Proposal: THOR.XRUNE SLP tokens can be locked to mint vXRUNE

A Proposal to allow holders of THOR.XRUNE SLP tokens to lock them just as XRUNE.ETH SLP tokens can be locked, and be credited vXRUNE.

Thorstarter, as part of an IDO, will seed a Sushiswap Liquidity Pool (SLP, or LP) with an amount of XRUNE. At the same time, the IDO project seeds the SLP with the same dollar amount of the PROJ token. After the pool is created, both thorstarter and the project own equal numbers of the PROJ.XRUNE SLP tokens.

After the public sale of PROJ tokens, both the project and thorstarter have incentives to insure healthy liquidity in the PROJ.XRUNE SLP. This desire is similar to thorstarter’s desire to have healthy liquidity in the XRUNE.ETH SLP.

Thorstarter incentivizes liquidity in the XRUNE.ETH SLP by allowing token holders to lock SLP tokens and mint vXRUNE tokens. It then distributes LP fees and liquidation proceeds to the vXRUNE token holders. vXRUNE holders accrue significant income over time.

Thorstarter also would likely desire that the IDO SLPs have healthy liquidity. It can create the same incentive for this liquidity similarly - lock the associated SLP tokens and mint vXRUNE tokens.

There are two additional discussion points for this proposal - economics from the IDO projects for vXRUNE holders, and the desire to maintain healthy liquidity in the XRUNE.ETH SLP

IDO projects, certainly moreso that thorstarter, will want to incentivize healthy liquidity in the PROJ.XRUNE SLP. They will likely pursue the commonly used practice of paying tokens to the holders of the PROJ.XRUNE SLP tokens, especially if those tokens are locked in some manner.

If along the lines of this proposal, thorstarter creates vXRUNE for PROJ.XRUNE SLP tokens, the associated project could also provide rewards to these locked PROJ.XRUNE SLP tokens. The mechanics and smart contracts would need to be developed. The basic idea is that project rewards flow to the locked PROJ SLP tokens while thorstarter rewards flow to the vXRUNE tokens that are minted from the lock up of the PROJ SLP tokens.

If both thorstarter and an IDO project provide rewards for liquidity lockups of the PROJ.XRUNE token, the economics to the holder could be substantially boosted. Since both projects seek to withdraw funds from the PROJ SLP, they both have incentive to ensure community funds remain and are large enough to ensure healthy pool liquidity.

If the incentives are much greater for locking up SLP tokens for various PROJ SLPs and the IL profiles better, there could be risk to the overall level of liquidity in main XRUNE.ETH SLP. So this proposal contemplates the possible need to address this risk.

The first, and perhaps best approach is to have a portion of the thorstarter treasuries dedicated to the XRUNE.ETH SLP. Some liquidity level can be targeted and funds allocate as appropriate, either upfront or over time.

The second approach would be to continue to donate XRUNE to the XRUNE.ETH SLP to boost it’s overall returns. Such a donation would be to all SLP holders, not just those who locked their SLP tokens for vXRUNE.

This proposal recommends that thorstarter establish the means to lock up THOR.XRUNE SLP tokens and mint vRUNE tokens. We as a community will also seeks to gain rewards from THORSwap for the locked THOR.XRUNE SLP tokens. (In the future, thorstarter would be encouraged to negotiate for such outcomes with other IDOs.) If the expansion of the vXRUNE program to include THOR.XRUNE SLP is an enhancement to the value of XRUNE, the next step would be to expand this program for all future THORChain ecosystem projects, and perhaps any project with a SLP that uses XRUNE as its base token. The more XRUNE that is locked into a series of PROJ.XRUNE SLPs, the more the combined market cap of these projects will influence the valuation of XRUNE. In this manner, a series of SLPs leverages thorstarter to the growth of its IDO projects even if over time, thorstarter liquidates its share of each IDO LP.

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I’d imagine it is in the project’s (e.g.ThorSWAP) best interests to have the large amounts of XRUNE-TOKEN liquidity. As such the burden to incentivise liquidity in that pool could fall on that project rather than result in usage of the ThorStarter treasury?

At a minimum, I imagine it should be an agreement between ThorStarter and Project to co-incentivise (50/50 or otherwise) the liquidity in XRUNE-TOKEN so to not have the whole burden of liquidity incentives result in Thorstarter treasury usage/XRUNE farming/dilution.

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Read your Twitter thread as well and I had a couple thoughts:

  • If I LP in the THOR-XRUNE SLP and stake the LP token with Thorswap, I will be (1) earning my proportionate share of the LP fees for the pool, (2) earning any liquidity mining rewards that Thorswap decides to award to its LPs, and (3) able to unstake at any time and take the liquidation proceeds from selling the THOR tokens and returning to 100% XRUNE (or vice versa). If I’m allowed to stake the LP token with Thorstarter as well, then in addition to all of the above, I’m getting (a) governance rights in the TS Valhalla DAO, (b) a proportionate share of LP fees for the THOR pool as well as across all TS IDO pools, and (c) liquidation proceeds across all TS IDO pools (some % assuming I was staked at inception and some % assuming I was staked at liquidation). This, as Benny_C points out, has a significant dilutive effect on vXRUNE holders. Therefore, the only reason to do this would be is if the resulting rewards rewards from THOR are significant enough that it overcomes this dilutive effect.

  • I think you struck on another issue, which is the risk that the TKN SLPs will be more (or at least equally) attractive to LP with than the XRUNE-ETH and XRUNE-RUNE LPs. I think the solution you proposed is to either (1) use the TS treasury to keep the liquidity deep in these pools or (2) keep XRUNE rewards high into the core pools. Option 2 of course is what we are currently doing and, while it has had some effect, it still hasn’t deepened the Sushi pool past $5m in liquidity. If you add in a competing place to LP with your XRUNE (the TKN-XRUNE pools), this might make it even harder. Option 1 has a significant dilutive effect on current XRUNE holders since it’s introducing non-circulating supply directly into circulation. I think we’d have to think through the impact of that.

Liquidity in the two core pools (XRUNE-RUNE TC pool and XRUNE-ETH sushi pool) are essential to the success of the project so we have to be very careful not to draw liquidity away from these two pools. For that reason, I’m hesitant to direct core vXRUNE incentives to other XRUNE pools. As Benny_C points out, the IDO projects themselves should be primarily responsible for ensuring continued liquidity in their pools after Thorstarter provides the initial seed liquidity and the IDO projects have a number of tools to do that. If Thorstarter decides to split incentives across all IDO pools as well because of additional incentive sfrom the IDO projects, then I would think we’d need to already be in a place where we’re very comfortable with the liquidity in the core gateway pools.

Perhaps one solution is to require the IDOs to incentivize not just their TKN-XRUNE pools but also incentivize the XRUNE-ETH and XRUNE-RUNE pools? Ultimately, when you think about it, their TKN-XRUNE pools are only as deep, liquidity-wise, as the other two pools because, at the end of the day, XRUNE is just the relay pair.

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Thanks for your comments. They raise several issues that need to be discussed and could be material limitations. I want to add some points to iterate on the ideas we both bring up.

  1. To my mind, staked XRUNE is staked XRUNE. It should be able to be considered vXRUNE though locking mechanisms wherever possible. If staked XRUNE, such as might be added to a TKN.XRUNE SLP, cannot get DAO payouts, there is significant incentive not to stake XRUNE into those pools. If one feature of the IDO model is TKN.XRUNE SLPs that benefit thorstarter and the IDO project, both reasonably have some responsibility to attract liquidity.

  2. I don’t think the DAO payouts will get materially diluted by XRUNE staked into TKN.XRUNE LPs because the absence of thorstarter support in the form of DAO payouts will simply force the XRUNE that seeks DAO payouts into either the XRUNE.ETH SLP or the XRUNE.RUNE TC LP.

  3. If thorstarter assumes some funding obligation to the XRUNE.ETH SLP, thorstarter will have a functional valuable asset in exchange for the XRUNE it circulates via the SLP. So it’s not issuing XRUNE for no consideration, which would be dilutive, but rather for significant consideration. To the extend XRUNE outperforms ETH, and TS experiences IL, that would be a source of dilution. That kind of dilution would be a champagne problem. Not only would TS get fees, but it would have an asset that directly supports its ability to manage the liquidity needs of IDOs at the time of offerings.

  4. The ecosystem fund has almost $70M of XRUNE. It will consider retaining investment in the IDO projects as the IDO SLPs vest and TS has the obligation to liquidate for the purpose of DAO payouts. The idea behind retaining project tokens rather than converting them back to XRUNE is that those tokens have value independent of TS and represent protocol controlled value which can be use to fund future IDOs as needed. Similarly, the best place for TS’s XRUNE.ETH SLP holding could be in this fund - more actual value for the fund to hold. PCV is the core of projects such as Olympus DAO / OHM. In fact, one way to value TS will be to value the XRUNE in circulation less the value of the investments held in the ecosystem fund. And that approach will be economically accurate.

  5. A noteworthy consideration about tasking TS with insuring the minimum necessary liquidity in the XRUNE.ETH SLP is whether that commitment of funds would limit its ability to finance an ongoing series of IDOs. If XRUNE tokens drop in value, the ecosystem fund won’t be worth $70M. But if a portion of the fund holds SLP tokens, there is some offset to the drop in XRUNE value.

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One drawback I see to this proposal is that it inflates the supply of XRUNE without bringing an equal and opposing amount of buying demand to the token.

We are committed to increasing yield for users well beyond what was given with vXRUNE, but doing so without inflating the token.