xGov Liquidity Deployment, Request for Feedback

Governance
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Hi Governors,

We would like to discuss how to proceed forward with xGov #61 Proposal, approved in the Reserve List during Voting Session 2 ended in December 2023.
As stated in the proposal (“We request grant to increase the AMM liquidity.”), the goal is to increase the liquidity of several AMMs whose pairs include VoteCoin, as proposed by @scholtz.

Let me make some initial considerations to clarify my point of view:

  • The xGov has been designed to request grants for building products for the Algorand Ecosystem, the liquidity provision is not the primary goal.
  • We are in an experimental phase, so it is understood that it’s possible to investigate other more “creative” uses of the xGov funds, if, and only if, reasonable conditions are met and no “free money rules” are applied.
  • As it was stated in the grant proposal some relevant information was missing: the duration of the liquidity is the most crucial one.

Given all those uncertainties, we have essentially two options in front of us:

  1. Declare ineligible the request because, after proper scrutiny, it is not complete and incompatible with the spirit of the xGov Grant Proposal.
  2. Explore a path that could secure the execution from possible risks.

Personally, I prefer the second option, because it can be seen as an interesting experiment that, in case of success, could be taken as inspiration for possible future liquidity deployments (at different scales) within the xGov scope.

The first clarification that I think it’s crucial, and we all should agree on, is the following:
The 32k Algo, after the liquidity deployment, must return to the xGov fund; It’s completely ruled out that, after let’s say 3 Months of liquidity provision, the funds could remain in possession of the proposer, with no clear pre-defined agreement of the final use like a gift. Supporting this weird interpretation (proposed by @scholtz ) would allow people to exploit a “loophole” to ask money for temporary use and then have the final possession, which is totally in contrast with the spirit of the xGov Framework.

If we agree on the above, this is the possible arrangement that could address and hedge some of the intrinsic risks:

  • Ludo has to pitch the Time Horizon of the investment (M = 3 to12 months range) with sound arguments;
  • We have to decide who is going to absorb the Impermanent Loss (proposal: to be shared between Ludo & AF) and the fees obtained;
  • Demonstrate willingness to not Rug Pull: as proposed in the xGov Retro Session (and supported by Ludo), setting up a Vault (Vault - Vestige Docs) with X amount of the minted Vote Coin Token: M months, the claimant is Ludo’s address;
  • X should be a sizable fraction of the 0.9B wallet (P65L ⋯ YT3U – Vestige ) calculated by subtracting to the 0.9B the operation costs for the Time Horizon M: X could be something around 0.8B, but open to discuss;
  • [not sure if it’s technically supported by AF security settings] Setting up 4 Vaults with the related LP Tokens minted through the Liquidity deployment (as proposed here): M months, the claimant is a 2 out of 2 multisig wallet (Ludo + AF).
  • After the M months, the funds must be returned to the original xGov address, for future uses.

Please share your thoughts about this proposal, if you think we should proceed and in case what could be the necessary arrangements for a reasonable and safe execution.

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We have a program in place to incentivize liquidity, the TDR (targeted defi rewards), so why is the foundation supposed to supply liquidity to non-critical pairs? On top, xGov funds are pretty small right now so this definitely feels like a waste of funds and will lead more projects to try that (as can be seen this period where multiple other projects try to do the same), which would lead to xGov turning into a “vote for my favorite token to receive liquidity pls”.

So I don’t think these kind of proposals are the right fit for xGov.

Reading through your idea of “hedges”:
Why should those vaults multi-sigs be a 2 out of 2? This sounds like an easy way to keep the liquidity for the proposer. Yeah AF would hold a significant portion of the tokens but who cares really? AF won’t rug themselves probably :smiley:

And in this particular case: I have to this date never heard of a single person owning VOTE or using the platform. The metrics for that token just look good because arbitrage bots use the VOTE-ALGO and VOTE-USDC pairs. Ludo continues to argue that this is value that VOTE adds but adding liquidity to ALGO-USDC would have an even better effect so it’s just wrong imo.

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Considering he managed to get allocated the funding before this was even a rule, I believe it should be given as is and stopped moving forwards.

It pains me to say that, but we can’t be doing revisionist history and your second option gives me the willy nillies.

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even if they wanna honor that vote they cant just gift him ALGOs, so there needs to be rules imo

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Option 1 must be followed.

There is simply no way to prevent the token for which liquidity is being provided from being dumped into the liquidity by known or unknown holders. This holds true even if liquidity is provided for a single block.

This is not a comment unique to VoteCoin or Ludo. It is a general comment that I would make for any token with the only exception being globally-recognized and regulated stablecoins or money tokens.

The only reason liquidity should ever be provided into constant product AMM (CPAMM) pools is for stablecoin pairs to minimize slippage when trading tokens that should theoretically not be fluctuating in value and for which AMM trading becomes uneconomical without padding liquidity.

The whole premise of the proposal to add liquidity to VoteCoin—“Better swap prices between algorand, bitcoin, usdc, and gold”—is deeply, fundamentally flawed. The only reason any trades go through VoteCoin pools is because automated swap routers scrounge for any paths they can find to spread trades across CPAMM pools and minimize price impact. And any benefit to the ecosystem by putting liquidity into VoteCoin pools would be better applied as direct liquidity for pools for the named assets if the stated objective is to improve AMM swap slippage for those assets. And in either case temporary liquidity on this scale adds minuscule value for the broader community. In fact, the amount of time AF has spent evaluating how to handle this proposal has already far outweighed the value this liquidity would bring anyone.

Shut this down, chalk it up as a lesson learned that improved the xGov pilot, and move on.

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Let me recap the whole issue.

First of all, the Vote Coin token has been harmed by the pact.fi targeted distribution program. Vote Coin DAO members have lost more than 40k algorand because of unfair decisions from pact and ignarance from the AF.

This fact has lead to request assets as grant to Vote coin DAO using the grants program. We have dedicated the use of this funds to be used in the liquidity in low LP fee pools (0,02%) . We have discussed the proposal also on Mega AMA.

It is not true that we do not provide service to algorand ecosystem with this grant. The low fee pools incentivization helps every person who performs swaps on algorand to get better quotes.

So we wrote the proposal, and it has been reviewed by algorand foundation. It has been passed to general voting as it complied with all rules.

Then expert governors have voted for it, and onchain voting result was that it has passed.

After the voting has been finished, there was a twitter space where Michele suggested that he liked the liquidity deployment idea and asked if we have some time horizont and if we want to lock the liquidity in the vault. I have stated that we do not have any problem with locking the lp tokens in the vault, and that we want to keep this liquidity there for 3 to 12 months. I had no idea that Michele believed that it should be the lending back then.

Last week I had next meeting with the Michele and he tried me to persuade that the grant request was written as the lending of algos to the vote coin dao. I have explained myself again that this is not how it was written, nor how it was meant.

I have noticed that AF has changed the rules for the xGov session #3 after our meeting, and specified the topics for which the funds may be used. We welcome this change and we adjusted the proposals for xGov#3 session in this regards. However different rules were set 5 months back.

We have done everything according to the valid rules, algorand has approved this grant request to go for the voting session and expert governors decided that the grant should be approved. Now Michele on his own decision wants to overrule the collective decision and in my opinion it is very bad move from the algorand foundation. AF should move more to decentralized manner. If algorand will be managed by few people in power or few people on tha algorand forum, this will not shed good light on the foundation.

This proposal has been voted by 1314 unique algorand addresses. I would like not to see the algorand foundation create the precendent that it may reject any proposal for anyone anytime after the collective decision has been made. If they really did not want this proposal to be passed they had option not to put it up to vote for governors.

So we propose the option 3) Please execute the grant proposal as it was voted on by the governors.

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And Michele… I dont understand why you wrote it this way.

I have clearly stated on our meeting (and at least 2 emails) that we do not want to do lending of algos to support the liquidity from the xgov funds, so it means that option 2 in your statement is obsolete.

We have discussed that you will write to the algorand forum and ask if people understant the grant request as a grant or as a lending of algos. Its quite unfair from your side that you asked it as absolute question (options 1 or 2) when we have already expressed ourself that lending is not ok and it was never meant to be that way.

If you want to lend us money to support the liquidity we are open to use the same channels as you use with other projects. (But i assume this is not under your budget but your CFO department)

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Where do I find the duration to be a requirement? Is it somewhere in the ARC-34?

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There is no requirement… it was after the voting session has ended, and there was a xgov feedback twitter space that Michale came with the idea that it should be in vault and that it should have time range…

So basically the proposal was approved without any duration, but in good faith we proposed that the funds received by the vote coin dao should be in the liquidity for at least a year.

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Ah thanks. If that’s the case and AF can add requirements after a voting session then I see no reason getting involved in the discussion.

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And 1,273 unique addresses voted for the mock proposal. Your stat confers very little in the way of legitimacy to the voting outcome.

We can all see straight through the disingenuous logic about improving swaps for people. Spare us the routine.

Don’t hide behind the vote and act surprised like you didn’t know AF was manually administrating the process by their rules all along.

I think AF is trying really hard in good faith to honor the proposal despite how vague and inappropriate it was, but there are limits to what they can permit legally and you pushed them here.

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382 accounts has voted for the proposal if we clear the accounts which voted for it with less then 5% of their voting power.

It is much greater number then 5 accounts on the algorand forum.

If I do not see some legal implication why this grant should not be approved as it was approved by onchain voting, please be more specific. If this is true it is serious, but it has never been mentioned by them that it is legaly not possible.

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I believe Algorand MUST approve this grant. They have proposed the rules and they have allowed this to happen. If they wanted to deny the use of grants for the direct purchase of tokens, it would have been in the rules a long time ago.

With the AF decision to put it to the voting session and see how the experts will decide, AF made the decision. It is very, very bad to act retroactively and override the on-chain voting decision just on the premise that one person did not understand the proposal properly.

If the Algorand Foundation disregards the rules and system they created and does not follow the entire on-chain community decision, I will lose my trust in xGov and the xGov management.

@trekianov I read the grant proposal as the grant (same mechanism as all other proposals) not the lending of algos.

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xGov should be focused on funding products that generate transactions in the future on blockchain. Request for providing liquidity should not be included as part of the proposal. In the case of vote coin please transfer the requested funds to the requester and ask him to lock the liquidity in vault for x number of years and show proof to the community. Algorand staff should not spend their valuable time managing this.

in the future please don’t allow liquidity funding requests.

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The xGovs are intended to give grants in exchange for a deliverable, in your case the deliverable is liquidity. Fine, we want to give liquidity but you cannot say that the liquidity can stay there forever, so what happens after? Free Algo for you in exchange for nothing?
The real question that you are not answering is: what are you doing with the 32k Algo when the liquidity is terminated?

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It was requested as non-refundable grant, the same as all other proposals.

The deliverable is the liquidity at AMM pools. And the service provided is better quotes when swapping. I dont get it why you still saying that we get free algos for exchange of nothing.

After for example one year, the Vote Coin DAO decides what to do with the assets further. I expect that it will stay in the liquditity much longer.

Let me explain also other aspect of this grant proposal. All other grant proposals are requesting the funds to deliver some work and this creates the sell pressure on algorand price as the wages must be paid and people need stable money for their salaries. However this grant request is one of few that does not create sell pressure on algorand token.

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Let me stress that your answer to my question:

what are you doing with the 32k Algo when the liquidity is terminated?

is

the Vote Coin DAO decides what to do with the assets further

This is not the goal of the proposed grant, so you also confirm that the purpose of the grant TERMINATES after the liquidity.

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chill, no need to insult someone just because they have a different opinion than you. that helps not at all

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@SGen This is the place for exchanging ideas and opinions, not insults

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The rules where not clear. As per the rules laid out in ARC34 at that time, the proposal has passed. If there is no time-frame mentioned in the proposal, let the proposer state a time-frame and lock the liquidity in a vault for that time period.

This will be inline with community funding ethos. As ludo has more proposals for future development of the projects, it is upto the community decide.
AF team members should not make a decision on this as rules were not clear.

In the future, we can make sure that liquidity proposals are not entertained.

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