Update Instructions for ATOM POL Granted in Stride's ICS Proposal

Hub Proposals Signaling/Text
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Change log

  • 2024-07-24 Created initial post

Summary

This is a signaling proposal for Cosmos Hub governance to make a minor update to the instructions it issued to the ATOM Accelerator DAO in proposal 800.

In that proposal, Cosmos Hub governance entrusted the AA DAO with 450K ATOM, and instructed it to deploy said liquidity to an stATOM-ATOM stableswap pool on Astroport Neutron.

But upon further consideration, it now appears the interests of Cosmos Hub would be better served if the 450K ATOM is instead deployed to an stATOM-ATOM constant product pool on Astroport Neutron - not a stableswap pool.

This signaling proposal simply asks the Cosmos Hub to authorize this very minor change in plans.

Details

The instructions issued by Cosmos Hub governance to the AA DAO were very clear. AA DAO members are bound by those instructions and cannot deviate from them. The instructions can be found in this post on the Cosmos Hub governance forum.

But recently, Stride contributors have determined that a constant product pool would be a better fit for this 450K ATOM - not a stableswap pool.

Due to the divergence in the values of stATOM and ATOM, providing a large amount of liquidity to an stATOM-ATOM stableswap pool on Astroport Neutron would entail operational and accounting complexities that were not fully anticipated. Thus, it would be better to deploy the 450K ATOM to a constant product pool instead.

A constant product pool is the standard pool type on most DEXs, such as Astroport and Uniswap.

You can learn more about constant product vs. stableswap pools here: https://docs.astroport.fi/docs/learn/astro-pools/constant-product-pools

This proposal asks Cosmos Hub governance to update the AA DAO’s instructions from proposal 800, so that the new instructions are:

"As soon as possible after receiving the funds, the ATOM Accelerator DAO will liquid stake 225K ATOM with Stride protocol, resulting in a certain amount of stATOM.The ATOM Accelerator DAO will then provide the certain amount of stATOM it just minted along with 225K ATOM to a liquidity pool on Astroport’s Neutron deployment.

The pool will be stATOM-ATOM. It will be the constant product pool type, with the standard swap fee of 0.3%.

By providing this liquidity, the ATOM Accelerator DAO will receive a certain amount of LP tokens from Astroport. It will hold them, and not bond them in the Astroport generator contract.

In the future, Cosmos Hub governance may or may not wish to move this liquidity to a different liquidity pool. But given the state of the ATOM Economic Zone today, it appears the most prudent and responsible option is to deploy it to a constant product pool."

Final Thoughts

This kind of proposal to Cosmos Hub governance has never been made before, because Cosmos Hub has never deployed protocol-owned-liquidity before. As Cosmos Hub enters a new era involving the ATOM Economic Zone and protocol-owned-liquidity, it’s vital that we continue striving to build and maintain a governance culture of responsibility, transparency, and respect.

Even though changing the AA DAO’s instructions from stableswap to constant product may seem unworthy of a governance proposal, when Cosmos Hub issues instructions to a multisig those instructions must be followed to the letter. Any change must be authorized by governance.

Great things lie ahead! This is the very beginning of the ATOM Economic Zone. Continued respect for the institution of Cosmos Hub governance and careful attention to procedure will contribute greatly to the success of the AEZ!

Governance votes

The following items describe the voting options and their significance for this proposal:

  • YES: You wish to update the AA DAO’s instructions, so that it deploys its 450K ATOM to a constant product pool - not a stableswap pool
  • NO: You do not wish to update these instructions, and wish for the AA DAO to execute its existing instructions
  • NO WITH VETO: You 1) consider this proposal to be spam, 2) believe it infringes on minority interests, or 3) believe it violates the rules of engagement as currently set out by Cosmos Hub governance. If the number of NoWithVeto votes is greater than a third of total votes, the proposal is rejected and the deposits are burned
  • ABSTAIN: You wish to contribute to quorum but you formally decline to vote either for or against the proposal
2 Likes
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We already mentioned about these issues in a previous video, however it is still not clear because with these arrangements the AADAO will be receiving different rewards that were not mentioned in the original proposal and also not here, quoting from our previous video: “The stATOM/ATOM pool on Astroport Neutron will have some APR which will be received by the AADAO, there is no mention about this or whether all gains from the APR will be automatically added back to the pool. Furthermore, to obtain the stATOM for the pool, the AADAO would need to liquid stake a large amount of ATOM via Stride. There is also no mention about the staking rewards from staking these ATOM or whether the AADAO would keep the rewards or add all rewards to the pool also. In addition, with this liquid staked ATOM and pool liquidity provision, the AADAO may become eligible for some large future airdrops or additional rewards from consumer chains joining the Cosmos Hub and rewarding stakers, there is also no mention about these issues in the proposal, which shows a lack of transparency towards the Cosmos Hub community.”

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Before answering your questions, here’s our high-level perspective. The goal of the Hub should not be to maximize APRs or staking rewards on POL, that would be missing the forest for the trees. The purpose of the stATOM/ATOM pool is to bootstrap ATOM DeFi, which may have a huge positive impact on the AEZ, far beyond what a few % in swap fees would. However, it’s important to note that anything earned by the hub does conceptually belong to the Hub (not Stride, AA DAO, or anyone else).

With this framing, we’ll address your individual questions

Q: Where does APR from swap fees go?
A: The APR from swap fees will accrue to the LP wallet. If the LP is ever returned to the community pool, the accrued rewards be sent to the community pool along with the stATOM and ATOM. Reinvesting rewards is operationally challenging, so will not be done initially. The POL contracts may eventually be upgraded to reinvest rewards, but there is currently no plan to do so.

Q: Will the LP be bonded, to earn external incentives?
A: No. The goal of the pool is to provide deep stATOM/ATOM liquidity. If the POL is bonded and earns incentives, there will be less incentives for other LPs. This will result in less liquidity in the pool, again - this would miss the forest for the trees. The goal is to maximize liquidity depth for stATOM/ATOM.

Q: What happens with staking rewards from stATOM?
A: If Stride were to leave the AEZ and were the ATOM to be returned, the stATOM and ATOM would be sent to the community pool. So, any staking rewards that stATOM has accrued would belong to the community pool.

Q: Will airdrops be claimed?
A: No, this is complex and beyond the mandate of the AA DAO. The purpose of the pool is to bootstrap ATOM DeFi, not to claim airdrops.

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I love the clarity!

Will be yesing.

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Thanks, Stride for the transparency and detailed explanation, appreciate it and will support it with yes.

2 Likes
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no answer for these question from AADAO. would love to hear at least something. If the stride team came up with some numbers to why constant swap pool is better than stable swap pool then they should explain it better in here.
or we can just vote on what’s being told?

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how does this benefit ATOM delegators? seems your proposal results in more revenue for stride and more revenue for the validators stride delegates to, it even buys the debt of of Astroport by holding LP rewards rather than properly managing the capital validators have given stride on behalf of delegators, but it returns approximately nothing to delegators who actually take the risk.

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Why not waiting for Duality DEX this month, which is directly profitable for the Cosmos Hub ? Duality is a dedicated app, Neutron is a platform for anything.