[PROPOSAL #991] [VOTING PERIOD] Community Pool USDC deployment via Hydro

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.

5 Likes

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.

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:

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.

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

Truly an informal systems classic

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.

2 Likes

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.

4 Likes

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?

Tbh it was us who initially raised the question to Hydro about them eventually offering USDC as liquidity for bidding and that we would be more motivated to bid for that rather than ATOM because the demand is higher for USDC.

I agree with this proposal. ATOM and USDC are the most liquid assets in cosmos, and since the Hub has idle USDC, it has to use them both to support the ecosystem and also benefit itself.

Of course, it would only be truly beneficial if it was used for battle tested protocols from legitimate teams (like Nolus, Mars etc).

4 Likes

At Govmos, we believe that Hydro’s liquidity auction facility presents a long-term solution for managing multiple community pool assets. Its decentralized auction mechanism provides a structured and efficient framework for liquidity deployment while avoiding governance overload on the Hub. Additionally, the Hydro committee acts as a crucial safeguard, ensuring that proposals are evaluated with the necessary expertise and diligence.

Given this context, it seems inevitable that Hydro’s scope will expand beyond ATOM allocations. Among potential assets, USDC stands out as the most legitimate candidate for integration within the platform. While we view this expansion as a natural evolution over time, Nolus’ proposal presents an opportunity to test USDC community deployment in a controlled environment. Nolus has demonstrated resilience as a margined liquidity venue, having weathered multiple market cycles while maintaining operational stability. The lending facility it offers provides a relatively safe yield opportunity for the Hub’s idle USDC.

In conclusion, we recommend that the Hub’s governance approve this proposal with a limited initial scope, allowing it to serve as a practical use case for community fund allocation. If successful, this would pave the way for a more comprehensive and scalable framework for managing the Hub’s USDC treasury, ultimately integrating these funds within Hydro’s facility.

Thank you for your consideration.
Govmos.
pro-delegators-sign

4 Likes

I think it makes perfect sense for Hydro to branch out into non-ATOM assets like USDC. Most protocols are in need of USDC as liquidity and this is a great first start towards a future where an ATOM-aligned product like Hydro can serve a much broader user base.

I personally support this proposal :+1: Let’s get this on-chain!

5 Likes

Thank you everyone for the input!

The prop has just been published on the Hub: Mintscan

2 Likes

Im just curious. Does anyone have like a study / report of proposed / launched pools via previous governance props, that shows their success rate? Lets go as wide as the whole eco, not just the hub. Im curious how much money did these props bring into the kitty over the last 4-5 years

1 Like

I think that this is a very interesting request.

How would you define success in these cases?

1 Like

Could we have some updates on the roadmap for Hydro ?

For example, is there a plan to add a vAtom or lAtom (locked Atom) token for hydro participants ?

Right now, when you lock your ATOM they just disappear entirely from your wallets, imagine having a wallet with 100 atom, you lock those ATOM in hydro and now you wallet is literally empty, you loose full visibility and tracking, very poor UI imo.

When we lock ATOM we should receive a vToken, not transferable, not tradable, could even have no “price” , but visible. When the lock up period ends and you receive your ATOM back, vToken get burn.

Ideally, those vToken could index ATOM price 1:1 so we keep tracking and see them. From a regular user perspective, that would be so much better.

Except the 100 Devs and influencer/very active Cosmos users, I don’t see the random Joe using hydro with the current design with your entire stack disappearing

1 Like

Great question. Short answer - I dont know.

Long-ish answer: This is what governance should be focused on. Drawing up verifiable and measurable success metrics. Creating props from the community to the validators and to the team. Not the other way around (unless it upgrades, of course).

I have theories. We can measure user cost before and after. We can measure mau/wau/dau before and after. We can measure and try to find similarities in it all: price relation, user relation, social activity, dev activity, etc.

We can go more fundamental, I guess, and propose success rate as something more abstract. i.e., chain A suggests lowering inflation by 5% due to the theory that the prices will rise in the next 365 days. Has that happened? Yes, success here is restricted to each case. But…

I thought this was what governance groups could be working on. Right now, there is (nearly) 0 analytics involved in such things, beyond pure subjective interest and “look, but ada/polygon, etc got away with it.”

I dont know the answer to this. We are trying to approach the question from a validator angle and the chain angle in validatorinfo.com, So far, one thing that is defo verifiable and cross chain is the fact that each prop can be described in USD value that is voted for it. USD values can easily be compared. This kinda gives me an overview of which props were more important than others as life events. Which leads me to know who participates in keychain events. This, compared later on to % of voting power used, gives even more of an interesting picture. Right now, we are on the stage of trying to figure out which accounts can sway decisions.

Anyway, this is just an angle. I’m trying to say that if we can do this on our budget and resources, a network should be able to learn to measure and work with this for sure.

Thanks for the feedback! We’ll be sharing a Q1 report, and keep an eye out for features we will be releasing soon. We’re thinking a lot about how we can make the experience of locking and holding tokens in Hydro better.

Regarding building something like vATOM or lATOM, I think about this like an LP position in a DEX, or a lend position on a lending market - you don’t see your position anymore (sometimes you do as an LP share token, but it’s not always easy to see what base assets that corresponds to, and it depends on your wallet). Some wallets do make an effort to display this, and others don’t, it just depends.
The best way to view how much ATOM you have in Hydro is via the Hydro app, just like how even if your wallet has an integration for a DEX, usually you will have better visibility for your positions in that DEXs app directly. Longer term I would definitely be interested in integrating Hydro more seamlessly into popular wallets, but for now we are focussing on making Hydros native app as neat as we can.

Thanks again for the feedback (and for trying Hydro) - really appreciate your time for writing that out and letting us know what you think.

1 Like

Thank you for your detailed response, appreciate it :slightly_smiling_face:

I’m curious, genuine question from someone not technical at all. What is it “hard” to create the vToken ?

Seems pretty straight forward using Neutron Token factory (or creating it on Atom soon?) , create big amount of Vtoken, lock it into hydro smart contracts, give vtoken when someone deposit 1:1 , take back Vtoken when people claim back locked atom , no tradable, not transferable.

What are the technical barriers ?

Agree on this point, with the difference that you go often on your favorite DEX, to check your available portfolio, charts.. etc and you are one click away from your pools position, so it’s still kind of concentrated on a app you were already using and that you use for other things. Where, with Hydro there isn’t much to do once you locked and voted, not necessary an app you visit on a daily basis (from a user pov here).

Have a nice day

The thing that makes it from my perspective weird is that since users lock LSM shares in Hydro, we cannot really mint vATOM that are 1:1 with ATOM (because if a validator gets slashed, the LSM shares will depreciate in value denominated in ATOM, but the shares will not disappear). We could more easily mint “vTokenizedShares”, but to display these in terms of ATOM, we probably would need to work with wallet providers to make sure these are displayed properly.

Maybe I am missing something that would make it simpler, or maybe the vTokenizedShares would be good enough for users, but my intuition is that it would not really help most users.

1 Like

Thank you it does make more sense now

Didn’t Magmar say that Hydro was going to move away from LSM?
Do you have any ETA ?

Would this fix your LSM shares’s limitation you describled ?