First and foremost, thank you for crafting this topic, we were desperately hoping for innovation on the Hub and you’ve been able to clearly express a new vision for PoL that is interesting to say the least. We must say that we align with many of the ideas presented here, some have significant overlap with our own ideas which we had planed to release later this week ! Assuming that you now have the first mover advantage, we will take the necessary time to fully review every detail of your proposed vision, cross it over with our own and provide a comprehensive review with possible suggestions for improvement.
#1 Design Choices:
The ATOM Warz clearly mimics Curve’s architecture for its liquidity war. What concerns us in this regard is the fact that history has shown us that despite the undeniable positive effect on CRV token prices, it ended up in a deterring system undermining CRV’s governance to the profit of Convex. For context, readers can find a brief summary of this here.
We think this design choice is a double-edged sword, introducing a gamified method that has proven to be incredibly effective at generating a locked-up supply (reducing supply while creating demand inevitably shows up as a price increase). On the downside, the counterparty risk to this system is the lowered governance power and risks of unhealthy bribed allocation purely driven by speculation.
Despite these concerns, we think the Hub’s version proposed here offers significant improvements over Curve’s. The use of liquid staking token derivatives (LSTs) coupled with @effortcapital’s proposed LST tax should put a limit on this system in terms of the damage it could pose to the Hub’s main chain governance participation. At Govmos, we think the Hub’s governance is an asset we can’t trade-off for a price gain, ever.
Moreover, the proposed evolution towards the use of a dedicated LST minted on the Liquid Staking Module (LSM) could be very interesting if it allows users to retain their voting power on the Hub, as well as choosing which validator they want to delegate to. Using a separated “ATOMwarz” LST for this specific usage will also greatly improve risk management by isolating risks.
Improvement propositions:
We sincerely recommend designing this system with a dedicated LST on day 1 instead of using stATOM and then switching. This will offer much better security guarantees and will further help gather data on the usage of the system. @Stride is expected to greatly benefit from this protocol anyway; we expect most of the PoL to be converted to stATOMs before being allocated by the bidders.
#2 Proposed Parameters:
Using a weighted vATOM token based on a predefined lockup period is great to remove circulating supply while also adding incentives to a durable participation of the users in this system. In our personal proposition, we envisioned a similar system that had almost identical weights.
On the downside, you propose to use an early-stage incentive to compensate for a situation in which “no project participates.” We think every user should be aware of the risks involved in locking away their tokens, and we will definitely oppose any use of community funds to compensate for discretionary risk-taking strategies. Such safety procedures could be implemented by an internal super-majority vote for vATOM holders to decide on a global disbursal of deposits.
Regarding the profit distribution mechanism, you’ve proposed 90-10; we think an 80-20 is a more balanced approach to compensate for the risk that is inherently associated with the liquidity allocation made by the bidders. We suggest the 20% community share to be compounded as new funds allocated to the program, growing the pie over time.
Then you propose another weighted system by introducing a “security agreement multiplier” effect to the votes. We think this idea is interesting but will have to be carefully adjusted after sufficient data points have been collected. We will have to make sure this isn’t deterring other projects in the larger ecosystem to benefit from these bids.
Improvement propositions:
Adjusting the proposed revenue distribution to 80-20 instead of 90-10.
Redirecting the 20% share of the Hub as a compounded allocation to this program.
No community funds to add incentives to depositors (no public spending to subsidize private risk-taking).
#3 DAO Wars & Expansion:
Back in 2022, we shared a vision for a set of privately managed “councils” in this post. The emphasis was on the governance aspect, but we still saw huge opportunities to use these systems for managed capital allocations.
The references you made to the Convex “rehypothecation” of voting shares are very important. To us, that’s exactly the situation we would like to avoid while still encompassing the need to foster sub-sets to be created. Rehypothecation pertains to the creation of another layer of derivative financial instruments. Assuming this system will already be using derivative financial instruments (LSTs), adding another layer of dependency is an absolute veto for us. A much safer solution would require each sub-set to generate its own derivative from native ATOMs using the LSM directly. A viable model resembles the system we shared back in 2022; here is an extract of the original post which relates to this:
(you can adjust the zoom if necessary or look at the original post)
Regarding the private capital expansion you envisioned, it is similar to the Treasury Allocation Module we had in mind in our system. But there are reasons to believe that private capital will likely want to isolate risks (and therefore rewards) into separate “buckets.” This is why we thought this would be more likely to find market-fit into a smart contract environment. Still, even though we have doubts on this particular front, we are curious to see if there will be private demand for publicly managed liquidity.
Improvement propositions:
Basic risk education has to be performed to prevent the creation of derivatives of derivatives. We have endlessly commended the creation of a Financial Committee. This committee should have oversight of these complex risks and be able to act as a safeguard by calling Hub’s governance if they see inappropriate and dangerous risk-taking.
Conclusion:
The proposition to create a liquidity market to allocate community funds is fitting perfectly with our models. We had plans to release an application system that had many similarities to your proposition. The main differences we have relate to the private capital allocation part, which we see fit in multiple isolated smart contract environments more than a central weighted governance-controlled place.
Nevertheless, the vision you shared is well thought out, and therefore we will support it instead of creating a parallel thread. The creation of a public liquidity market is an absolute necessity to us. It was part of our “Cosmos City” modeling taking inspiration from ancient city designs:
Source: Cosmos Ecosystem : A permissionless B2B2C network.
Your PoL allocation system would match the public liquidity market (1), secured by the Hub’s governance (the blue coloring influence), in contrast to the city’s free-market place (Osmosis). @Neutron serves the administration (5) with its smart contract capabilities and the forthcoming AATs currently built by @Noam and Binary Builders. The temple (4) would be @Stride, where the political representatives are elected (interchain governors which we will soon propose a model in this forum). The docks (6) are expected to be Noble, connecting the city to the rest of the world via its asset issuance. The sub-set more “private” vaults we mentioned in this post corresponds to the craftsmen (3), building more complex financial products. Lastly, there’s the patriciate (8) which is entitled to high net-worth gated managed money, something we’ll touch on in the future.
To conclude, we think this proposition is a perfect fit. We proposed a few modifications in the design and some weights. We hope the proposer will take them into account. We also look forward to other contributors’ feedback on this crucial matter for the Hub. The more people get involved with this proposed system, the brighter the future for ATOM, the AEZ, and also the general Cosmos Ecosystem city!
On behalf of the entire PRO Delegators’ team, we thank you for reading!
