[APPROVED] [PROPOSAL #12] Duality Protocol Merger

DAO Governance Main DAO Proposals
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Summary

Hadron Labs proposes to bring Duality Labs to Neutron as a core team and Duality DEX as an exclusive core piece of infrastructure. 2.5% of the NTRN supply would be allocated as a long-term incentives package to the current Duality Labs members with a 1 year lock and 3 year linear unlock. This proposal would reduce cost to the Cosmos Hub’s validator set, empower Neutron’s DeFi ecosystem and cement its position as the leading DeFi hub in Cosmos.

Problem Statement

The launch of Neutron, and the recent migration of Stride to Replicated Security, have marked the birth of the ATOM Economic Zone, a cluster of Cosmos blockchains tightly integrated with and around the Cosmos Hub.

Yet, Replicated Security also introduces additional financial pressure for the Cosmos Hub’s validators. If not addressed, Replicated Security could have a centralising effect on the Hub’s validator set. As a result, the Cosmos Hub and AEZ as a whole should approach the technology strategically to limit the burden on validators while maximising payoffs for the Cosmos Hub and its ecosystem. Above all, the AEZ should avoid introducing internal conflict for resources, as it would result in strictly worse outcomes for all projects and the AEZ as a whole.

Furthermore, currently, the Cosmos ecosystem has limited liquidity. This disincentivizes adoption by reducing the appeal and economic opportunities available to builders to bring new products and services to the Cosmos economy. It also leads to poorer execution for trading entities, whether they are individuals, institutions or DAOs. This lack of liquidity is compounded by the competition between applications looking to attract value to their siloed pools.

Proposed Solution

Merge the Duality DEX module into the Neutron blockchain to bring a state-of-the-art decentralised exchange to the ATOM Economic Zone without launching an additional blockchain, and therefore without any additional infrastructure cost to the Hub’s validator set. This equates to a yearly cost reduction of $500k to $1M for the Cosmos Hub’s validator set.

Duality’s DEX module would become a neutral piece of infrastructure dedicated to empowering Neutron and the wider AEZ DeFi ecosystem. It would enable liquidity to be aggregated into a single framework, minimising liquidity fragmentation and optimising trade execution. Smart-contract dApps would be able to freely leverage and monetize the primitive to build more powerful applications and optimise their liquidity.

As demonstrated by proto-rev on Osmosis, merging the Duality DEX module into the Neutron binary would also enable more granular control over MEV, generating additional revenue which could be shared with Neutron, its smart-contract ecosystem and the Cosmos Hub. With PoB and Multiplicity potentially coming to Neutron in future upgrades, it should be possible to not only recapture internal MEV (as in proto-rev) but also external MEV, which is believed to be orders of magnitude more valuable.

The Duality Labs team would join Hadron Labs and contribute to the continued development of the DEX module and Neutron. This collaborative outcome would prevent internal conflicts for resources and considerably strengthen Neutron and the ATOM Economic Zone’s position as a leading DeFi Hub for all crypto.

Vision

The next 3-5 years within the Neutron ecosystem will be focused on 4 items :

  1. DeFi growth: decentralised finance has emerged as the killer use case of blockchains. Leveraging the Duality DEX module’s application-specific capabilities, DeFi apps of all kinds can be built with the module’s MEV recapturing, flexible, shared liquidity capabilities in a way that establishes a positive flywheel for the ecosystem.
  2. Ecosystem connector: there is a massive amount of opportunity to be created in becoming a vital centrepiece that connects the emerging rollup ecosystem, the incumbent Ethereum and Cosmos. In addition to serving the liquidity layer for the different ecosystems, the Duality Labs team brings their existing partnerships and expertise within the rollup and Ethereum ecosystems.
  3. Liquid staking: the introduction of liquid staked tokens within Cosmos has the potential to unlock billions in previously locked liquidity. In addition to Neutron’s relationships with Stride and Lido, the capital efficiency of concentrated liquidity on Duality will be able to support deep, balanced LST liquidity with less capital.
  4. Governance and Treasury management: the development of the industry has highlighted the need for better coordination and decision-making tools for decentralised communities, and capital management tools for their treasuries. Leveraging Duality’s DEX module would enable DAO/Treasury Management projects to provide more capital efficient services to decentralised communities, attracting more capital and network effects to the ecosystem.

All modules built by Duality Labs will be exclusively deployed on Neutron. The DEX module will be included as part of the next upgrade. Duality Labs will be dissolved and the Duality Labs team will join Hadron Labs as a core team dedicated to the Neutron network

25,000,000 NTRN (2.5% of the supply) will be allocated as long term incentives packages to the Duality team according to the same vesting schedule as founders and backers: 1 year lock and 3 year linear unlock without cliff.

Benefits to Neutron

The Base Liquidity Layer

The Duality DEX module will serve as the base liquidity layer for Cosmos Hub and Neutron’s ecosystem. Since any AMM can be replicated on top of the Duality DEX module, without fragmenting liquidity, teams working on AMMs and strategies will work with Duality Labs to integrate them on top of the Neutron Liquidity Layer instead of building them from scratch. This brings a few key benefits to the Neutron ecosystem :

  • Deeper liquidity through shared pools: since to approximate new AMMs no new pools need to be instantiated, liquidity can be concentrated into a single venue, making routing easier and cheaper for the protocol. Astroport, Catalyst and other AMMs could all leverage the aggregate liquidity available in the shared pools. They would retain the ability to monetize their share of the liquidity by setting taker fees, and would benefit from reduced technical debt, better trading execution and the ability to focus on liquidity management and user experience.
  • Stronger Price Oracles: reducing liquidity fragmentation strengthens the security of TWAP oracles on Neutron, by increasing the cost of manipulation making them more useful for integrations with other protocols such as lending markets (e.g. Mars) or derivatives (e.g. Levana).
  • Treasury Management: building the portfolio rebalancer and other treasury management protocols on top of Duality optimises execution, security and profitability of treasury funds. For example, Timewave’s rebalancer could be implemented as a weighted pool on top of Duality. If at some point governance votes to modify this ratio, it can be easily rebalanced without having to instantiate a new pool by just skimming off the top and strategically redistributing to match the new ratio. This integration would have at least four major benefits to the Neutron DAO over the current rebalancer design
    • Reduce volatility of NTRN as the treasury would be buying back NTRN as price falls on the open market and selling as the price increases
    • Reduce the slippage loss traders incur when buying or selling NTRN
    • Strengthening the NTRN-USDC TWAP by further deepening liquidity pools
    • Earn the NTRN treasury additional capital from the fees on swaps.
  • An orderbook with fine grain control over trading strategies : traders on Neutron will have access to various new order types that allow them to better express their preferences and have a more professional trading experience. In addition to classic limit orders and “swaps”, these order types include :
    • Good-til-cancelled : Market makers who don’t want to risk their orders being adversely selected can set a good-til-cancelled order, where they can specify an end block number for when the order automatically rescinds if it hasn’t been fulfilled.
    • Immediate-or-cancel (partial fill) : Traders who want to trade for as much of a token as possible below some amount or price can place Immediate-or-cancel orders. This can be useful for traders who want to buy as much of a token they can before others do.
    • Fill-or-Kill : Traders who want to trade exact amounts or nothing can place fill-or-kill orders. This can be useful for traders or integrations which prioritise exactness in their inputs or outputs.

It’s worth emphasising Neutron’s base liquidity layer will not be competitive to other DEXs on Neutron like Astroport. There will be no application fees that go to Neutron on the Duality DEX module, allowing teams that want to monetize integrations with the base layer to do so without making users pay twice. The merger would enable Neutron to provide incredibly strong integration support to external teams looking to integrate deeply with the platform, such as Astroport and others, to enhance the product experience they offer users.

For example, Astroport would work with the Duality Labs team to build a vault for LSTs on Duality that accrues value to Astroport LPs and ASTRO holders from performance fees. Such a vault could track the stATOM inflation rate, and automatically rebalance as the price of stATOM increases with respect to ATOM. This would allow the liquidity position to be primarily denominated in stATOM at all times, earning LPs extra yield and requiring them to deposit less capital for deeper liquidity.

Concentrating AEZ liquidity efforts around Neutron will also make it a more optimal place for rollups to settle. They’ll be able to tap into the use cases built on top of Duality as well as the access to various tokens of Cosmos liquidity it supports trading for. It will also make Neutron a more credible liquidity partner for other large scale projects like Celestia. This would enable Neutron to secure critical partnerships and liquidity from emerging projects and critical assets.

Governance Votes

The following items summarise the voting options and their significance for this proposal:

YES - You agree with the terms of the proposed merger and want the Duality modules to be added to the Neutron blockchain in the next upgrade.

NO - You do not agree with the terms of the proposed merger and/or do not want the Duality modules to be added to the Neutron blockchain.

ABSTAIN - You wish to contribute to quorum but you formally decline to vote either for or against the proposal.

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I am in. We should really focus on neutron first.

Will Neutron incentivized liquidity provider to duality with $NTRN token? if yes, how much will it be allocated?

Next upgrade is for Q3 or Q4?

What about gaz token for duality? it was 100% using atom token.

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Disclosure : I work on Duality

My current thoughts are that capital going to incentives would be better spent on growing sustainable economies within Neutron and the AEZ through funding partnerships, public goods etc.

tldr, Incentives are temporary, smart contracts are immutable.

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  1. Will ATOM be the only gas token as was the plan with Duality ?
  2. Instead of 100% revenue share going to ATOM stakers, now the revenue will go to Neutron and only a small portion of that will reach the ATOM staker.

Overall, this is a raw deal for ATOM stakers.

How will the ATOM staker be compensated for this loss ? Growth for Neutron shouldn’t come at ATOM’s cost.

This will be an ongoing issue. To fix it for the long term make $ATOM holders more invested in the success of @Neutron_org

Send unclaimed @Neutron_org airdrops to those that claimed the initial airdrop - This is same as what Stride did. It going to CP does nothing for the staker

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Intriguing development. A few questions:

Will the Duality DEX module be open source?

Will the Duality DEX module be protected by any kind of license?

According to the post, the DEX module will be installed on Neutron for the next upgrade. When is that upgrade expected to take place?

What features of the DEX module are already built, and what features have yet to be built? In other words, can you describe what features will be available and how a user will interact with the DEX module when it is first installed?

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This sounds like it will benefit Neutron more than it will Duality. I am a bit surprised this happened as late as it did. My understanding was that Duality was ready to go live and was just a matter of it going up for a vote.

Some back story and transparency about this happening would probably go a long way.

As Zed mentioned above, many were excited about Duality’s pitch with Atom being the centerpiece of it all with fees, MEV, etc. So now with it moving over to Neutron, it will inherit the distribution properties of Neutron.

I think if this goes through it wouldn’t be outrageous to insist on bumping up the 25% share going to hub to at least 50%.

I am also curious about the technical aspects. Neutron itself will surely need to change to accomodate the features that Duality was planning for their own chain customizations, yeah?

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Agree with Elijah’s take on incentives, but to add context on the short term: I see the dex module as infrastructure to boost smart-contract based dApps, not as competition for the sc ecosystem. So, if the Neutron DAO decided to incentivized liquidity, I think it should incentivize it through the dApps that integrate with the dex module (e.g. incentivize depositing liquidity into Astroport’s duality-based-vaults).

Next upgrade is expected end of September early October.

The main gas token on Neutron is ATOM, but NTRN and axlUSDC is also accepted.

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  1. No the only gas token but the main gas token yeah. NTRN and axlUSDC will also be accepted, just like for the whole of Neutron.

  2. Yes, but the Hub will save ~$1m per year, which is more in savings that the fees Duality would have generated at least for the first years, so overall this is +EV for the Hub.

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All of the features described herein have been built already. Most of the work to be done for the merger to happen is integrating Duality’s work into the Neutron binary, which shouldn’t be too complicated as Neutron’s v1.1 uses almost exactly the same versions of the sdk, ibc, etc.

The next upgrade is expected end of September/early October

I believe the next features would be expanding support for cosmwasm hooks, to allow dApps to integrate more granularly and more easily with the Duality modules.

Astroport is likely going to be the first integrated protocol. Better execution and orderbook functionality for traders + more advanced vaults for liquid staked tokens and more granular mev recapture (basically the OFA discussed on Terra, but in-protocol and on steroids) for LPs.

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Thanks for the response. But what about those other questions:

Will the Duality DEX module be open source?

Will there be any kind of software license for the Duality DEX?

These are important questions to answer before the Neutron DAO votes to fund this project.

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Good move for now, but dumb move long term.

Key to long term growth is growing the competition.

The pie doesnt grow when you merge two competitors together.

Actually, usually the effect is you worse - you get even lazier.

I guess if you point out that there are already multiple dex competitors on other chains, this could make sense.

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The DEX Module, frontend and all our research has been open source for a long time !

Our license is open source, specifically Apache 2.0 (usually open source actually refers to a license that is completely permissionless and the code is source available - meaning it’s open to look at).

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I guess if you point out that there are already multiple dex competitors on other chains, this could make sense.

Crypto, especially DeFi is incredibly competitive . In my opinion, it’s better we work together to grow the AEZ in it’s early days than spending that energy against eachother.

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I really don’t see the problem attempted to be solved. if I get it correctly the number one reason is to avoid an additional 1m$ costs on validators for a new chain. First, it’s vastly incorrect and overinflated, second it’s not a problem even by these counts.

The current discussion about validator’s being underwater is just a non-sense. Double ATOM price and they’ll all stop talking. Every other ecosystem is having the same costs related problem in a bear market… that’s just math.

Then I would question the motivation behind this choice. Where’s the app-chain thesis ? A smart contract chain that starts to gobble another chain’s module… that’s not the thesis I’ve signed up for. Neutron and Duality were going to have a strong partnership anyway as neutron would be the prime source of automation & smartVaults for duality’s pools. There must be something I’m missing here ! Can somebody try to explain me why this merger would be beneficial aside from reducing costs at the expense of centralization (typically good in short term but a bad long-term tradeoff) ?

cause frankly, I’m a validator, and I don’t think the financial argument stands as viable to merge. I think both chains should remain separated. That’s the cosmos thesis. Do what you do best, focus on it. Let others do what they do best. So my hunch is that neutron should focus on the smart contract module they have, while Duality should have their own chain focusing on their module ! Unless there’s smthg I’m missing here !?

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What does a ‘main’ gas token even mean ?

If we can use 3 tokens for gas, what makes one of them a ‘main’ token ?

Is the gas fee going to be lower if the ‘main’ token is used ? Or is there any other incentive to the user to use the ‘main’ gas token ?

Overall I am happy with the way Neutron is progressing. You guys are making things happen and have a hustle culture that is necessary for success.

The issue currently is that the alignment between ATOM stakers and Neutron is low. While success for Neutron will have a positive impact for ATOM stakers, the impact is not high. That is an area we need to address.

Calls for higher revenue share are impractical. 25% is a good amount and anything more will be price gouging by ICS.

We need to find a solution to the fear that Neutron will leave ICS once its successful. Once that is addressed, I think the ATOM community will be lot more unified in celebrating the success of Neutron.

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@Zed_Erazer said, “Instead of 100% revenue share going to ATOM stakers, now the revenue will go to Neutron and only a small portion of that will reach the ATOM staker.”

This is what gives us pause. Yes, Hub validator infrastructure cost will be lower, but we’d also be giving up tremendous long-term potential upside.

For us to be in favor of this proposal, Neutron would need to drastically and permanently increase revenue share paid to ATOM stakers. Additionally, fear that Neutron would eventually leave the Hub for sovereignty must be addressed.

Is Neutron looking to absorb EntryPoint too?

It’s easy to see how Neutron benefits, but not so clear how ATOM stakers benefit.

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You make a valid point about app chains. If they all combine then why stay on the Hub vs being sovereign? Security will become a commodity.

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Enjoyed hearing Jack from Strangelove and Valentin from Quasar discuss this proposed merger. They seem to be for it. Fast forward to 19:00.

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I don’t think the actual alignment is low: while it’s technically possible for Neutron to leave ICS, doing so would likely destroy the network’s momentum, position and alter its value proposition. Numerous initiatives are being worked on to manifest positive alignment (e.g. giving voting power to the hub, creating infrastructure and services that strengthen the hub and its business model, building DeFi around ATOM, etc). From a personal perspective too, most of the contributors to Neutron have historically been Hub aligned, and have meaningful exposure to ATOM.

That being said, I agree, there is definitely a lack of perceived alignment, which should be addressed and is something that I intend to work on.

One of the reason why this is so critical is that, to really benefit the Hub, Neutron needs to be tremendously successful, not simply “somewhat successful”. The fear that Neutron could leave create a negative selection bias whereby the more successful Neutron is, the least support it garners from the Hub community.

I think there are tangible steps to be taken in the short term:

  1. Upside and voting power from the unclaimed airdrop tokens. A proposal is currently live about this item.
  2. Clarifying the position of the Neutron community about CW on the Hub.

My personal belief is that CW on the Hub makes sense if rigorously scoped. We have started an informal consultation process with other consumer chains and Cosmos Hub stakeholders to put together a draft to be reviewed by the Hub’s community.

I also believe that there is a widespread perception that Neutron is ready to hold back the hub to pump its own bags, which I don’t think is correct. Neutron benefits from the Hub being more valuable.

  1. Developing a synergistic business model for the Hub.

I think Liquidity-as-a-Service is a crucial part of this. There are significant developments in this regard and the Timewave team has been pioneering a vision which I think is probably the most coherent approach to generating revenue for the Hub.

  1. Making the Hub the primary source of value in Neutron’s economy to enshrine it in ICS

Just like a rollup’s fork choice is largely decided by the bridges through which value is imported, the larger the share of Neutron’s economy comes from the Hub the less likely/possible it is for the network to leave ICS, because doing so would lead to significant losses for the entire DeFi ecosystem. Therefore, there is a strong alignment cycle: the more capital the Hub deploys on Neutron, the more successful Neutron becomes, the more revenue it generates for the Hub, and the less likely it is to leave.

And just as a final clarification, while I discussed the “possibility of Neutron leaving ICS” here from a theoretical point of view, in reality there is absolutely no plan or intention to leave ICS. Neutron pioneered its adoption, and my personal intention is to make Neutron the most successful demonstration that ICS works and that there can be long term alignment between the consumer and provider chain.

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Good ideas. Its great to see that there is work happening to ensure tighter integration. I appreciate the time you are taking to craft well thought out responses.

All the best to the Neutron team.

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