Soooooo, we just got ~32m USD airdropped into the Hub’s Community Pool account. What do we do with this? I was hoping we could use this thread to discuss a few ideas. We have some rules to stick to:
Do no harm to Neutron
Use the tokens to benefit both the Hub & Neutron
We don’t have to make any decisions right now, but I think it’d be good to explore a few options.
Before we get everyone to jump in and say “airdrop it to ATOM holders!!!”, let’s cover the math on that for a second. There are currently ~243m ATOM tokens staked, and we received ~42.7m NTRN tokens. That amounts to ~0.17 NTRN per ATOM, or at current prices, roughly $0.13 for each ATOM you own, which is kinda like earning ~1% interest on your ATOM. I personally think that wouldn’t be the best use of this money. Furthermore I think something like this breaks the rules laid out in prop 835, the ones I quickly summarized above.
So what can we do? Four things come to mind:
Use some of it for Liquidity-as-a-Service: we have a chance to increase NTRN / ATOM liquidity on Astroport, Osmosis and other DEXs. More liquidity = more frictionless economy in the AEZ. This also ties into the ATOM as interchain Money narrative. Stride made an interesting proposal on how to approach this and what the benefits would be here. If Neutron is willing, I think we could figure out a mechanism where the LPed NTRN tokens would allow the Hub to maintain its voting power. The AAT would be part of that mechanism.
Use some of it to pay validators: a common concern with consumer chains right now is that the operational costs that validators incur aren’t being covered by the revenue generated. We could set aside a portion of the NTRN tokens and set a time period (3 years?) in which we pay out a flat fee to each validator in the active set. If we were to aim for $500 a month per validator, we’d end up with a total cost of 3.24 million USD over the course of 3 years. Something I think is quite manageable.
Use some of it for grants: I’m personally not quite sure about this one. We already have the Neutron Grants program and the AADAO on our side. However, I could imagine that there would be scenarios where developer funding similar to the recent Informal/Hypha proposal could be partially paid out in NTRN in order to further incentive-align teams with the larger AEZ.
Buy-back ATOM in the bull market or convert some to USDC: Due to Neutrons low market cap and weaker distribution, it’s not unlikely it will outperform ATOM in terms of percentage gain within the next year. Buying back ATOM would allow some of that to affect the ATOM price. But something I’m more passionate about is the opportunity we have to convert some of this to USDC in order to cover our USD-based costs in the next bear market.
I’m sure I’m missing a few ideas here. What are your thoughts?
NTRN/ATOM liquidity pools and then in about 18 months start to convert to USDC. Fund the smallest validators with the fees generated from LPing. No grants.
I agree about the same amount for each validator, since the costs are similar for all validators. The specific amount needs to be discussed, and whether this is just for Neutron costs or for other consumer chains. Potentially, the top ~50 validators could be excluded and a higher amount given to the rest of validators. The top validators have large revenues, more than enough to cover consumer chain costs, the costs issue is for medium/small validators
This idea is also interesting. Because in the next bear market there would potentially be many consumer chains. An USDC amount to cover the AEZ costs for validators for the next bear market seems like a necessary risk management
I think this is timely conversation and will go ahead and do a brief brain dump :
First and foremost, relationships are repeated games and as such it’s in the Cosmos Hub’s best interest to use it’s NTRN in a way which is long term aligned with it’s own interests - growing ATOM as money and the success of ICS - which were what led to the airdrops reception in the first place. Thinking about this as a repeated game makes me weary of anything that can be viewed as adversarial since 1) it’d discourage future participation in ICS and the AEZ and 2) it’s directly against the ‘no harm’ clause that was specified as part of the transfer. Now some more specifics.
Use some of it for Liquidity-as-a-Service: we have a chance to increase NTRN / ATOM liquidity on Astroport, Osmosis and other DEXs. More liquidity = more frictionless economy in the AEZ. This also ties into the ATOM as interchain Money narrative. Stride made an interesting proposal on how to approach this and what the benefits would be here . If Neutron is willing, I think we could figure out a mechanism where the LPed NTRN tokens would allow the Hub to maintain its voting power. The AAT would be part of that mechanism.
I think this is something that’s incredibly exciting for both Neutron and the Cosmos Hub. Stride’s proposal that you linked is particularly well thought out and also incorporates Stride’s success. I think if the POL was used on Astroport on Neutron, a voting vault that retains governing rights would also still be in the question although I’m not sure whether the same would make sense for Neutron to incorporate if it was liquidity provided elsewhere as it’d signal a lack of governance alignment.
Use some of it to pay validators: a common concern with consumer chains right now is that the operational costs that validators incur aren’t being covered by the revenue generated. We could set aside a portion of the NTRN tokens and set a time period (3 years?) in which we pay out a flat fee to each validator in the active set. If we were to aim for $500 a month per validator, we’d end up with a total cost of 3.24 million USD over the course of 3 years. Something I think is quite manageable.
I know a few Neutron contributors are working on a forum proposal for this right now. I’ll wait for them to post it but I think it’s definitely something worth doing. I would say that it makes sense to allocate this on a shorter timescale as it’s likely Neutron’s validator set size will decrease when opt-in or top-N ICS is available and so only Neutron validators should receive the ‘UBI’ stipend (shoutout @velvetmilkman@VelvetMilkman1 for the first UBI proposal I saw).
Use some of it for grants: I’m personally not quite sure about this one. We already have the Neutron Grants program and the AADAO on our side. However, I could imagine that there would be scenarios where developer funding similar to the recent Informal/Hypha proposal could be partially paid out in NTRN in order to further incentive-align teams with the larger AEZ.
I generally agree that while grants are an option, we have grants programs that exist. It could certainly make sense to do a joint program between AADAO and the NGP (Neutron Grants Program) if properly organized.
Buy-back ATOM in the bull market or convert some to USDC: Due to Neutrons low market cap and weaker distribution, it’s not unlikely it will outperform ATOM in terms of percentage gain within the next year. Buying back ATOM would allow some of that to affect the ATOM price. But something I’m more passionate about is the opportunity we have to convert some of this to USDC in order to cover our USD-based costs in the next bear market.
I tend to think this is a bad idea. Firstly, it’d signal short-term alignment between the Cosmos Hub and it’s consumer chains as it doesn’t seek to grow the ecosystem and instead just install finite, short term buy pressure. Future consumer chains will also be deterred from similar agreements if they see that this is a viable option. To your point about performance as well - NTRN has outperformed ATOM on almost every time frame this year so I’m not sure your claim is true about ATOM, although it might be self fulfilling if this action is taken. I also don’t think this is a bug in ATOM - ultimately ATOM is money and money is supposed to be stable. I’d also point out that this doesn’t seem aligned with the ‘no harm’
clause mentioned in the proposal to transfer the funds in the first place.
What is the general consensus in investing in businesses other than online blockchain apps? I think there is a huge opportunity to build DAO businesses that are more in the manual labor / robotic and automation sectors with a management structure.
Construction
Lawn Care
Window Cleaning
Mobility
…there are others.
There is obviously business development work and overhead associated, salaries for management team ect… with this strategy, but profit sharing and experimenting with this strategy would be an interesting social experiment. Part of the business development could include contacting business already established and invest in autonomous equipment with legal agreements on what the profit sharing structure would look like.
Just throwing this in, but David has a simple solution. We can afford to be patient with this big warchest and make calculated decisions that enhance the flywheel we’re trying to build.
Will be good to have a diversified treasury of blue chip projects.
The focus of these funds should be long term alignment, and continuing to deploy useful liquidity throughout the AEZ & Cosmos ecosystem.
Although this could be a boost to things like validator revenues to help some of the smaller operators like myself and fund more grant proposals, I do not believe we should pull the trigger too early and spend too much on short term initiatives. We would hate to look back and regret it if the funds meant for the hub to see long term alignment with the upside of Neutron were all spent in the early days. The $3M number for validator subsidies actually doesn’t seem like too much of the total especially over a few years, so as long as we responsibly choose a number and a distribution process to not add too much sell pressure. Validators using the soft opt-out would probably need to be ineligible for this payment if we do go this route.
It does make sense to spend some of these funds, but I am largely in favor of deploying this liquidity in useful ways that doesn’t relinquish ownership from the Hub. We have the AAT coming which will allow for a more flexible and comprehensive deployment strategy. Timewave will be a boon to this as well. Any ATOM buybacks or USDC conversions may hurt the value of the token if not done properly. AAT & Timewave management would probably be preferred here as well.
Maybe its broken into 4 groups: Short term needs (Neutron specific grants through AA, neutron related funding prop), Validator subsidies, AAT deployment, and Strategic Reserve.
Would be cool to get that voting API and start voting soon too .
A. Airdrop to atom stakers - makes little sense, agree.
No benefit to Hub nor NTRN
B. LaaS NTRN/ATOM. Do we need it now? NTRN does not have much economic activity. Providing liquidity seems premature. And impermanent loss would be massive if either of tokens do not move same. Liquidity without loss could be interesting.
LPing benefits NTRN more than the Hub as it takes the loss.
C. UBI to validators. WHY? Validators are businesses and they accept to be part of ICS, if can’t make ends meet they should exit. Revenues should be assessed including revenues from Hub as it is one pool. Makes no sense to separate. If we need to support, means NTRN should not be on Hub. Also, if we haven’t received NTRN on Hub, we would not talk about it at all. So this is ‘nice’ to have than a must.
This benefits NTRN, damages Hub by extracting value from it as a cost with 0 upside.
D. Grants are good if we can create value for both NTRN and Hub. We could choose some niche that is not covered by other grant programs. Grant to create economic activity, not just spend. Ie, on vals.
Win for NTRN and Hub
E. Converting some to USDC makes sense assuming we have USD costs to cover (investment/ grants). Otherwise makes sense to hold NTRN and be financially aligned.
My thoughts:
We do not need to spend if spending does not create clear value or certain economic activity. Ie, bring users/ create tools etc. Spending just because we have NTRN sounds bad idea. We can consume or create value or just sit in NTRN to capture value from it’s growth.
My usage of a double negative may have been confusing. I also believe NTRN will outperform ATOM, specifically in a bull run. But the presumed higher volatility makes me believe it will also depreciate faster than ATOM come next bear market.
However, I think USDC conversion could still fit the do not harm Neutron rule. I mean, it’s a tough rule if we imply that any negative (like affecting NTRN price) couldn’t be balanced by a stronger positive (more funds available during a bear market).
I generally consider this approach as a sensible financial management tactic to employ. Imo the same should be done with ATOM (convert some to USDC in the bull market). We see foundations of any blockchain ecosystem do exactly the same thing, and I think we have a unique opportunity here to see if this amazing ATOM governance experiment could achieve similarly rational financial goals.
We could also consider buying back NTRN in a bear market with the USDC we saved, which I believe would be a net win for all stakeholders.
My 2 cents:
It has to be used solely with the benefit of NTRN and ATOM in mind.
provide flat fee for each validator in active NTRN set excluded 50 top as @Cosmic_Validator suggested
provide liquidity as a service. This will be beneficial and stabilising for the whole Cosmos ecosystem. maybe exclude Osmosis because they are already getting 900k ATOM prop 585 and pStake - 600k ATOM prop 853 for exactly this purpose. Because this will bring back fees to the ATOM hub this will cement the close relationships between ATOM and the rest of the cosmos and is in line with the service provider ATOM theme, same as prop 583 and 585.
Extra Grants: Not good idea. We already have the normal grants and comm p grants mechanisms in place. Accountability for the comm p grants as we have seen is mostly: “trust me bro”. While some grants are well spent and very good value for money for the hub/ATOM and teams/projects are sometimes very honorable and give account, experience teaches: many are not. This now sudden extra free money from the ATOM comm p without accountability will be money grabs and fights for who gets the money. Should be standard ATOM hub policy in general: before any grants (comm p or otherwise) => accountability first.
Buy back ATOM in bull: not a good idea: pure speculation => IF bull market, then IF after that next bear market… I dont know, you dont know, nobody knows. In stead of speculation => put the amount in fundamentals.
My usage of a double negative may have been confusing. I also believe NTRN will outperform ATOM, specifically in a bull run. But the presumed higher volatility makes me believe it will also depreciate faster than ATOM come next bear market.
Ahh yes I was confused by your double negative.
However, I think USDC conversion could still fit the do not harm Neutron rule. I mean, it’s a tough rule if we imply that any negative (like affecting NTRN price) couldn’t be balanced by a stronger positive (more funds available during a bear market).
I have a hard time seeing how selling NTRN to hedge because it’s going up more than ATOM is not harmful to NTRN. I think it communicates the wrong things for how the community sees its partners. But if for example, it was instead going to fund a grants program to expand ATOM’s use cases on Neutron (e.g., an ATOM and stATOM backed stablecoin), I’d say you’re probably right that this doesn’t break the ‘no harm’ clause (or if it was used to fund validators operating Neutron). But this isn’t really what you proposed to be fair.
I generally consider this approach as a sensible financial management tactic to employ. Imo the same should be done with ATOM (convert some to USDC in the bull market). We see foundations of any blockchain ecosystem do exactly the same thing, and I think we have a unique opportunity here to see if this amazing ATOM governance experiment could achieve similarly rational financial goals.
I’m all for rational financial management. I opened my original comment comparing the Cosmos Hub and Neutron’s relationship to a repeated game (where reputation and history matter a lot to long term utility). But since I would argue this is breaking a clause that the funds were transferred based on I’d say that hedging it and breaking the clause is probably not the rational move because of the implications moving forward. I’d also say that if your expectation is for ATOM to not perform as well as NTRN it’d be pretty irrational to buy it back considering the community pool is entirely ATOM right now. And I agree that USDC would make more sense, but I still feel the same way about the ‘no harm’ clause.
We could also consider buying back NTRN in a bear market with the USDC we saved, which I believe would be a net win for all stakeholders.
I think it might be worth considering but ultimately this is just the Cosmos Hub playing the role of a portfolio manager for Neutron. There is considerable price impact on any trade in size so it’s likely that the execution of the trade itself would lose a lot of the Cosmos Hub’s value. This also relates to your point about NTRN outperforming ATOM because it has 'weaker distribution (~less liquidity). The less liquidity the asset has, the greater the price impact.
Tldr : I don’t think the Cosmos Hub should sell without a clear path for utility for both parties given the context.
I think the analogue business approach would create more economic churn than fees in providing liquidity. Billions of dollars in annual potential economic value, not to mention the additional benefit of educating outside participants about the ecosystem.
I have some legal docs and a fun marketing approach for a couple of the industries listed above.
I disagree with “exclude Osmosis”. Osmosis should be a focal point of the LaaS offering as the leading IBC token exchange. Osmosis is the exchange utilized in the Fee Abstraction Module and as such providing the most liquidity there and reducing trading spreads is important.
This makes no sense. If you are working in the best interest of the Treasury (the community pool), you absolutely must sell NTRN high and buy it low. If the community pool represents financial capacity, if you allow massive downside volatility, you impair the ability of the treasury to finance the projects you are talking about. When Noam talks about swapping NTRN for ATOM he is talking about replacing a higher volatility token with a lower volatility token which is how you reduce volatility in a portfolio. Obviously, volatility is measured against USDC (or at least most people living in the West) so when you swap to USDC, you reduce volatility to zero which is an appropriate thing to do if negative volatility is projected to increase (which it always does at some point). Generally speaking when volatility of some instrument reaches the lower 5% of the historical distribution and the instrument is trading at the high end of its historical price range, you need to start going to cash. Not in one trade but over time in small increments over a few months.
In terms of “no harm”, the Cosmos treasury must first not harm ATOM stakeholders. Neutron stakeholders are a secondary consideration. In any case, prudent portfolio management is not “harm”. “Liquidity as a service” can only be provided if you have liquidity. If you blow your financial capacity on buy-and-hold idealism, you’ll be out of the banking business at the end of the next business downturn.
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