial investors in Thorstarter came from the Thorchain ecosystem rather than the Ethereum ecosystem. They are less familiar with providing liquidity on Sushiswap than they are with providing liquidity on Thorswap. So simply waiting for the TC pool to come back live is no guarantee that we’ll get any more significant liquidity on the Sushi side.

We could certainly wait for the TC pool to come live. That would allow for investment from the Thorchain ecosystem in size. However, there are projects that want to do raises in the near term and Thorstarter, to my understanding, has committed to allowing them to do so. If waiting isn’t an option, we need to come up with solutions to address the liquidity issue.

2 Likes

The issue is that large initial offerings are not possible (while the TC pool is disabled) if XRUNE holders are unwilling to take any risks.

Still, I think there’s a middle ground here. XRUNE holders who are single staked can be provided access to the initial offerings (i.e., have allocation of TKN) but would not be provided governance rights, LP fees from the TKN raise pool, or harvested gains from the TKN. This seems a possible way to address your concern.

P.S. As far as I’m aware, there’s no timelock?

1 Like

I agree there is no guarantee. However, whilst I’m unsure of fixed timing (need to do some reading today!), if it is in the next month we may as well wait to see rather than change the incentive structures short term which may result in negative sentiment for a large part of the community that doesn’t want to deal with IL but wants to participate in Thorstarter offerings. I think the reason for the discrepancy between RUNE and ETH staking early was due to the incentives offered for both? But can’t recall.

This could work - kind of like a skin in the game incentive - if you don’t have skin in the game, then you don’t get the full extent of the upside.

This may be correct - I need to read a little more. I guess I thought intuitively to participate in the LP rewards and any upside from the XRUNE:TKN pool appreciation you would have to be timelocked for the duration of the pool liquidity provision (6 months if I recall)? But maybe not…

To put a little juice on my Tokemak proposal, single-side staking in Tokemak should still allow for vXRUNE minting as Tokemak will issue tAssets for assets deposited in their Reactors. So all we would need to do is deposit XRUNE in an XRUNE reactor on Tokemak, receive tXRUNE in return, stake tXRUNE on Thorstarter and receive vXRUNE in return.

Reminder that Tokemak has IL protections in place, so there would be no need to force people to accept potential IL in order to participate in the THORStarter DAO. Additionally, Tokemak alleviates the need to provide the other 50% of the pool. I have a feeling that a major reason the Sushi pool is not as liquid as the THORChain pool is that XRUNE holders are long XRUNE and RUNE, but not ETH, and are less willing to trade 50% of their XRUNE for ETH in order to participate in the pools.

Tokemak is still launching, so it’s not an immediate fix and may not be in place in time for the first IDO, but it will definitely streamline the ability to seed liquidity in the XRUNE pools without forcing XRUNE holders to take on IL risk (although if the THORStarter team reaches out to Tokemak right away and gets into the first batch of Reactors initialized, it is still possible it will be in time for the second IDO, if not the first).

4 Likes

I think you make some good points and that a revision of single sided XRUNE staking and vXRUNE could benifit the project as you laid out.

I don’t know what the best solution will be, but I will throw out an idea I had a few days after reading your initial post:

  1. Scrap single sided staking AND vXRUNE staking entirely
  2. Delegate all the rewards that these options would provide to the RUNE/XRUNE and ETH/XRUNE pools %-wise. (not for those who single side LP RUNE or ETH maybe? :thinking: )

I thought this might be elegant, going all in on making XRUNE the hyper liquid currency to enable/promote trading with good new project tokens? :thinking: In governing TS, LP’s who privided XRUNE will also want the next project to be a great success so they can keep the fees comming/maximizing as well as the value of XRUNE rising?

This idea could be worked out in various details? In that: give rewards directly to the pools, or give rewards directly to adresses known to be providing XRUNE liquidity for longer periods of time,…

In simple terms this is invisioned:

THORStarter becomes known as the single greatest platform to launch new quality projets.

  1. If you want to invest in these project you’ll buy XRUNE from the RUNE/XRUNE and ETH/XRUNE pools. The new project launches and trading commences. (cross chain and annonymous thanks to THORChain)
  2. The new project goes mainstream and no longer needs the PROJECTTOKEN/XRUNE pool to trade as it becomes available on a multitude of other platforms. Or others LP’s are expected to come in, allowing TS and the project to remove their liquidity from the pool.
  3. XRUNE + profits from those pools get redistributed to the main pools, from which new investors for new projects will have to buy their XRUNE
    Repeat?