What do we do with the Neutron airdrop?

Hey folks,

Just wanted to share a few thoughts.

First, Do Nothing

Keeping the NTRN in the Community Pool is a valid option, and is probably the right thing to do for most of the allocation. These tokens aren’t meant to be spent, they’re a yardstick for the value that the cooperation between Neutron and Cosmos Hub generates.

Before we do anything with the tokens, we should have a very clear objective, a very clear understanding of why deploying the tokens will achieve this objective, certainty that we’re capable of delivering on the plan, and that deploying the tokens will not harm either network but instead benefit them both.

Doing nothing with the tokens is great because it gives us the time to do that.

What are our common objectives?

I won’t go into too much details here (I likely will in another post) but I think there are a few obvious shared objectives we can rally around:

We want to continue building alignment between Cosmos Hub and Neutron.

This one is fairly obvious: Replicated Security is such that continued cooperation is a condition for mutual success. So, whenever possible, we should use these tokens in ways that improve our communities alignment and ability to cooperate. In practical terms, this means improving communications, engaging in joint initiatives but also creating the right financial incentives to ensure that cooperation is always the rational option.

As an example, validators are not yet reaching break even on the cost of their Neutron nodes from Neutron revenue. This is perhaps the largest source of frustration in the current RS set up, and I believe it should be addressed. After all, Neutron needs engaged validators to succeed, and the Hub needs Neutron to be successful to maximize its own expected value. I think this is a low hanging fruit, so I’ve created a dedicated proposal here.

We want the AEZ to become a leading DeFi ecosystem

We’d probably all be fairly happy if both ATOM and NTRN were in the top 10 on CMC. If you think that ain’t happening, remember Cardano is in there.

Jokes aside, to get there, we need to compete against leading ecosystems with strong, centralized entities laser focused on their own growth. Fortunately, we have tremendous tech, development resources, large on-chain treasuries and very engaged communitites. What we need is distribution: unique opportunities and applications, seamless onboarding flows, strong BD and better marketing.

With this in mind, what would be examples of productive deployments for the NTRN?

Help projects on Neutron bootstrap liquidity

Successful dApps generate value for the ecosystem in various ways: new tokens, new users, more economic activity etc. Engineering systems to increase the success rate of protocols on Neutron versus other ecosystems would generate additional value and create an incentives for new teams to join the AEZ.

A good first way to do this in my opinion is to create structures to help teams overcome the cold start problem. There are various approaches to this, but one that I find promising is to have a dedicated facility for helping protocols seed liquidity pools through PoL:

Once it has cleared a few criteria (audits, etc), the project provides ~100k of liquidity in its token, which is paired with NTRN from this allocation and provided as liquidity on Astroport by the Cosmos Hub for a given amount of time. This helps the protocols bootstrap but also creates a better liquidity graph and new arbitrage opportunity, which help generate activity on the network. And at the end of the period, the NTRN goes back to the program’s reserve or the community pool.

Piloting this approach with NTRN from the Neutron airdrop makes a lot of sense to me. It’s a good way to test that the program works, help protocols and the network, without requesting ATOM from the community pool. That being said, I personally firmly believe that ATOM should be the base pair on Neutron, and extending the program to include ATOM allocations eventually would allow us to ensure that happens (because ATOM would be the first asset that every project pairs with).

Client of First Resort

Another approach is to bootstrap programs through which Neutron and the Cosmos Hub become the first users of new projects. This one is probably a bit weirder to structure, but it could be a win-win: small parts of the treasury can be deployed in the ecosystem’s vaults, lending platforms, etc to generate rewards for the treasury while bootstrapping revenue (to help teams become sustainable without grants) and TVL for the projects. This also helps put them on the radar of aggregators like DeFiLlama, which helps with discoverability. For example, the Cosmos Hub could help seed the ATOM and NTRN lending pools on Mars protocol, to help bring leverage trading and leveraged staking over to Neutron and the AEZ.

Displace volume to the AEZ

The DEX game in crypto is one of volume: you want your ecosystem to be executing as much of the genuine trading volume as possible. Consolidating AEZ liquidity for key pairs would help bring this activity somewhere the Hub directly benefits from it. In my opinion, priority targets should be ATOM derivatives (stATOM, stkATOM, Lido staked ATOM etc), stablecoins (USDC, USDT, etc), BTC, ETH, TIA, DYDX etc.

Creating structures (not just allocating funds but also growing the Hub’s muscle) to enable deep liquidity to be seeded in the AEZ, at scale, for these pairs (ideally for both NTRN and ATOM, to enable circular arbitrages) could turn the AEZ into the main trading center of Cosmos pretty much over night. I would be personally happy to assist Cosmos Hub community members looking to organize for this purpose.

On the other hand, wasting resources on bootstrapping liquidity elsewhere does not make sense, unless it solves a liquidity gap (e.g. helps Ethereum user onboard to Cosmos and Neutron) or is paid for (e.g. a non-AEZ DEX gives an allocation of their tokens in exchange for NTRN / ATOM PoL → Now the Hub can bootstrap new pools in the AEZ with these tokens → more volume and revenue for the AEZ!).

Enter into PoL covenants with other leading projects

Neutron and Nolus recently bootstrapped a small liquidity pool to help the project launch on the network. With both ATOM and NTRN in its treasury, the Hub could now request from other projects to bootstrap two pools when negotiating covenants. Once again, better liquidity graph, more arbs, some diversification etc.

Anyway, these are mostly early ideas. They would need to be refined (do they meet our objectives? do we have the capacity/skills to carry them out properly? etc). One thing to note is that they can all be carried out without actually spending the tokens, which I think should be the Hub’s approach for both NTRN and ATOM.

The Hub should build a treasury, rather than spend it, because that treasury is one of the Hub’s greatest powers. It is leverage to bring projects to align in mutually beneficial ways with the Hub.

I’ll keep my rant to this for now, but as a final note, I wanted to reiterate that doing nothing is much better than doing something wrong. Time is on our side.