RFC: Listing CFG in HydraDX Omnipool & seeding initial liquidity

Centrifuge Governance Proposals
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Proposal type: CP-4
Author: jgreen (Integrations@HydraDX)
Technical/non-technical proposal: Technical proposal
Date proposed: 2023-05-03

Short Summary

We propose to mint 500,000 CFG and provide it cross-chain into the HydraDX Omnipool as an LP position controlled by the Centrifuge governance. The general intent is to seed initial liquidity and start trading CFG at https://app.hydradx.io/trade. Natively and efficiently within the Polkadot ecosystem.

Detailed Description

CFG will be provided as an LP position into the Omnipool. Trustlessly and without losing control of the funds. The CFG position can be withdrawn at any time by the Centrifuge governance and CFG sent back to its treasury. All made possible by XCM.

Important distinction to realize is that this model is superior to alternatives, where teams have to spend capital to be listed on CEXes or aquire the other half of the pair for seeding common fragmented XYK pools on other DEXes.

Technical details

The process consists of these steps:

  1. CFG governance approves & executes a proposal to mint and send CFG via XCM to the HydraDX Omnipool account (a system account with no private key with public address: 7L53bUTBbfuj14UpdCNPwmgzzHSsrsTWBHX5pys32mVWM3C1)
  2. HydraDX governance launches a council motion which is fast-tracked and enacted in 3-4 hours
  3. After step 2 is complete, CFG becomes tradeable within the Omnipool. Sender, i.e. Centrifuge parachain sibling account (7LCt6dFsJVukxnxpix9KcTkwu2kWQnXARsy6BuBHEL54NcS6), is set as the LP position holder so it can control the position via XCM Transact calls.

Background

What is HydraDX?

HydraDX is a next-gen DeFi protocol which is designed to bring an ocean of liquidity to Polkadot. Our tool for the job the HydraDX Omnipool - an innovative Automated Market Maker (AMM) which unlocks unparalleled efficiencies by combining all assets in a single trading pool.

Video content:
Kusamarian - HydraDX overall
Kusamarian - HydraDX usage & efficiency

Change or Improvement

This is a follow-up to the previous proposal to open HRMP channels (RFC: Open HRMP channels between Centrifuge and HydraDX), where this topic was partially discussed.

This action will improve the UX of users who will have the ability to trade CFG and use all the other unique perks of Omnipool listed below.

Alignment to the Mission of the Centrifuge DAO

Cross-chain communication and cooperation is one of the core principles of Polkadot. Both sides, the Centrifuge DAO and HydraDX DAO, will benefit from moving this proposal forward. With growing liquidity and number of listed assets in the HydraDX Omnipool, everyone will be able to gain access to a decentralized, permissionless and frictionless way to trade (or accrue value of) CFG with high capital efficiency and low slippage.

Benefits for CFG holders

Users will be able to trade native CFG within the dotsama ecosystem, no need to use CEXs or bridge to Ethereum anymore.

Omnipool will allow:

  • Trading CFG vs. any other asset in the Omnipool (currently HDX, DOT, DAI, ZTG, wETH, iBTC, wBTC, native USDT + a lot more in the pipeline)
  • Single-sided LPing

In a very short-term horizon (expected May 2023):

  • DCA (dollar-cost averaging)
  • Liquidity-mining
  • Dynamic fees

In mid-term horizon:

  • Stableswap pools
  • Order batching

Note: Non-native dotsama assets are bridged to the Omnipool through Wormhole

Docs:

4 Likes
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Good day jgreen
Thank you for posting this proposal.
Could you please provide more detail about the amount requested?

Also could you please indicate in your proposal the beneficiary wallet address (CFG/Substrate)?
Thank you.

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I think this proposal is good for centrifuge token holders for two reasons:

  • the CFG in question will remain in possession of our treasury, and since is not used for liquidity mining incentives it will not cause a downward selling pressure on the CFG token
  • listing CFG on Hydra will allow our users to swap it directly for any other asset in the omnipool (BTC; ETH; DAI and more coming). Note that this is not possible in traditional DEXes as it would require opening a pool for every different pair (e.g. CFG/ETH; CFG/BTC; CFG/DAI…) - this would be much more expensive for our treasury as would require a substantial amount of tokens to be used as an incentive to gather and maintain such liquidity

Given CFG daily volume and liquidity of other tokens listed on Hydra, starting from $100k worth of CFG is more reasonable imo and our community can decide to increase the position over time as we gather more data on trading volume

4 Likes
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Sure, happy to answer. The amount roughly corresponds to $500k and was indicated in initial discussions as the right amount of initial liquidity, in the sense of achieving reasonable slippage (i.e. price impact on trade).
Also needless to say, we have a soft spot for memes and number 2, which looks like a snake.

To your second question, as I am not familiar with your minting process, it would be better if you actually indicate what CFG account should be used to mint on Centrifuge chain. Important thing is it is should be a keyless system account such as our sibling account or your treasury, so only governance can operate with minted tokens in case anything goes wrong with the subsequent xcm transfer itself.

1 Like
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Thank you, but would be nice to provide more details about the amount requested for our community.

This one works fine: Subscan | Aggregate Substrate ecological network high-precision Web3 explorer

I just checked and i was able to transfer CFG tokens to modlomnipool wallet address - Subscan | Aggregate Substrate ecological network high-precision Web3 explorer

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Thank you, your support is greatly appreciated!

Although it is possible to start lower and add more liquidity over time, people (or aggregators) will naturally choose to trade on the most efficient platform. This efficiency comes from the liquidity depth, so the initial amount plays a significant role in aquiring the trading volume.

To put some perspective on this, on $1000 trade you currently get:
USDT/DOT ($465k liq): 0.26% slippage
USDT/iBTC ($298k liq): 0.38% slippage
USDT/ZTG ($172k liq): 0.62% slippage

@ImdioR Hope that gives some clarity, ultimately it is indeed up to the community what price impact we will be aiming for.

2 Likes
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This could be a super exciting proposal for Centrifuge :cyclone:

It’s an interesting time, with the Stellaswap proposal also in RFC, but comparatively it appears that incentivizing LP tokens with CFG rewards is a questionable move for the Protocol.

Thanks for clarifying the benefits @nicolo. Given your knowledge of DeFi and understanding of CFG token-economics I would be inclined to follow your lead. As pointed out the starting point of 2,222,222 CFG or 500K seems too high and the rational of 2s looking like snakes is v cute but not at all substantial :slight_smile:

@jgreen you say that only more liquidity brings efficiency, but that also 100K could be on the cards if that’s what the community wants :thinking:

@nicolo can you expand on why the daily cfg volume and liquidity of other tokens on Hydra help 100K be a good initial amount?

2 Likes
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Good day @jgreen

https://app.hydradx.io/liquidity

Omnipool trading volume data:

  • iBTC: 24h volume $243.83
  • DAI: 24h volume $24 594
  • DOT: 24h volume $13 474
  • ZTG: 24h volume $222.32
  • HDX: 24h volume $11 529
    DOT pool liquidity: Value in Omnipool $465 541
  • Could you please provide average daily, weekly, and monthly trading volume data for ZTG, DOT liquidity pool?
  • Could you please indicate the initial liquidity provided and the date of launch for DOT, ZTG, and iBTC Pool?
  • Could you please provide more information about the OTC market(is it working or this is just beta feature)?

Thank you.

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hey sirs,I’m part of the hydradx community, as some questions are public knowledge, I’ll try to answer some of them, if you don’t mind @jgreen

The Launch of iBTC and ZTG was 23 days ago, on April 12
2M of ZTG tokens
and 10.29 iBTC ( these were bought via the OTC market , with the HydraDX POL through governance)

With DOT the launch was at the beginning of Omnnipol on January 7, the initial liquidity was the equivalent of $50k and now the community is the one who has raised the liquidity to $484k

It is working and thanks to this, new iBTC and USDT native liquidity was brought to the ecosystem, since the HydraDX community acquired through POL and OTC, 2M of usdt and 10.29 iBTC ( swapped from DAI and WBTC at premium rates)

Any token that is registered in the HydraDX Chain (and logically has an HRMP channel), is already enabled to use this OTC function and request an swapfor any other token and at the price decided by the user, even if the token is not tradable in the Omnipool

2 Likes
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Good day jrafaelangarita
Thank you for your reply.

2,222M CFG tokens with 0.23$ for 1 token correspond to over $511,000 in CFG tokens.

DOT is a more tradable token and much more requested CEX/DEX. So I wonder about the big liquidity difference between DOT and CFG ($50k vs $511k) pool. Any explanation about the 10x difference?

Agree with @nicolo that the pool could be launched with a much more reasonable liquidity volume.

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Hey @ImdioR In the case of us, our initial launch of Omnipool was with a very low TVL (125k) in order to gradually add liquidity for security reasons

now that the Omnipool has been running for some time without problems, thing that in the last Referedum regarding the POL, it was discussed to buy and add as liquidity 1M$ of DOT

so the situations are different, I hope it can be understood

but as jgreen said above, the final decision of the CFG amount is up to the community, you can use this as a reference for a slippage that the community seems acceptable

To put some perspective on this, on $1000 trade you currently get:
USDT/DOT ($465k liq): 0.26% slippage
USDT/iBTC ($298k liq): 0.38% slippage
USDT/ZTG ($172k liq): 0.62% slippage

@ImdioR Hope that gives some clarity, ultimately it is indeed up to the community what price impact we will be aiming for.

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Of course Centrifuge needs to go deep in the omnipool.
People whot got CFG from the crowdloan can do nothing with it. So i would say “Finally” CFG is going to be listed as a “native” token.

Big GO ! :partying_face:

1 Like
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Hello, as a CFG holder I agree that it is necessary to have the DEX option for CFG, I think this proposal is good, however, first it is important to analyze that this proposal is looking for a benefit for the CFG community in order to decide the amount of CFG to provide to Omnipool considering that it is an effort for the treasury.

  • I think CFG could follow the same way of DOT: With DOT the launch was at the beginning of Omnnipol on January 7, the initial liquidity was the equivalent of $50k and now the community is the one who has raised the liquidity to $484k.

  • I agree with this: Given CFG daily volume and liquidity of other tokens listed on Hydra, starting from $100k worth of CFG is more reasonable imo and our community can decide to increase the position over time as we gather more data on trading volume.

3 Likes
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Absolutely whether CFG is added to the Omnipool from the treasury, and what amount is solely up to CFG holders - our proposition of $500K worth initially is based on previous discussions around levels of liquidity and subsequent efficiency of trades. For example, $500K of CFG liquidity would allow a trade of $5,000 from any other asset to CFG to be conducted with <1% slippage - the better price execution that a buyer can get, the more likely they are to use that venue for their swaps. Therefore higher levels of liquidity generally leads to higher volume of trades.

That being said, this doesn’t have to be a one-time execution of adding liquidity and indeed CFG holders could choose to start with e.g. $100K of CFG liquidity and add more at a later date - be mindful that a single $5,000 trade would incur ~4.8% slippage with $100K.

With regards to choosing Omnipool as a destination of choice for CFG liquidity, the following should be considered:

  • HydraDX Omnipool is a Polkadot Substrate native DEX, meaning no wrapping of tokens or giving up custody of your assets to trade CFG

  • All CFG liquidity would be instantly tradable against all other assets in the Omnipool; right now that includes HDX DOT DAI WETH WBTC iBTC USDT ZTG and there are many more on the way

  • The Centrifuge Treasury would maintain custody of the CFG at all times, and therefore could be withdrawn through your own governance at any point

  • No further incentivisation of liquidity is required as the Centrifuge Treasury would be the ultimate sticky LP

  • With the DCA pallet launching on HydraDX soon, users will be able to buy/ sell CFG over many blocks at regular intervals automatically - set up the order and leave it to do its’ job. As a result of the low-fee environment on HydraDX this means that users will no longer need to “shoot their shot” and trade in large transactions, instead spreading their orders out and getting better overall price execution.

  • The DCA feature could also be used by the Centrifuge Treasury in future (more favourable) market conditions to slowly accumulate stable coins without harsh impacts on the price of CFG :eyes:

Happy to answer any further questions :slight_smile:

2 Likes
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Think the proposal by @jgreen is good for CFG holders and the protocol itself. There is until now no listing on any DEX of the CFG token and this is the best possible listing it can get in the DOT ecosystem.

  1. The Treasury / CFG holders are in charge of their position. No other DEX allows you to do this.
  2. Gain HDX / LRNA exposure by providing liquidity.

The proposed token amount is close to ~3,5% of the current treasury. At first sight this might seem like a big amount, but also inflation will be enabled with Centrifuge and as mentioned before the governors are in full charge of the position.

Fully support this collaboration with HydraDX and CFG

5 Likes
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First of all. I really like this proposal, as for me it is a big plus to get xcm-comms up to learn more about the final capabilities XCM actually provides. Furthermore, the governance control of this LP action is a must have for me.

A rather technical question:

Have you already thought about adding this account derivation to your chain?

This would allow our users to control their trades directly from Centrifuge if we allowlist the right transact. Ultimately, we should aim for not switching networks anymore.

3 Likes
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Absolutely, aligns also with remote swaps which are already planned to be added after going live with xcmv3.

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I’m a nay here unfortunately. I think the technology and potential advantages to the ecosystem are great, but I disagree with minting CFG for this purpose even if governance retains control of the funds.

This dilutes CFG and diminishes its long-term value proposition if we set the precent of minting for liquidity on third party platforms.

I think funds for liquidity should come from a different source (not freshly minted), like on-chain treasury (when it’s filled) or the Centrifuge Network Foundation.

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How is the risk of IL addressed with HydraDX?

1 Like