ARC-26: Incentivise USK-axlUSDC pool

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.
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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.
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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.

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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.

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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

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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

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It’s a bit early to say but I think that Luna will be supported as collateral to mint USK on Kujira. Reducing some of the incentives of the current axlUSDC-axlUSDT pair and redirecting it to an axlUSDC-USK pair will benefit both communities in the long term. Both communities have still a lot in common. And I think Capapult’s stable should also be supported, but that one isn’t live yet.

Hey Max- have a few suggestions here .

As to whether or not Astroport should incentivize USK , my opinion is a hard no.

For the following reasons:

  • USK only has a total supply of 223.22k.

  • Native fin market depth for USK is non existent . If i were to sell 200 USK on fin , i would dump the USK price to .96 $

  • While CDP stablecoins are common and well established , there is a lot more to it than just allowing stablecoins to be minted against collateral. For example in the case of DAI there is a PSM that helps provide stability. In the case of MIM/Spell the DAO is exchanging it’s governance token for other tokens that allow it to bribe for liquidity on different dexes on different chains. And there are many other examples of CDP stablecoins issuing a governance token as a means to build liquidity .

  • ASTRO holders should not subsidize Kujira’s lack of native incentives. Kujira really needs to figure out how to make a scalable stablecoin and scale liquidity before they bridge to other ecosystems and to try and expand their stablecoin usage.

  • In it’s current state i don’t think USK will hold it’s peg and Astro incentives aren’t gonna fix that . And even if they did attract some more liquidity for USK this is not a sustainable way to scale USK .

On the topic of reallocating ASTRO incentives I’ve been thinking about this quite a bit, and analysing the trades on the USDT-USDC pool i noticed a lot of these trades are triggered due to arbitrage against LUNA-USDT pools on other much lower liquidity dexes(terraswap, phoenix) . I think if we incentivized a LUNA-USDT pool we would create a lot of volume on the USDT-USDC pool as a result of DEX-CEX arbitrage . This will naturally generate more fees and increase utilization of the USDT-USDC pool . Perhaps split the incentives of LUNA-USDC to a LUNA-USDT pool.

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I think having a look at how USK trades on its native market speaks volumes about whether we should even think about incentivising liquidity to USK at this point.

Answer: No

This proposal is completely wrong. It uses pair contract addresses instead of LP tokens as well as rewrites all active pools with only two ones:

{"setup_pools":{"pools":[["terra1ygn5h8v8rm0v8y57j3mtu3mjr2ywu9utj6jch6e0ys2fc2pkyddqekwrew","10000"],["terra1hmm6wkt2uq973hpykg46rtae34y3maplyl8l9fhpm2vfftrew5uq5t6a0r","5000"]]}}
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USK use cases aren’t just limited to the present. There may be unforseen uses that may develop overtime. As a decentralized CDP algo stablecoin, that will be backed by native Cosmos assets, including possibly LUNA at some point, I for one would be for incentivizing USK liquidity on Astroport.

It is important for us to protect our sovereignty and bolster value within the network, but we should also be looking at generating value extrinsically and through network effects. Working in a coordinated way with similarly aligned app-chains provides a way to generate that value.

With new architecture coming out of Delphi, such as SLAMMs and Rovers from Mars, whose to say Kujira couldn’t have satellite liquidation queues on different app-chains. Or at minimum, liquidation queues for Luna on Kujira. It’s coming for DOT, I would imagine it is only a matter of time before it comes for Luna.

Whether or not to incentivize USK, isn’t an easy question to answer. There would be pros and cons. But it is a nod to cooperation, networks effects, and I believe the larger vision of the Comos. Just my two cents

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Thanks , @Dino . I’ve alerted this to the proposer. This is not their intention.

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I have similar concerns regarding this proposal as I had regarding Eris’ and Prism’s proposals.

Imo the correct process for when a project requires deeper liquidity for a pool and demand/value to Astroport isn’t obvious, should be to incentivize the pool initially themselves. Once demand is clear the project could petition the Astroport community to add dual rewards. If the project isn’t able to incentivize the pool for whatever reason. The Astroport community could consider incentivizing the pool) with a small amount) to incentivize sufficient liquidity to establish, to gauge if there’s sufficient demand to warrant further incentivization.

In this case:

  • Kujira has the ability to provide incentives with their native token KUJI
  • Total supply of USK is limited, 234K atm.
  • Astroport should strive to be the place with deepest liquidity for in-demand stablecoins within the Cosmos ecosystem.

As such I believe it’d be valuable to incentivize the axlUSDC-USK pool. However assigning 5000 alloc points ($584k worth of ASTRO per year), is too much for me to be comfortable with particularly since USK’s supply is half of the proposed incentives. In addition no dual rewards are offered, even though this benefits both projects. Due to the above I don’t support this proposal in the current form.

I’d suggest approaching it as follows:

  • Calculate what amount of liquidity is desired for the axlUSDC-USK pool to gauge demand and usefulness to Astroport. Which imo results in significantly lower incentives required.
  • Based on that determine amount of dual rewards.

PS. I do agree incentives for the axlUSDC-axlUSDT pool should be reduced. But that’s a different topic
PS #2. as more stablecoins appear, we’ll need to ensure liquidity doesn’t get fragmented. Tri- and metapools could mitigate this issue.

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Thanks, Sage.

Perhaps this will be a good time to revisit Astroport community’s framework to decide what pool should be incentivised and what shouldn’t be in this environment.

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