RFC: CFG Liquidity Incentives on Stellaswap on Moonbeam

Centrifuge Governance Proposals
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Proposal type: CP4
Author(s): ogre44444
Beneficiary: Stellaswap
Wallet: 4g14AyHrg4MrFubtUhq6omPsN6zmtfuMHD5Hg9NUzGj97Bdd
Date proposed: 2023-04-24

Summary

This is a proposal for CFG tokens to be used as incentives on StellaSwap’s CFG-DOT pool and for Stellaswap to support the growth of CFG on Moonbeam… If accepted this would run for 2 months, at which point both parties can evaluate the success of the program and take next steps.

Objective

Increase liquidity of the CFG token and create awareness of Centrifuge to both EVM and Polkadot ecosystem users.

Background on Stellaswap

Stellaswap is the leading dex on Moonbeam, generally capturing 80-90% of on-chain volume. We’ve recently launched Pulsar, a Uniswap v3-style concentrated liquidity dex which constitutes a unique offering on Polkadot. The capital efficiency of Pulsar is many times higher than a standard dex, allowing much larger trades to be made on the same TVL without compromising on slippage. StellaSwap - Leading Moonbeam DEX & DeFi Gateway

The Advantages of CFG liquidity on Pulsar

There are two angles to explore in terms of how Pulsar incentives are uniquely positioned to promote the growth of CFG.

Stellaswap Support & Alignment with Centrifuge

Stellaswap is the leading dex on Moonbeam, making it readily accessible to Metamask users coming from other EVM chains. We want to help create awareness for Centrifuge’s Real World Assets, and we have a couple of ways to help create exposure.

  • When a user selects CFG on the Swap page, put a message with a link under the swap widget, “Learn more about how Centrifuge is bringing Real World Assets to DeFi”
  • A link to Centrifuge would appear on CFG’s row on our Pools page. Users browsing our liquidity pools would see this and be able to click it to learn more. So much of DeFi is just about awareness and discovery, and every user counts.

Another way we can support Centrifuge is with our Cross Chain Swap feature. Tinlake is on Ethereum and funds its loans with Dai, making it awkward for users on Polkadot to get involved. But on Stellaswap, users can swap from any Polkadot asset into Dai on Ethereum in one click.

Pulsar

Pulsar is an extremely efficient Concentrated Liquidity AMM. With a utilization rate between 20-100%, liquidity goes much farther on Pulsar than in a traditional “v2” style dex, enabling much lower slippage and sustainable yields.

The second reason Pulsar is an excellent choice is efficiency. As aforementioned, concentrated liquidity can do a lot more than standard constant product pools. Whereas a Uniswap v2 style dex will only use ~5% of tokens in a day, we’ve seen some of our pools approach 100% on volatile days. This means that your incentives go farther on Pulsar in terms of reducing slippage on trades.

And that’s a key thing to consider. Slippage governs whether an asset is suitable for lending protocols. Slippage also governs how much money can enter a token at a time. Lower slippage leads to greater adoption.

Real Life Example of Slippage Reduction with Lower TVL

Pair Type TVL Price Impact of $5k Trade
USDC-GLMR Standard AMM $2M .52%
USDT-DOT Pulsar $176k .49%

With a TVL of 12x, USDC-GLMR still has higher slippage than the USDT-DOT Pulsar pair.

This proposal also asks that Centrifuge provide CFG-DOT incentives on Pulsar. Because of Pulsar’s efficiency, swaps can be supported with a more modest allocation than a constant product pool would require. Centrifuge incentives would be accompanied by STELLA incentives.

In conclusion, we think this is an excellent opportunity to grow not just liquidity for the CFG token, but also awareness for Real World Assets.

Budgeting and Incentive Structure

Asset Price Reward Value Amount Period
CFG .288 $4,000 13847 8 Weeks
STELLA .067 $2500 37313 8 weeks
Pool Target TVL Expected APR $ CFG / Day $ Stella / Day Reward APR Swap APR
CFG-DOT 150k 67% $71 $45 27.8% 40%

Responsible To Implement

Governance and Coordination Group (ImdioR, Rhano). This proposal will utilize CP4, per community guidance.

Delivery & Reporting

Stellaswap would be ready to launch this pool upon delivery of the tokens, or whenever the Centrifuge team finds it convenient based on their marketing schedule. Funds would be delivered to the Stellaswap multisig, from which they’ll be moved to the farm’s rewarder contract. Stellaswap would be responsible for reporting statistics such as TVL growth and swap volume to determine the pool’s traction.

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Good day ogre44444 and welcome!
Thank you for your interesting proposal.

  1. Can you please indicate what is the total amount of CFG requested in order to launch this liquidity incentive?
  2. Please note that all proposals must follow their respective Governance process - cps/CP0.md at main · centrifuge/cps · GitHub

In case you need help with the correct submitting of your proposal feel free to contact me or @Rhano

  1. We will host Centrifuge Governance Call #16 | 2023-04-19. Would be great if you can introduce your proposal during the call. What do you think?
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Thanks for this proposal. Giving users easier access to crypto and thus providing more liquidity is one of the most important aspects for adoption of a protocol.

Can you please give more insight into the Cross Chain Swap feature? Does it work as easy as it sounds?

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Hi ImdioR, we will have a representative on the call. Looking forward to it!

Thank you I’ve read the docs and our Treasury proposal will be in the proper “CP2” format.

The total amount of CFG is in the Incentives table towards the bottom: 13847, roughly $4,000 based on prices from a few days ago.

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Yes happy to! Stellaswap has a cross chain swap widget powered by Axelar. From our UI you can exchange tokens to and from Moonbeam and a plethora of other chains without needing to worry about bridging or finding gas once you’re on the source chain. As someone who moves assets cross chain frequently it saves me a lot of headaches.

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Thank you very much for the proposal! I would like to know if you plan to list the WCFG which is on ETH or the CFG on Polkadot or both, I think your protocol is EVM compatible

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Good day ogre444444

The centrifuge treasury is empty now, because Block Rewards still not deployed.
So in this case you should use CP4 -General Improvement.
As example you can use this proposal - https://github.com/centrifuge/cps/blob/main/cps/CP40.md

Awesome :sunglasses: thank you.

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Stellaswap is EVM compatible and we would be capable of doing either! However, as a Polkadot project our preference would be to list xcCFG, taking advantage of Polkadot’s XCM protocol.

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My question: since we don’t have any funds in the on-chain treasury, where we would these incentives come from? Centrifuge Network Foundation? Minted?

I’m all for the listing, but generally against us providing the liquidity incentives.

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CP28 (GI) Centrifuge Protocol Fees and/or CP6 (GI) Add a block reward could be the solution to this question…

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I decided to go with cp4 to just mint them manually. It seems cleaner and easier than setting Stellaswap up to receive block rewards. Block rewards seem like something that shouldn’t be distributed adhoc like that in my opinion.

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The rewards should be minted via CP4 process and voted by all community.
We will clarify all your questions during the call.

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Good day Ogre44444

Please note that this is not a substrate wallet address and we can not transfer CFG tokens to this wallet address.

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Please provide Centrifuge Wallet address or Substrate wallet address.
Thank you.

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I personally don’t think incentivizing LP tokens with CFG rewards is sustainable or achieving what we want to achieve. As proposed here, LPs would receive 27.8% in return on CFG for nothing more than providing liquidity in a pool on Moonbeam. I am concerned that the liquidity won’t be very sticky and and that will come at a large expense for our treasury. The proposal by Hydra is more interesting for Centrifuge as it allows the Centrifuge parachain to directly control the LP tokens and instead of it being an expense for the treasury there are no subsidies for the DAO to pay. This means that as long as the LP position is left in Hydra, users can benefit from CFG liquidity and use it to acquire CFG.

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I will update this proposal once we have one created. Thank you for calling this out. @ImdioR please confirm that a substrate wallet address is sufficient, or does it specifically need to be a Centrifuge wallet address?

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Hi Lucasvo, I want to highlight a couple of advantages of Pulsar and user provided liquidity.

1 - Concentrated liquidity is far more efficient than constant product pools. A much smaller number of tokens is required to make large swaps accessible, which is why we create liquidity in the first place: to facilitate trading.

2 - Incentivizing LPs doesn’t just bring in temporary mercenaries. It creates attention for the token, gets users to do research on CFG, and creates token holders. We’re facilitating that by including links on our dex to encourage that sort of research. Generally speaking, the biggest mercenary liquidity is on stablecoin/BTC/ETH farms. For a “mercenary” to participate in LPing a CFG farm, they have to be willing to take a view on the price of CFG for at least as long as the incentives program lasts, making it somewhat less attractive.

3 - You’ve characterized this proposal as a “large” expense. CFG has a market cap of $77m. This proposal would entail ~$4,000 in dilution, an amount that will be mitigated or eclipsed by creating new token holders from among folks currently unfamiliar with Centrifuge.

4 - I’d encourage the Centrifuge DAO to vote in favor of both proposals, and then compare the performance of both strategies in facilitating CFG trading.

That’s my perspective at least, as both a representative of Stellaswap and a Centrifuge crowdloan participant.

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Quick update - I’ve updated the proposal with a centrifuge wallet address rather than a moonbeam one

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I think Stellaswap is a great addition to the Moonbeam/Polkadot ecosystem. Think one of the most active DEX and good interface, good interaction with the rest of the ecosystem and overall TVL.

Even though these incentivised listings give a short boost to CFG liquidity, usually what you end up seeing is that the majority of the liquidity moves away once the incentives are gone. Not sure how a DEX is supposed to deal with it, but it does lead in the long term to fragmentation.

I agree with @lucasvo that the HydraDX proposal is indeed much more interesting and on the longer-term is more useful to CFG holders for control, overall usage and trading possibilities.

Having said all the above, I’m also looking at the amount requested which is 13847 CFG for 8 weeks. I believe this is a minor amount for the CFG holders/treasury and exposing the CFG tokens to the Moonbeam/Stellaswap ecosystems could indeed get more and attention and coverage to CFG network in the wider DOT ecosystem. This would also mean that it would be more a “bonne chance” than really believing this would change anything in the mission of the DAO.

A bit divided how I would vote over this…

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I agree with the majority of the community members in this thread that this proposal is most likely more beneficial for user providing liquidity to the pool on Stellaswap, rather than Centrifuge in the long term. However, I like this part of the proposal in order to create awareness of Centrifuge in the Moonbeam ecosystem.

In general, I am personally more interested in long term solutions/benefits but given the amount requested, I believe this opportunity is worth exploring and then we can evaluate the situation again after 2 months.

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Good day!
The proposal has now moved on to an OpenSquare Snapshot.

:point_right: :point_right: :point_right: Please vote here: CP48 (GI): CFG listing and Liquidity Incentives on Stellaswap on Moonbeam

The OpenSquare Snapshot will start 09:00 CET 10.05.2023 and be open for 7 days (until 17/05/2023 09:00 CET).

Do you agree with this proposal?

Please vote Yes or No.

Thank you, everyone, for participating and for the feedback provided.

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