Summary
This proposal is prepared by the Neutron Foundation and submitted for community discussion with consent of the Stagraze Liquidity Council, to execute joint liquidity provisioning for the STARS and NTRN tokens on Astroport (on Neutron) as follows:
| Source | Tokens Provided | Value |
|---|---|---|
| Stargaze Community Pool | TBC (see execution process) | $200,000 |
| Neutron Main DAO Treasury | TBC (see execution process) | $200,000 |
| $400,000 |
STARS to the value of $200k will be matched with NTRN to the value of $200k for total liquidity of $400,000 on Astroport. The resultant NTRN/STARS LP Tokens will be owned by the respective providers, with all STARS tokens being owned by the Stargaze Community Pool and all NTRN tokens by the Neutron Main DAO.
Justification
Liquidity is essential for the smooth functioning of decentralized applications, such as decentralized exchanges (DEXs), lending protocols, NFT marketplaces and other projects. Users typically provide liquidity by depositing their assets into smart contracts, and they are incentivized with trading fees and token incentives for doing so.
Protocol Owned Liquidity (POL) refers to a scenario where the Chain/DeFi protocol itself supplies a portion of the liquidity required for its operations. In such a case, the protocol uses its own reserve funds (community pool/treasury) to ensure there is enough liquidity available for users to trade, lend, or participate in various DeFi activities. The protocol itself holds and manages token reserves instead of relying solely on external market participants to provide liquidity.
By establishing POL for the NTRN/STARS pair on Astroport, the goal is to:
- Sustainably deepen liquidity for NTRN & STARS in Cosmos.
- Improve trade execution on Astroport without the expense of incentivising liquidity.
- Open up additional cross-chain arbitrage routes for STARS, resulting in a net increase in trading volumes.
- Strengthen relations between the Neutron and Stargaze communities, promote net positive-sum cooperation across the Cosmos, and cement Stargaze as the premier NFT platform for Neutron, Cosmos, and the Atom Economic Zone (AEZ).
- Encourage cross-chain DAO development and promote the use of Stargaze NFTs in Neutron DAO DAO DAOs/SubDAOs.
The total amount of liquidity to be provided is determined by a number of factors:
- $400k tvl provides an instant and stable level of liquidity to facilitate STARS trading on Neutron with minimal slippage for a typical Stargaze marketplace user. Above $500k Total Value Locked (TVL), arbitrageurs can be activated, creating volume, trading fees, and efficient pricing for the token pair. A further $100k liquidity is a realistic target for organic growth on top of the POL, with both chains incentivised to activate community use of the liquidity.
- Deepen liquidity for STARS. Currently the STARS token has total liquidity of $1.1m, concentrated almost entirely on the Osmosis chain. By providing a further $200k on Neutron, Stargaze diversifies its chain exposure and deepens liquidity by a further 18%.
- Build a moat for the Stargaze NFT platform on Neutron, strengthening its presence as the preeminent NFT platform in Cosmos.
- Long term strategic alignment. Neutron and Stargaze are aligned in their goals to reach beyond the cosmos and attract liquidity and users from other ecosystems to âgrow the pieâ.
Also worthy of note; by providing STARS liquidity on Neutron there will not be any impact on staking rewards for existing STARS stakers, and no revenue will be generated for another protocol using STARS. To protect the value of the liquidity, Neutron and Stargaze POL will earn swap fees in the pool. However, the LP tokens will not be âstakedâ in the astroport generator. Therefore, any incentives applied to this pool will be earned only by users of the protocol to incentivise TVL growth.
Execution Process
Subject to community approval, this POL proposal will employ Timewaveâs Covenant system. Covenants allow highly customisable and decentralised deal making; a major step forward from previous POL deals in the ecosystem that require intermediary multisigs.
Amounts
Exact amounts of STARS and NTRN will be determined by the 10-day TWAP according to prices on Coingecko on the day of the Covenant instantiation.
- Stargaze to provide STARS worth USD $200K
- Neutron to provide NTRN worth USD $200K
Price
Token swap exchange ratio will be determined by the 10-day TWAP according to prices on Coingecko on the day of the Covenant instantiation.
To protect both parties from unexpected slippage, Covenants function by stating a target LP ratio between the two tokens upfront and specifying an acceptable range within which the Covenant will deploy the liquidity. If the pool ratio is within the acceptable range by the time both parties contribute their tokens, the Covenant will âtwo-sided LPâ the maximum amount of tokens and single-sided LP all remaining tokens. If the pool ratio is outside the acceptable range, the LP will not occur in order to protect the involved parties. The Covenant will regularly check for the next 30 days to see if the ratio returns to within range and LP if/when it returns to the acceptable range. If it does not return to range within 30 days, the Emergency Committee (EC) will refund the tokens to both parties. More on the EC below.
The acceptable range proposed is +/- 30%.
Deposit Venue
The Covenant contracts can receive the funds on any chain through Interchain Accounts (ICAs).
Neutron is the one exception because the Covenant contracts are local to the chain. They will deposit tokens through a Neutron governance proposal directly into the Covenant address on Neutron (address provided after contract instantiation).
Stargaze will deposit tokens through a Stargaze governance proposal into a Covenant-controlled ICA on the Stargaze chain (address provided after contract instantiation).
Destination
The STARS:NTRN pool on Astroport on Neutron.
Lockup Duration
Covenants can include a mutually agreed upon lock duration. However, in this instance there will be no lockup period. Any of the parties can trigger a withdrawal whenever they want by passing a governance proposal to do so.
Withdrawal
On withdrawal, the Covenant will unwind the whole LP position and direct all resulting STARS to Stargaze and all NTRN to Neutron.
STARS tokens will be returned to the STARS governance module account: stars10d07y265gmmuvt4z0w9aw880jnsr700jw7ycaz
NTRN tokens will be returned to the Neutron Main DAO Treasury neutron1suhgf5svhu4usrurvxzlgn54ksxmn8gljarjtxqnapv8kjnp4nrstdxvff
Party Addresses on Neutron
Each party needs an address on Neutron with the authority to trigger a withdrawal.
- Neutron will use the Neutron DAO neutron1suhgf5svhu4usrurvxzlgn54ksxmn8gljarjtxqnapv8kjnp4nrstdxvff
- Stargaze will use its governance moduleâs Polytone Proxy account neutron1xvdjjhcwyfvwufmyf2npul0m82x3tgyg2rkns92qvl7gluetxysqmfdj2p
Security
Covenants have been rigorously tested on testnets, tested on mainnet, and independently audited by Oak Security. However, since this is the first ever production use of Covenants, we recommend employing a few safety measures: 1) Emergency Actions and 2) Upgrades
- Emergency Actions
Covenants allow the parties to authorize an emergency committee (EC) to perform immediate emergency actions. The EC cannot withdraw the funds to themselves. The EC can only withdraw funds to the parties that contribute capital to the deal. This EC is important because issues may arise that require action faster than the governance of either/both parties could take given their voting periods.
For example, if the Astroport contracts have a bug and the STARS:NTRN pool is being drained faster than each of the parties can pass governance proposals, the EC could stop the issue by immediately triggering a withdrawal of the assets to Stargaze and Neutron.
Covalent DAO will serve as the EC for this Covenant. Covalent DAO is a group of members who are well respected and trusted in Cosmos. Four of seven Covalent DAO members must approve an action in order for that action to occur.
- Upgrades
Admins of the contract have the authority to migrate the contracts or upgrade the configs. Since the Admin has powers beyond what the EC is granted, the Admin of this Covenant will be Covalent DAO, Stargaze via polytone account, and Neutron, with governance set to majority rule and voting power as follows:
- EC has majority voting power when the Covenant is first instantiated, while attempting to route the funds, and LPing the funds. If there are issues that come up, this is the time when they are likely to happen due to cross-chain complexity and the EC can act faster than Stargaze and Neutron.
- After the LP has occurred, EC grants Stargaze and Neutron majority voting power of the Admin DAO so that any upgrade will require approval by both Stargaze and Neutron governance in order to occur.
Timeline
Subject to community support, the proposed execution timeline is as follows:
- Day One - Draft Forum post submitted to both community forums for discussion.
- Day Five - Neutron and Stargaze create formal proposals on chain; amended according to community feedback on both sides.
- Neutron Voting Period 14 days
- Stargaze voting period 3 days