Develop an Astroport warchest

Proposals
1

Summary

Develop a warchest in Astroport. All accumulated swap fees up to where $ASTRO staking goes live, growing since Astroport’s launch, are swapped for $LUNA, $bLUNA, $ASTRO and $UST. Any $UST will be deposited in Anchor for aUST and/or lent to Mars protocol to receive interest.

A different proposal will be submitted describing what percentage of the future swap fees will go to the developing warchest and be returned to $ASTRO stakers.

The purpose of this proposal is to receive feedback from the community about moving existing assets into a warchest and gather thoughts regarding the warchest’s asset distribution.

Abstract

Swap fees manifest themselves in the staking wallet as the very assets from the pool in which the swap occured. Some of these assets are the cornerstone of the Terra ecosystem (e.g. LUNA, bLUNA). As it currently stands, accumulated swap fees are destined for $ASTRO distribution to $xASTRO/vxASTRO holders. This is a great design and one that directly rewards those who believe in the future of Astroport.

Since launch, Astroport fees have been accumulating in the staking wallet, preparing for distribution, when staking goes live. Many of the assets, e.g. LUNA, are yield-bearing assets with incredible growth potential. These assets should not be swapped to $ASTRO and distributed. Instead, they should be held in the warchest. Future yield can be swapped for $ASTRO and distributed to stakers. As the warchest grows, staking yield will grow.

Motivation

As a DEX Astroport is perfectly poised to develop a warchest. Swap fees accumulate in the staking wallet in a variety of assets. In its current form, these assets are ultimately destined to be swapped into $ASTRO which will then be disbursed to $ASTRO stakers.

As of this proposal’s drafting, roughly 9.2M $UST-worth of assets sit in Astroport’s staking wallet. The top three by percentage are $LUNA, $UST, and $bLUNA, but there are many other protocol tokens present as well. While these are ultimately destined for $ASTRO stakers, it would be better for growth if methods are applied to grow their value before swapping for $ASTRO. For example, move all $LUNA, $UST, and $bLUNA to the warchest. Then, send the remaining assets to the warchest, swapping to $bLUNA/$UST. UST can be deposited in Anchor and/or Mars for yield. This paired with bLuna yield can be used to increase $Astro buybacks.

Specification

Redirect 100% of already-accumulated swap fees to a new multi-sig Astroport Warchest wallet. $LUNA is converted to $bLUNA through the most profitable route (conversion in Anchor or swap on Astroport). $ASTRO and UST are retained. Swap all remaining tokens to UST. Deposit UST in Anchor and/or Mars. The $100k of existing $ASTRO can be directed to stakers.
This would result in an initial asset mix of about $4.7m in $bLUNA as well as $4.5m in UST. Yield projections for this would be above $1m per year, which can be used for further $ASTRO buybacks.

While in the short term this may not create the large payout many expected when $ASTRO staking goes live, developing a warchest is forward-thinking and will grow Astroports wealth in the future. This future yield can serve to stabilize staking rewards so in bearish markets when swap fees tend to reduce, $ASTRO stakers will still receive a substantial reward. The assets in the warchest will also serve to back the value of the $ASTRO token with blue-chip $bLUNA, which can serve as a soft-floor for $ASTRO price.

The addition of a warchest introduces a new wallet and code. It will likely need auditing services unless the code being used has been audited already (e.g. Apollo Dao code which utilizes a warchest model).

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As someone who’s been tracking the xASTRO wallet (warchest) daily, it has really seemed like a cool thing to have a DEX accumulate a variety of the native swap assets. This also would be an interesting implementation with how it pertains to ASTRO, and it’s value prop. No longer would people want to dump their $ASTRO , as their staking rewards would be distributed in the variety of the assets on the exchange. Very cool and hope this gains traction!

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Personally, I don’t think using the currently accumulated fees in a warchest is a good idea. According to the Astroport Litepaper, they are supposed to go to stakers. Also from experience, changing the purpose of something that was already supposed to be used to something leads to suboptimal outcomes.

Ongoing fees are a different story and directing a percentage of that to a warchest of sorts could be beneficial. There are several things to debate:

  • Whether a portion of ongoing fees should be accrued somewhere
  • What % of ongoing fees to use for this warchest
  • What to do with the warchest
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4

I appreciate the feedback. When developing the proposal we tossed around the idea of swapping a percentage of accumulated fees so that 25%, 50%, or 75% head to the warchest immediately when staking goes live. The difference, of course, would go to stakers. Would you be open to a different % (not 100%) going to the warchest?

Terra alts have grown significantly in the past weeks. Since those assets sat in the staking wallet their value grew significantly. For example, yesterday, the staking wallet contained ~185000 ANC. Because it didn’t get distributed to stakers immediately (xAstro still under audit) we saw it’s value grow significantly. Theoretically, this growth can now be captured and distributed to ASTRO holders, giving us more ASTRO than if the staking wallet distributed ASTRO immediately; we directly benefited from holding ANC. I think this is the general thesis of a warchest: rewarding stakers in the future when, ideally, assets have grown, which we believe will happen otherwise we wouldn’t be in Terra.

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I think the cleanest implementation is to think about a warchest after current fees are distributed. A potential warchest is not that easy to implement, the question of whether it should be done as well as how it should be done take time to answer (where is it deployed, how is it managed, what’s the change cadence in how it’s used etc) so I highly doubt this would materialize in the next weeks.

Separately, you can contact AstroChads in Discord and propose that you host a Happy Hour this month to present this idea in more detail.

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This could be interesting if implemented like sKuji where the swap fees would accrue directly as rewards. Though this would be a nuisance to people trying to auto compound into $astro, so users most bullish would suffer. And doesn’t fit into a ve model.

The problem with using the Warchest to yield and buyback later is the yield may not compare to the APR in swap fees, therefore making Astro less attractive in the process. It ends up delaying rewards more than it does compound them, bc the more you compound the less yield, the less attractive $astro is to stake.

This also makes staking yield more uncertain. It wouldn’t be smart to bet $astro’s staking mechanism on the price action of other assets at time of sale. That adds more risk to staking than necessary, and staking is $astro’s best utility.

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I don’t see the point of using the collected fees for a warchest. We already have a huge warchest as 100m Astro of the initial 1B supply was allocated to the Astroport DAO Pool. If the concern is that the Astro in the warchest is too volatile, then the DAO could swap some for more stable assets.

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I agree it’s a separate discussion on what to do with the accumulated assets vs. using future fees towards a Warchest.

Consider Apollo has about $8m in their warchest

If Astro started a Warchest with accumulated assets, it would already be larger than Apollo with basically zero effort. So this method gives a huge headstart.

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If we did that today we’d be adding about millions of $Astro to the circ supply as well as a huge amount of sell pressure on the token.

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The idea of a warchest or POL has been a trendy topic recently after the idea was made famous by the OlympusDAO team. However, having the warchest set up this early before Astral Assembly may steer the vision off-tangent, imho. Firstly, many investors, including myself, are waiting to stake on Astral Assembly with the hopes that the price will accurately reflect its’ growing transaction volume. A prospect of a warchest is seen as a tax on my current earnings as a portion of the revenue is directed into the warchest.

As most people would agree that locking liquidity in certain DeFi protocols have a high opportunity cost, the same liquidity can be deployed into other protocols for a potentially high gain. As much as I agree that the warchest can improve my earnings on the long term, but a large warchest deployed across specific protocols can dilute the potential earnings vs an agile investor deploying its funds into niche protocols.

I for one am not in favour in building a warchest because of the opportunity cost. Perhaps a workaround will be an option for Astro stakers to opt into a warchest fund and in return, they get a token that is representative of that warchest.

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Sers, huge respect for your work on this proposal but I respectfully disagree to adopt a warchest for the accumulated fees since Astroport’s launch. All trading fees accumulated should be used for ASTRO buybacks IMMEDIATELY (or soon after) xASTRO goes live.

ASTRO’s value proposition should be simple.

(A) Trading fees are distributed to xASTRO and vxASTRO holders. (B) vxASTRO allows for boosties to liquidity providers. (C) xASTRO and vxASTRO can direct ASTRO emissions to the different LP pools. For those not interested, they can (in the future) receive bribes for voting for specific pools.

Since not all of ASTRO’s functionality is live yet, ASTRO’s price has tanked from $2.7 to $0.66. The recent recovery in ASTRO’s price can probably be attributable to xASTRO’s imminent launch, which gives ASTRO the first value accrual mechanism. Otherwise, ASTRO is an inflationary farm token, the value of which will tend to zero over time.

To keep ASTRO’s value proposition simple and to provide a buffer for the other value accrual mechanisms (e.g. vxASTRO, bribes) to take effect, the additional buybacks from the accumulated fees will provide a vital cushion to the floor price of ASTRO, giving more value to ASTRO’s immediate value. This is significant since ASTRO’s price directly impact the attractiveness of providing liquidity on Astroport. If ASTRO’s price continue to fall since ASTRO is perceived to be a farm token with little value accrual, the ASTRO emissions will no longer be attractive and people will move their LP to other AMMs (e.g. Terraswap, Loop). The success of Astroport is closely tied to the value of its token and the ability for its token to accrue value.

The adoption of a warchest unnecessarily complicates the value accrual mechanism when the KEY mechanism (e.g. vxASTRO, bribes) are yet to be live. If the community decides to develop a warchest, this should be done ONLY AFTER the KEY mechanisms are live. At such later date, the daily volumes on Astroport is likely to be much greater than the current volumes, there should not be a concern on the speed on building up a sizeable warchest.

I think the key question now should be the period of which an enhanced yield should be put into effect from the buybacks using the accumulated trading fees. A reasonable period would be six (6) months to provide additional value to ASTRO holders and a grace period for the other key value accrual mechanisms for ASTRO to launch. This also rewards ASTRO holders who supported the Astroport ecosystem from launch but suffered from the major decline in price due to the lack of value accrual at the time.

4 Likes
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We need to be careful of how the ASTRO token value is perceived currently. Right now, the key value accrual mechanisms are not yet live (vxASTRO and bribes), but significant time has passed since launch.

This lack of value accrual caused the price to plummet, which caused nothing but (reasonable) disappointment for holders who bought at above $1, since the token lacks the value accrual that was envisioned at the outset.

I think that the recent recovery of ASTRO is most likely because xASTRO is about to launch and people legitimately expect that trading fees accumulated will be distributed back to ASTRO holders. To suddenly restructure the envisioned distribution mechanism of the accumulated trading fees could be unfortunately perceived as highly unfavourable, which I am sure none of us would want to see. In particular, in this macro environment where yield is hard to come by, people come to ASTRO for a guaranteed distribution of the trading fees.

To maintain good sentiment in the Astroport ecosystem and to deter ppl from continuing to dump and perceiving ASTRO to be a useless farm token, we must first establish a strong fundamental basis for holding ASTRO.

The warchest proposal could create a poor impression on overall value of the ASTRO token, and how the warchest accrues value for the tokenholder. What is needed imminently is a simple value proposition for ASTRO, which is that buybacks since launch are rewarded to ASTRO holders.

Of course, the warchest proposal could be revisited at a later stage when all the value accrual mechanisms are actually in place.

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@TopHatOnURHead @stefan @TerraFormer @packformoon @MaxCallisto @Trix
as there seems to be some confusion as to what we were aiming for here im gonna chat with the guys and see if we can get an AMA/Happy hour session or write up something more clear on what we are trying to do here =)

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I appreciate and respect the tremendous amount of thought and effort that went into this proposal, but disagree with the benefits of a warchest.

My summary of the proposal (let me know if I got it wrong):
(1) Astroport accumulates swap fees and pays those out to xASTRO stakers (by buying ASTRO on the market and distributing that ASTRO to stakers).
(2) Since governance isn’t live yet, the accumulated swap fees have been sitting around in a wallet. These swap fees are scheduled to be paid out immediately to xASTRO stakers once governance goes live.
(3) The proposal seeks to convert these accumulated swap fees into yield-bearing assets (e.g. bLuna, aUST), and then pay out the yields to ASTRO stakers over time.

Why I disagree with this proposal:
(1) Under the current implementation, where the accumulated swap fees just gets paid out in a lump sum to xASTRO stakers, each xASTRO staker can form their own decision about how to utilize their revenue. Some may want an upfront lump sum that they can take profit on (perhaps to pay down a loan). Others might want to invest long-term in a yield-bearing asset, in which case they can use the income to buy bLuna. Others might want to compound that lump-sum back into Astro. The current proposal takes away that choice and just forces everyone to accept the yield-investment strategy.

(2) Related to #1, a warchest dilutes and confuses Astroport’s mission. Astroport is a DEX. It’s focus should be on generating trading fees and distributing those fees to users. This proposal would turn Astroport into a hedge fund, as well, where Astroport now is investing the revenue into yield-bearing assets and paying those yields out. This isn’t something the protocol was designed for and isn’t a core strength.

(3) We should be wary of changing things retroactively. It’s one thing to say “here’s a proposal for FUTURE fees that the protocol accumulates.” People can then plan around that. And if they don’t like the direction the protocol is going in, they can back out. But when you’re talking about changing the distribution of fees already earned, then you’re essentially reneging on a promise that was already made. People who bought ASTRO may have done so based on the protocol advertising that revenues would be paid out directly to xASTRO holders. They’ve just been patiently waiting for the governance function to be built out so that promise could be kept. This proposal essentially says, “never mind, we’re not going to do that, we’re going to do something different.”

(4) Switching to this “long-term” strategy may not actually be beneficial long-term, because the investments being proposed here may not be long-term optimal. If figuring out the optimal long-term investment was this easy, then we’d all be rich. That’s why it’s better to let the individual xASTRO stakers decide their own investment strategies (going back to #1).

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I see that many are worried about ASTRO yield. Rightfully so. I have a different scenario that wouldn’t touch the staking wallet and could also produce a warchest. Nearly 8M ASTRO from the airdrop are unclaimed at the moment. In 12 days the unclaimed ASTRO will be in the hands of the Astral Assembly. Since this is essentially bonus funds, any unclaimed ASTRO could head to a Warchest. It could just sit as bLUNA or aUST and pull in yield, leaving current accumulated swap fees in the staking wallet 100% intact.

8M ASTRO today is roughly 15M UST. Instead of selling off all the ASTRO (pretty significant sell pressure), this ASTRO would be moved to the staking wallet and any non-astro assets in the staking wallet would be sold off for aUST, bLUNA or whatever you decide. This way, 1. no or a very minimal amount of ASTRO will be sold, 2. only ASTRO will be in the staking wallet, and 3. the non-ASTRO assets will be in the warchest.

This adjustment directly conflicts with the proposal to create a MARS-UST pool, seeding it with unclaimed ASTRO from airdrops. Perhaps the Mars-UST proposal could be adjusted to apply 10% unclaimed ASTRO to the pool and 90% go to the warchest.

I don’t want to lower the yield in the staking wallet so we’d find the value of non-ASTRO assets in the staking wallet and exchange it for the equal or greater value of unclaimed ASTRO. So yield would be unchaged or improved.

The staking wallet will still provide expected or better yield plus we’d have a $~8-9M warchest with which we can do what we like.

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