My suggestions and priorities:
Firstly, we express our gratitude to @Noam for initiating this crucial discussion, and a special acknowledgment to @Elijah from the Neutron team, whose participation is vital in finding mutually beneficial compromises.
Our feedback centers around two key aspects: cross-chain governance and financial management. Regarding the proposal to compensate validators, we have posted our feedback in this post. Grants, in our view, fall within the domain of the AADAO and should represent a minority share of the Hub’s provisions in NTRN tokens.
In addressing governance, we appreciate some proposed suggestions, particularly the concept of a Governance Vault tailored by Neutron. This innovative approach allows Neutron tokens held by the Hub to participate in governance while remaining deposited in LPs. We recognize the complexities involved due to the underlying asset’s volatility and offer our assistance in designing such a vault, leveraging our expertise in financial risk management. Overall, we strongly support this initiative.
Turning to financial risk management and arbitrage opportunities, we advocate for a meticulous consideration of this topic. Strategies such as reducing volatility and supporting project treasuries involve professional financial management, not ideal for delegation to community voting. We’ve consistently advocated for the creation of a specialized Financial Management sub-DAO on the Hub to handle treasury allocations. It would be worthwhile to discuss potential cross-chain strategies with Neutron, especially considering the anticipated deployment of AAT on Neutron’s chain. This collaboration holds significant promise and aligns with our vision for strategic financial management.
Thank you for your time,
Keeping it as a warchest and using it as governance alignment? Bit unmoral hijacking governance with gifted tokens e hough. We should keep most and decide about this in next two years or more. We can use some for funding hub security/bounties.
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.
‘Buying low and selling high’ is not easy - if it was simple to time the market we’d all be richer. I also acknowledged that swapping into USDC would make more sense than buying ATOM doesn’t under Noam’s point. And Noam’s original point wasn’t about buying NTRN low and selling it high - his original point was to just sell it for ATOM (to induce short-term demand) or USDC (to cover bear market costs). I think defining an objective is important, which is why I said :
" 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"
Because I think the objective is important to define before deciding to just spend the tokens. If the goal is to dampen the volatility of the community pool or buy back Neutron in the bear than there should be a proposal with that objective that outlines how exactly how it achieves that and why it’s helpful within the bounds of the original transfer agreement. Selling Neutron and committing to buy it back is an option, but to that point I tried to outline the risks in trading in size :
“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.”
My main point though was that the NTRN was not allocated to be spent in a vacuum. The original proposal outlines two clauses (quoted from the proposal):
In terms of “no harm”, the Cosmos treasury must first not harm ATOM stakeholders. Neutron stakeholders are a secondary consideration.
The point I’m trying to make is that this kind of thinking (without serious consideration to Neutron) could lead to breaking these clauses - for example if NTRN is just used to buy back ATOM or if it is sold for USDC to pay for bear market costs with no consideration to Neutron’s input. If the Cosmos Hub breaks these clauses I think it’d be reasonable to say that it risks developing a reputation as an unreliable partner which will do more harm in the long run than short term volatility in my opinion.
I also think it’s reasonable to come up with some mutually beneficial ways to use the NTRN. Some things that I think meet the clauses of ‘cooperation’ and ‘do no harm’ :
But for each of these things, I think the objectives are clear and clauses are clearly met :
I just don’t think the same level of clarity can be said for buying back ATOM or selling to cover bear market costs with USDC or even selling NTRN now and trying to time when to buy it back.
I think we are more or less saying the same thing. We all agree that for the most part the NTRN will be used for LPing and then the proceeds from there will help small validators make up for losses running Neutron. Hopefully, at some point Neutron is successful enough that these losses are no longer an issue.
However, I don’t want managing portfolio volatility to be misconstrued as timing the market. There are established portfolio management strategies that use volatility (see “risk parity”) to programmatically reduce risk in portfolios that are incredibly successful and behind the success of some of the biggest hedge funds out there like Bridgewater or AQR. I would advocate for utilization of some basic risk parity strategies to reduce portfolio risk - they are very quantitative and can be automated. I think Noam views ATOM as “interchain money” or I would paraphrase that as “interchain reserve asset”, in a sense as the BTC of the Cosmos ecosystem so swapping NTRN for ATOM is a risk/volatility reduction move in his mind. Obviously, Neutron and ATOM are all crypto tokens and they all respond similarly to macro driven selloffs so selling for USDC is certainly the better risk management move if the macro cause is tightening of the US dollar money supply (via Fed rate hikes and Quantitative Tightening). But that may not always be the case - if Fed and the US government for some reason decide to pursue very inflationary monetary policies (big fiscal deficits or big balance sheet expansion) then USDC might not be the safe haven we think it is today. For example, if the Fed didn’t raise rates in 2022 and instead kept doing QE despite 9% inflation, ATOM definitely would have been a better portfolio volatility dampener than USDC. There are no absolutes in finance. It kind of all depends on the monetary policy strategy of the Fed or other central banks vs the tokens under management.
Obviously, any USDC that is raised by selling NTRN would be used to buy NTRN back later and support the price if it declines. One thing is for sure - if the treasury never sells its NTRN, it can never support its price in a downturn! You need capital to do buybacks and you only get capital by selling.
ATOM liquidity supports the following flywheel:
For the sake of this example, let’s stay ATOM is worth $10 and NTRN is worth $1. The Hub puts in 1 ATOM for every 10 NTRN into the ATOM-NTRN pool on Astroport. If Neutron doubles in value to $2 while the value of ATOM stays the same, an arbitrage opportunity is created on the DEX to shift the ratio of ATOM:NTRN from 1:10 to 1:5. This puts pressure on investors to buy ATOM so that they could use that ATOM to buy the underpriced Neutron on the DEX. This results in upward pressure on ATOM, which is a good thing!
In TradFi, swarms of analysts apply DCF analysis to businesses to ensure that every last cent of value is incorporated into a company’s share price. I have yet to see a compelling model to value cryptoassets. Even if such a compelling model exists, norms have not yet been established around pricing protocol treasury assets into a token price. This means that the tokens on the Hub’s balance sheet are not positively impacting ATOM’s price. It is only by pairing treasury assets with ATOM that ATOM will automatically appreciate as its assets appreciate.
Everything mentioned above also applies in the reverse on the way down. However, there is a big difference between the Hub holding NTRN and your average investor holding NTRN: for the Hub, Neutron is not just an investment, but also a partner. By admitting Neutron as the inaugural member of the AEZ, the Hub has a vested interest in ensuring that Neutron succeeds. The Hub should do everything within its power to ensure its partners’ success—providing liquidity is one of the primary ways the Hub can ensure Neutron’s success.
The better a partner the Hub is to its consumer chains, the higher the demand there will be from other chains to become consumer chains, which will give the Hub a stronger position when negotiating security and economic agreements with prospective consumer chains.
It is in the Hub’s best interest to pair the NTRN in its treasury with ATOM to deepen NTRN-ATOM liquidity. This will result in ATOM appreciating in value if NTRN goes up and will decrease the likelihood of NTRN price going down, thereby increasing the expected value of its investment and increasing the strength of ATOM as interchain collateral.
P.S. Rather than add liquidity to the ATOM-NTRN pool on Astroport, the Hub may want to add liquidity to the stATOM-NTRN and/or stkATOM-NTRN pools since the Hub has passed liquidity deals with both Stride and Persistence.
Btw: about Liquid as a Service part =>
I think it would be very logical when any chain (incl Osmo/pStake deals that have passed/are being voted on) gets liquidity as a Service from the hub that they accept $ATOM as gas token. Should be standard attachement to any Liquid as a Service provided by the hub deal tbh.
This will be very beneficial for the hub/$ATOM and will bring the projects/chains that request the Liquidity as a Service in much closer bond with $ATOM hub.
Hey folks,
Just wanted to share a few thoughts.
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.
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:
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’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?
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).
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.
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!).
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.
YES. We need to make sure we have a clear plan here that can go out and be executed. There are short term vs long term considerations here. The Hub is not going to do anything to harm Neutron, especially as the ties get stronger between the two chains.
This is a quick win that a small portion of these funds can easily solve. It is hard to know what this will look like far out into the future, so I agree with your propsed 1 year timeline for validator subsidies vesting. This will lessen the burdon for validators and ICS as a whole, opening up easier onboading for the next consumer chains like Noble.
Greart idea to help the coldstart problem with new but deserving projects. Do you envision these kickstart funds to come exclusively from the Hub with both NTRN & ATOM? Will Neutron DAO be contributing to these kickstart initiatives as well?
How do we balance the proliferation of ATOM as the base pair, without the Hub just granting and subsidizing liquidity for every project? It definitely makes sense for the most proven and the project with the most potential value add, but the Hub will already be deploying large amounts of capital that it has to make prudent decisions.
I would love to see the Neutron DAO contribute to these kickstart funds as well and not rely soly on the Hub’s portion of tokens. These tokens will for sure be used to help the AEZ succeed, but that should only be a portion of the funds, not the entirety.
This is very important, as the Hub is deploying liquidity in places that also can be seen as competitors to the AEZ and its protocols. The game of liquidity eventually becomes who has deep and accessible pairs for protocols and traders to leverage and support high volumes. The Hub will keep having to inject more into AEZ specific chains to overcome the head start of others on top of the large amounts of capital the Hub is deploying there as well. It is a balancing act that is not easy, but the AEZ definitely deserves heavy support as it starts to gain more momentum.
Overall, I’m very supportive of using these funds to give the AEZ a boost and provide liquidity and capital as a sort of public good. As we progress, the strong ties and continued advancement of the provider<>consumer alignment. If we align those correctly, a lot of this falls into place and the concerns are mitigated.
start learning to think long term as a network / collective:
Im unsure what is the point of anything else
I agree with @serejandmyself here. Here is what is unspoken but should be inferred…billions of dollars in annual economic churn equates to billions of dollars in buy pressure on a coin.
A line-item proposal I put together to help someone successfully win a city contract in Austin, TX:
My own cost analysis:
For assets like these, but there is more creative things that can be done:
There is more additional goals and objectives for my organization that I’ve put together in a form, there is a link there for Facebook horizons if you have a VR headset…
https://goodfaith.church/post/food-security/
and this is an alternative presentation to the same objectives.
The Neutron DAO is already doing this, see the Nolus proposal, so I don’t think it will be a problem at all for it to continue helping bootstrap these pools. The main thing is the Neutron DAO doesn’t have ATOM so for ATOM to really become a base pair, the Hub’s support would go a long way.
In terms of balancing, I think the main point is the allocations should be small (50-100k) but numerous (to create many connections/arb opportunities) just to get the pools going. Once they are, organic volume, astro incentives and others should help grow them to a point where the injection isn’t required anymore (~$1M?), at which point the ATOM can be withdrawn and repurposed.
For context, it requires approximately 500k liquidity in a PCL pool to get professional trading firms to arb at scale (which is when good volume kicks in) so that should be an interesting target to keep in mind.
