[DRAFT PROPOSAL] Community Pool USDC deployment via Hydro

[hodlmastermeto]

Summary

This proposal aims to allocate excess USDC from the Cosmos Hub community pool into Hydro, a decentralized liquidity management platform on Cosmos, to optimize treasury utilization and generate additional yield. By leveraging Hydro’s structured liquidity deployment mechanism, the Hub can explore new financial strategies, earn tributes and rewards, and establish a framework for effective stablecoin management within the ecosystem.

Currently, the community pool holds 57,530.40 USDC, which remains idle. Rather than leaving these assets unused, we propose deploying them in Hydro’s decentralized bidding system, where various DeFi protocols compete for liquidity through incentive-based mechanisms. This will provide the Hub with valuable experience in managing stablecoins and ensuring that more assets within the community pool are working to benefit the ecosystem and ultimately, ATOM holders.

Background

The Cosmos Hub community pool primarily consists of ATOM and NTRN, alongside a smaller allocation of USDC. While ATOM has been successfully deployed in DeFi applications offering use cases such as AMM liquidity provisioning, lending, and perpetual protocols, the USDC remains unused.

Hydro has established itself as a decentralized, voting-based liquidity management platform, where DeFi protocols compete for liquidity through token-based or point-based tributes. This structure ensures that the liquidity is allocated optimally to generate the highest returns and utility for the HubHydro is a decentralized liquidity management platform that facilitates:

• Bidding-based liquidity distribution: DeFi protocols bid for Hydro liquidity and offer token-based or point-based tributes in return.
• Voting mechanisms: ATOM holders lock their ATOM on Hydro to vote on liquidity distribution.
• Proven track record: Hydro has successfully completed three rounds of liquidity deployment with over 10 participating bidders, including Nolus, Mars, Drop, Demex, Neptune Finance, Shade, Stride, White Whale, Phoenix Directive, Marginated, Inter Protocol, and Amulet.

Proposal Details

Objective

The primary objective of this proposal is to deploy the 57,530.40 USDC currently in the community pool into Hydro to:

1. Generate yield from tributes and rewards.
2. Enhance treasury diversification strategies by utilizing non-ATOM assets in DeFi.
3. Prepare for potential future stablecoin holdings in the Hub’s treasury.

Implementation Plan

1. Deposit USDC into Hydro’s liquidity allocation system.
2. Engage in the Hydro bidding process, allowing protocols to compete for the Hub’s liquidity. Notably, Nolus has expressed a clear interest in acquiring more USDC for their stablecoin lending pools, which in recent months have experienced a surge in utilization levels, often exceeding 90%. This increased demand has resulted in lenders receiving consistent real yield at approximately 14% APY. Given this strong demand and sustainable returns, Nolus presents itself as a promising recipient of USDC liquidity through Hydro.
3. Monitor and assess returns generated through tributes and rewards.
4. Provide the community with a post-deployment report on performance, feasibility, and lessons learned.

Benefits to Hub

• Tribute generation: The Cosmos Hub holders who participate in Hydro get an additional yield on their staked ATOM - so far the additional Hydro APR has been around 10%
• Yield Generation: Idle USDC will be put to work, earning rewards from various DeFi protocols.
• Treasury Diversification: This initiative will provide insights into managing stablecoin assets in the community pool which would make the Cosmos Hub better positioned to handle a scenario where the pool holds a greater proportion of stablecoins.
• Leverage Existing Expertise: Hydro has an established governance framework and experience in liquidity management, reducing the risk of inefficient deployment.

Notes

Note that this is not a request to deploy the USDC directly to Nolus or any other interested protocol: if this proposal passes, the custody of the USDC would be transferred to the Hydro committee and many Cosmos projects (including Nolus) would be able to bid on it for the benefit of the Cosmos Hub.

Also note that this is not a funding request for the development of the Hydro protocol: the Hydro team and the Hydro grant program were funded for the next 6 months via Prop 986. The USDC would remain in the custody of the Hydro committee and can be returned in full to the Cosmos Hub community pool at any time in the future.

Conclusion

Deploying the stale USDC from the Cosmos Hub community pool through Hydro presents an opportunity to generate passive yield within a secure risk framework and explore innovative treasury management strategies. By leveraging Hydro’s platform, the Cosmos Hub can take a significant step toward sustainable treasury growth while maintaining security and decentralization.

Governance

Yes: You approve the transfer of 57,530 USDC from the community pool to the Hydro committee for deployment into Cosmos DeFi via the Hydro protocol.

No: You do not approve that transfer.

No with Veto: You indicate that this proposal either (1) is deemed to be spam, i.e., irrelevant to Cosmos Hub, (2) disproportionately infringes on minority interests, or (3) violates or encourages violation of the rules of engagement as currently set out by Cosmos Hub.

Abstain: You wish to contribute to the quorum, but you decline to vote either for or against.

[Thyborg]

Thank you @hodlmastermeto - from the Hydro side, we’d love to be able to start deploying USDC. That’s in fact the most common ask from projects. It will be interesting to see if tributes for USDC deployments are higher or lower than for ATOM deployments.

[jacobgadikian]

Borg,

Do you know @hodlmastermeto ?

• He joned the fourm 3 days ago
• He wrote a perfectly structured cosmos gov prop
• You replied, voicing support for the gov prop from the guy who’s read the fourm for less than one minute

I thought that hydro was built to use atom as a POL coin because if we do that then atom number go up?

• How many times has POL caused a coin’s number to go up in a sustainable way, without an explosion like 3,3? give examples

• Why are you bullish on using usdc for this? I thought $atom was perfect

• You support this gov prop from someone who’s read the hub forum for less than one minute, according to his profile?

Gosh man, sus.

Or, is this person on the hydro team?

Who is on the hydro team?

What is the company you said you were creating for hydro called?

Where is that company registered?

How many people work there?

What are the roadblocks?

What is the ship schedule looking like?

How’s your progress been?

Please, feel free to answer those questions here:

[Prop#986] [Voting] Funding Hydro development & integrations in 2025

…but you’re wrong. @viv was posting his thoughts on the impact THIS PROPOSAL would have on the price of $atom. This thread is the right place to do that. I understand that @btruax and other informal systems team members may disagree, but if they do, they can do like any pleb and use their words like a big boy / girl. Instead, Informal Systems chose to silence the entire discussion, which is fully valid and well placed. @viv then came back and gloated that he was correct that THIS PROPOSAL …

That’s the suitable place for people to follow up on the efficacy of Hydro funding and to determine weather or not your team is living up to promises.

Borg, if you don’t want me and others to say that in fact the money is just going to informal --due to lack of a shred of proof otherwise – then you should really just answer those questions.

They aren’t hard to answer, and if you’ve told the truth, they should have good answers.

[jacobgadikian]

I love the juxtaposition between “welcome to our community” and “stick $67k in the rube Goldberg machine”

Truly an informal systems classic

[Thyborg]

Yes I know @hodlmastermeto and he pinged me on telegram when he posted so I came to leave a supportive comment. I’ve answered your questions in the other thread.

[hodlmastermeto]

Hey Jacob, I’m a part of the Nolus core team. It’s true that my profile here is new, but my handle is the same as on X. Will reply there as well just to remove the doubts. Also, as you probably know, Nolus is a Cosmos SDK chain that uses the default gov module. I’m the person who’s usually responsible for submitting proposals there so I’m quite familiar with Cosmos governance even though I hadn’t had the chance so far to publish a gov prop on the Hub. This one would be a first. I have, however, published proposals on Osmosis and on Neutron mainnet (on testnets too) Feel free to have a look at my profiles on their forums. Seems like I can’t share links here but it’s the same handle. The profiles there are much older as well. You can additionally have a look at the 250+ gov proposals that we have on Nolus. I believe this answers the question with regards to who I am and why my proposal is well structured even though I’m a new profile here.

To clear some other doubts as well, this proposal isn’t like a grant proposal (to pay for salaries and operations). It’s a proposal to deposit the stale 57k USDC from the Hub’s community pool into Hydro. From there on Nolus and literally any other Cosmos-based DeFi project can bid for that liquidity to deposit as additional TVL by providing expected yield and of course various risk parameters associated with that potential deposit. ATOM depositors on Hydro vote for their protocols of choice depending on the expected yield. Nolus is going to be one of the protocols bidding for the USDC amount. Might get the full amount, might get a portion of it or even nothing. It would make sense for us to bid since in the last months the utilization of our USDC lending pool has been quite high, we’ve had instances of over 90% utilization rates which made the yield for lenders quite lucrative. The model of Nolus is such that stablecoin pools are used for lease long positions (our borrowing product is called leasing) and volatile asset pools (e.g. ATOM) are used for shorting by the borrowers. There isn’t a (3,3) system in our design, nor in Hydro’s. That liquidity wouldn’t be handed out for some discounted token that you could stake for 100000000% APR and that would eventually go to 0.
Hope that clears your concerns and if you have further questions, feel free to ask. All in for transparency.

[jacobgadikian]

@hodlmastermeto

feel free to ask. All in for transparency.

Did @thyborg ask you to write the gov prop?

He said that the prop is a result of conversations with you.

Did you know previously that there was USDC in the community pool?