ARC-26: Incentivise USK-axlUSDC pool

Proposal

Incentivise the USK/axlUSDC pool on Astroport. The purpose of this proposal is to create a deep stableswap pool to facilitate the swaps between USK & axlUSDC.

Background

USK is a newly launched stablecoin on Kujira chain. The mechanism behind USK is one that is battle-tested. It is an overcollateralised stablecoin using a collateralised debt position (CDP) to maintain the solvency of the protocol minting the stablecoin. The CDP mechanism was created by MakerDAO, the team behind the DAI stablecoin.

In recent weeks, the Kujira chain has developed some very interesting dApps on its chain. Both Kujira & Terra communities has large overlaps due to the Kujira’s history of being one of the top dApps on Terra Classic.

Motivation

The current axlUSDT/axlUSDC has over $8.3mil in liquidity with an average trading volume of $10k daily. That translates to about $5 fees a day on a 0.05% stableswap fee, approximately $1,825 fees over a year. The current ASTRO emissions is about 14.8Mil ASTRO/year, which approximates to $1.114mil at today’s ASTRO price. (ASTRO = $0.075)

That translates to about $610 of ASTRO emissions for every $1 fees generated from the stableswap pool.

The main reason behind the low trading volume is the lack of utility behind USDT. USDT is only swapped to arbitrage LUNA/axlUSDT pools in Phoenix DEX & Terraswap.

The lack of utility on Terra or Cosmos is wasting ASTRO emissions to incentivise a deep stablecoin pool. However, if we could route the ASTRO emissions to a USK/axlUSDC pool in Astroport, this could create a deep stablecoin pool that provides a low slippage swap between two stablecoins with high utility. Let’s jump into the utility for both axlUSDC & USK.

Utility of axlUSDC:-

  1. Most, if not all deep liquidity pairs on Astroport are paired with axlUSDC. See LUNA/axlUSDC, ASTRO-axlUSDC and VKR-axlUSDC.
  2. dApps on Terra or Cosmos predominantly transact in axlUSDC after the crash of UST.

Utility of USK:-

  1. Participate in the liquidations of ATOM on Orca.
  2. Alternative stablecoin on Cosmos for users that prefers a battle-tested & censorship-resistant stablecoin vs a centralised bridged version like axlUSDC.

So how does Astroport benefit from the utility of USK?

  1. With pools such as ATOM-USK & USK-axlUSDC established, Astroport users will be able to swap their axlUSDC to USK to participate in Kujira’s ATOM liquidation. (Fees from USK-axlUSDC swaps)
  2. Once ATOM liquidations happen, Astroport users can IBC discounted ATOM back to Astroport to swap their ATOM back to USK to earn the difference between market rate & discounted ATOM. (Fees from ATOM-USK swaps)
  3. USK IBC’ed back to Kujira to repeat Step 1.

With that said, ATOM-USK will need to be incentivised to allow the above loop to be feasible. Although FIN is natively available on Kujira, a deep ATOM-USK & USK-axlUSDC will provide a low, if not lower slippage compared to FIN.

How does this benefit the Kujira community?

  1. An incentivised ATOM-USK & USK-axlUSDC will increase the amount of USK minted. At 5% APR on minted USK, every $1 USK minted will provide $0.05 fees back to KUJI stakers.
  2. Increasing the utility of USK throughout Cosmos.

Copyright

Copyright and related rights waived via CC0 1.

[FIN]

4 Likes

Thanks for putting up this proposal.

Some questions I had after reading this proposal
1. Will Kujira be incentivising this pool with their own KUJI tokens as well?

2. Why should Astroport stakers vote for this proposal when essentially what will happen is that liquidity will exit from Astroport and move into Kujira?
As what you’ve pointed out, USK is only useful on Kujira’s app-chain to participate in liquidations. It is curious why this proposal is put up on Astroport given this use case. Osmosis would have been a better place for this.

Once ATOM liquidations happen, Astroport users can IBC discounted ATOM back to Astroport to swap their ATOM back to USK to earn the difference between market rate & discounted ATOM. (Fees from ATOM-USK swaps)
Furthermore, there’s no liquidity for ATOM swaps to happen today on Astroport. How do you imagine this value flow back to Astroport happening? It seems almost as if your only point that purports to benefit Astroport stakers is in fact something that cannot happen today.

3. Liquidity on Terra currently is very low and this will further fragment liquidity, leading to a worse off situation for users of Astroport
Given that such a move will essentially fragment the existing liquidity and worsen trade slippage, is this a good time for a proposal like this to be put up?

Appreciate your time to put this proposal together, but for the points I’ve raised, I feel like having this proposal pass is a net loss to both Astroport stakeholders and the broader Terra ecosystem

Thank you.

$ASTRO holder here and I find this proposal ridiculous. This proposal has zero benefit to us.

Firstly, why should we be paying for the incentives? USK has no other utility other than on the FIN DEX, which is pretty much a competitor to Astroport.

Secondly, why is Kujira not matching the Astroport emissions with tokens from their own treasury? This helps the Kujira community way more than Astroport and I don’t see any contribution from their side.

Lastly, USK is definitely not battle-tested. It being closed sourced does not help either.

To: Team Kujira, it would be helpful if you can put more thought before submitting a proposal like this. Astroport is not a charity and should not be treated like one.

Hi! Thanks for your proposal. I have a few questions.

  1. Will Kujira be incentivizing this pool with KUJI tokens?

  2. No value capture for Astroport
    Given that USK is only useful on Kujira’s app-chain, wouldn’t liquidity be drained from Astroport into Kujira in the long run? As what you’ve pointed out above, USK today is only useful on Kujira’s app-chain to participate in liquidations.

So how does Astroport benefit from the utility of USK?

  1. With pools such as ATOM-USK & USK-axlUSDC established, Astroport users will be able to swap their axlUSDC to USK to participate in Kujira’s ATOM liquidation. (Fees from USK-axlUSDC swaps)
  2. Once ATOM liquidations happen, Astroport users can IBC discounted ATOM back to Astroport to swap their ATOM back to USK to earn the difference between market rate & discounted ATOM. (Fees from ATOM-USK swaps)
  3. USK IBC’ed back to Kujira to repeat Step 1.

Furthermore, the only benefit for Astroport that you’ve raised does not work today. Even if ATOM could be IBC’d into Terra, there’s no liquidity for ATOM today on Astroport, further cementing my point that this proposal will only benefit Kujira.

  1. Fragmentation of liquidity leading to worsening trade slippage and overall loss of value for Astroport
    Liquidity on Astroport is already very thin today. Fragmenting the only stablecoin pair will only serve to worsen overall trade slippage and leads to a worse trade experience for users (i.e. lower trade volumes). This is net negative to ASTRO stakers

Thank you for putting this proposal together, but for the points I’ve raised above, I think the passing of this proposal will lead to a net loss for Astroport and the Terra ecosystem, and only serves to benefit Kujira.

Hi @0x7881 , thanks for chipping in, firstly, I’d like to iterate that I am not affiliated to Kujira or any development teams in any Web3 chains or projects. I am contributing as a LUNA, ASTRO and KUJI holder.

To your first & second question, I doubt that Kujira will be incentivising the pools with KUJI tokens. At least, not that I’m aware of as I did not speak to them on that.

While I agree that closed sourced is not desirable, it should not be the deciding factor whether a project is malicious or not.

However, I’d like to ask if a deep liquidity pool for USDT-USDC is beneficial for Astroport or even the Terra community? As I’ve mentioned above, USDT-USDC pool provides $1 fee for every $610. While I cannot say how much a pool such as USK-USDT can provide in fees to Astroport, there is at least some utility for USK in Cosmos as compared to USDT.

As for whether USK is battle-tested, I was referring to the CDP mechanism rather than USK coupled with a battle-tested ORCA liquidation protocol.

The important question to Astroport holders is whether the status quo of incentivising USDT is more beneficial to Astroport or moving the emissions to a pool that support the swaps between two tokens that have at least some utility in Cosmos.

Thanks for the reply, @lunatic .

  1. As the reply above to 0x7881, I doubt that the pool will be incentivised due to the fact that Kujira community believes in having no inflation to their tokens.

  2. I do agree that having a deep pool for ATOM-USK is also a pre-requisite for us to have this pool incentivised. However, I’m not too sure if I agree that liquidity will be drained from Astroport to Kujira in the long run. We might see:

  • Terra dApps opting for a Cosmos-native CDP stablecoin rather than a bridged centralised stablecoin like axlUSDC as part of their protocol app or treasury. This will increase the usage of USK in the Terra chain and being the deepest pool DEX on Terra, this could faciliate the trading activity.
  • Should the trading volume in FIN increases, this will indirectly affect Astroport since arbitrageurs will be arbing the USK prices in both Terra and Kujira. For example, MakerDAO is native to ETH, but you’ll see L2s and EVM chains (Uniswap Arbitrum DAI/USDC 24H Volume: $1.1mil; Avalanche Platypus 24H volume: $5mil; source: Coingecko) having high trading activity for DAI.
  1. I do agree that fragmentation of liquidity leads to worsening trades, but we currently see almost no trades on USDT/USDC pair due to the non-existent utility of USDT in Terra or Cosmos. Hence, I’m advocating that Astroport use the emissions to create deeper pools for tokens that actually have utility.
1 Like

Thanks for taking the time to reply, @MaxCallisto

In principle, I agree that incentivising axlUSDC-axlUSDC isn’t great, but I don’t think axlUSDC-USK is the best way forward.

Being the leading DEX on Terra, I’m of the view that if we were to redirect incentives, it should be towards retaining (or even growing) value on the Terra Ecosystem as much as possible - especially since Astroport is a recipient of the Emergency Allocation, I think we owe a duty to the Terra community to at least first try to deliver value directly to the Terra Ecosystem and LUNA stakers.

Some alternatives we may explore:

  • Capapult is building a native decentralised stablecoin on Terra ($SOLID). I would definitely prioritise incentivising deepening liquidity for $SOLID-axlUSDC over USK-axlUSDC
  • whUSDC-whUSDT/DAI etc. ; Axelar’s bridging solution is both slow and costly. We should consider incentivising liquidity for Wormhole wrapped assets over Axelar.
1 Like

Noted. I was under the impression that the proposal was submitted by Kujira. Thanks for the clarification.

I generally agree with @lunatic’s point of view. Unless Astroport is moving towards a multi-chain future (and deploying on Kujira), let’s support a Terra native project.

Hello @0x7881, @lunatic and @MaxCallisto.

I agree with you, @MaxCallisto, about the greater utility of a USK-USDC pool over USDC-USDT. I think it can bring nice volume on Astroport, since currently the only way of obtaining USK other than minting it is on FIN. However, it is not that liquid right now.

Being the first DEX AMM in Cosmos to list this pair could provide Astroport with the first mover advantage - possibly with the deepest liquidity for that stablecoin - before Osmosis decides to list and incentivise it too.

Moreover, I also agree that incentivising $SOLID, once it will be out is something to consider. However, it is not yet clear what $SOLID usecase will be, while it is clear what $USK can be used for (Orca liquidations).

My suggestion is therefore to move incentives from USDC-USDT to USK-USDC right away and then reconsider the matter once $SOLID is out.

There is obviously still a lot of overlap between Terra2 and Kuji users. Personally I don’t much like the Kuji UX, but would use Astroport to trade for USK if it was an option. Ideologically USK is the same as UST, an uncensorable decentralized stablecoin. Only the mechanics to achieve the outcome are different. Also, the Kuji team looks to have larger plans for USK than just Orca bids. See today’s announcement about the WooCommerce plugin as an example.

I agree there is a first mover advantage opportunity here. I don’t see any downsides to showing support for an ex-Terra project. The value for Astroport is if USK is successful it can be a UST replacement used a swapping pair for all the new Terra coins.

1 Like

Hi @lunatic / @0x7881 , I agree that axlUSDC-USK isn’t the best solution but due to the lack of utility on Terra at the moment, directing $1.114mil of ASTRO emissions to a USDT pool with no utility is just a huge waste. I do not have the data currently, but I would assume that USDT/USDC LPs will immediately sell their ASTRO rewards to further compound into the USDT/USDC pool. (Perhaps this is something @IncioMan could comment with his Flipside analyses)

Taking cue from @IncioMan’s comments, we could redirect half the allocation points to USK from USDT to build up liquidity for some utility. I’m all for building for Terra, but currently, we just do not see much reason to incentivise USDT pools.

Should the community not be supportive of incentivising USK pools, perhaps the bigger question is whether the current ASTRO emissions are well-utilised.

Here are the list of incentivised pools:

  1. LUNA-axlUSDC
  2. ASTRO-axlUSDC
  3. axlUSDT-axlUSDC
  4. LUNAx-LUNA
  5. VKR-axlUSDC

No doubt we will need to incentivise LUNA-axlUSDC & ASTRO-axlUSDC pools. Being one of the first Terra dApp to be deployed, VKR-axlUSDC should stay incentivised.

For LunaX-LUNA & axlUSDT-axlUSDC pools, we ought to revisit the allocation points given to these pools.

Re-allocation of alloc_points under LunaX for other LSDs
Concentrating the emissions to a single LSD might just result in the same situation ETH is having with Lido Finance where a large chuck of ETH staked are staked in Lido. I am supportive of sharing the emissions for LunaX to the other LSDs like ampLUNA & STEAK. Having multiple LSDs will ensure that protocols like Capapult will have several collateral options to back their $SOLID stablecoin rather than concentrating it to a single LSD token.

Re-allocation of alloc_points under USDT/USDC LP
As I’ve mentioned above, the current $1.1mil annual emission are wasted to incentivised USDT which have no utility. Should the community not be supportive of USK incentives, I rather route the alloc_points to $ampLUNA, $STEAK, $RED pools that have better utility than USDT. The current $8mil pooled in USDT isn’t large enough for whales to bridge to Terra & make those swaps.

2 Likes

Thank @MaxCallisto . These are great points.

To add, I would like to put onto the table a couple of pairs which, if incentivised, could bear greater value for Astroport and the broader Terra Ecosystem.

  1. whUSDT-whUSDC
    One factor why general liquidity on Terra is thin right now is because bridging in assets (or in this case, stablecoins) through Axelar is both slow and costly. For context, a transfer between Ethereum and Terra through Axelar costs $10.5 and takes up to 15 minutes.

We should be looking to seed liquidity and incentivise this Wormhole pair so that liquidity can flow in more frictionlessly.

  1. whLUNC-LUNA
    Classic users already own the necessary tools to interact with the Terra 2.0 ecosystem (e.g. Station, etc).Instead of having developers build on 2 chains, we could increase liquidity of LUNC on Terra 2.0 and have these users use the currency that they love (LUNC) while having greater utility and value on Terra.

Thanks @lunatic . I currently do not see much use for USDT whether its via Axelar or Wormhole due to the lack of utility on Terra. Incentivising whUSDT may make sense if we have xAstroport, similar to what we had with xAnchor for Avalanche in Terra Classic. That way, we’re able to convince Eth users to community via xApp on Wormhole, without worrying about the UX of bridging to Terra. This requires its own proposal.

As for whLUNC-LUNA, perhaps we could consider a safer route via IBC. I recently raised a proposal on Terra Classic Agora forums to re-enable the IBC from Terra Classic to the rest of the IBC chains. LuncDAO has agreed to relay once the IBC is enabled. Via IBC, we can avoid the risk of bridge hack risks. Another point is that whLUNA is actually written as LUNA on chain (see image below). This will cause alot of confusion.

Screenshot 2022-09-15 at 10.41.16 PM

Recently, I found out that USK wasn’t able to be IBC’ed into Terra due to a IBC error, therefore, we should restart the conversation on this proposal after the IBC error is sorted by Kujira team.

It does make sense to me to incentives the LUNA-USK pool, because:

  1. Supporting the first Cosmos IBC decentralized stablecoin. This was the original vision of Terra and I think we should keep supporting this.
  2. Reducing the risk of a bridge exploit. Other stable pools are only with Axelar bridged tokens. If there is a hack you lose all your money.

I think it’s fair to reduce the incentives from the axlUSDC-axlUSDT pair as there is little volume there

With the recent Kujira proposal to upgrade their chain to support IBC transfers of its’ USK to Cosmos chains that doesn’t support IBC tokens with “/” in their denoms, USK is now transferrable to Terra.

Why should we support a Cosmos native stablecoin?

  1. The current default stablecoin on Astroport being axlUSDC is a bridged & centralised stablecoin. Despite Axelar’s emphasis on its security, its prudent that we’re able to diversify our stablecoin holdings on-chain to dilute the risk. On top of that, USDC being a centralised stablecoin is susceptible to censorship (see USDC-Tornado Cash censorship).
  2. For dApps on Terra that prefers a censorship-resistant stablecoin, the liquidity can only be found on either Osmosis or Kujira’s FIN. Having USK pooled on Astroport allows Terra dApps to tap onto this liquidity & build Astroport’s swap UIs directly on their interface rather than requiring IBCing from other Cosmos chains. dApps such as Terra Poker has indicated that they might look to support USK as one of their stablecoin poker tables.
  3. Many of the Kujira community members have vested interest on Terra to succeed since most of them have a large LUNA holding waiting to be vested. Hence, an incentivised USK-axlUSDC pool will bring these 2 communities closer together.
  4. Redirect emissions away from axlUSDT due to its absent utility in Terra. Rather than continually incentivise a stablecoin pool that has no utility, redirecting the emission to USK will allow Terra users to participate in Orca liquidations much easier.

The proposed changes to the alloc_points will be as follow:

Reduction of axlUSDC-axlUSDT LP allocation points
axlUSDT-axlUSDC LP: terra1ygn5h8v8rm0v8y57j3mtu3mjr2ywu9utj6jch6e0ys2fc2pkyddqekwrew
Allocation Points: Reduce from 15,000 to 10,000

Increase of USK-axlUSDC LP allocation points
USK-axlUSDC LP: terra1hmm6wkt2uq973hpykg46rtae34y3maplyl8l9fhpm2vfftrew5uq5t6a0r
Allocation Points: Increase from 0 to 5,000

Hi @8punt6 ,

  1. Supporting the first Cosmos IBC decentralized stablecoin. This was the original vision of Terra and I think we should keep supporting this.

Being first doesn’t mean it’s the best for the Terra community. The only way to mint USK is to head to the Kujira appchain and posting ATOM as collateral. Incentivising the use of a new stablecoin, in this case USK, on our chain means that we’re reducing the opportunity for other projects such as Capapult from having a chance to stand themselves up. I don’t think it’s reasonable for us to allocate native resources to incentivise activity on another chain. This is a negative EV play for us that will lead to lesser activity and liquidity on Terra.

  1. Reducing the risk of a bridge exploit. Other stable pools are only with Axelar bridged tokens. If there is a hack you lose all your money.

You have a point, but this also introduces a new risk of being dependent on the export of another app chain who may not have our best interests at heart, and needless to mention smart contract risks etc.

In my opinion, you miss the point. Astroport is correctly positioned to be the Curve Finance of Cosmos chains.

Differently from Uniswap (that in our case could be represented by Osmosis), Curve Finance is the DEX for the stableswap and Astroport should follow this idea with the large volume of all Cosmos stablecoins (and liquid derivatives).

I am also happy to raise the incentives on Catapult-stable when will be lauch