WIP: ARCx Liquidity Minting

One of the primary selling points (and motivations) of the DeFi Passport has been to decentivize the aggressive farming and dumping. This is done by rewarding those who have high passport scores with a higher APY.

Issue at hand:
However, in my view there is a better way as the presence of increased APYs for loyal tokenholders necessitates extra expense on the part of the DAO.

Enter Liquidity Minting
Instead of having project token emissions, you have emissions primarily denominated in stables.

Instead of giving away project tokens to begin with, and diluting tokenholders when the farmers dump, you’re able to give the farmers what they want directly - stables.

However, for token holders that believe in the project and thus have a high credit score, a greater portion of the rewards can be denominated in the project tokens. This means that you can reward loyal tokenholders without spending an extra penny.

In addition, the tokens saved from this endeavor can be used as a collateral for a loan denominated in stables, which will then be put in as liquidity minting rewards. This means that as long as the price of the token rises above the rate of interest, the DAO might actually make money.

The final benefit is that ARCx can also encourage usage of ARCUSD if the minting rewards are denominated in ARCUSD.

To recap:
Pros:
Improve the visibility of ARCx by creating a new model for how Liquidity Mining should be done
Attract additional DAOs to do Liquidity Minting since under this since there as significant potential savings
Reduce dilution of tokenholders
Increase usage of ARCUSD since it’ll be a LM reward

Cons:
It might be difficult to find a lender who might be able to take on the other side of the loan, however this can be worked out during discussions.

My proposal is twofold:

ARCx should work with Debt DAO on discussing how to implement Liquidity Minting for future farms

ARCx should also work with Debt DAO, beginning discussions on how to integrating Liquidity Minting as an add-on to the DeFi passport.

Would love to hear some thoughts down below, or answer any questions you guys might have.

Interesting concept - I think this could lead to faster price discovery. Could you ELI5 where the stablecoin rewards come from? Are these ARCUSD that are backed by the treasury collateral? I would appreciate a step by step picture. Are you saying the treasury should raise debt to finance farming ARCUSD (what’s the collateral)?

There’s a big assumption you made that would have to be fulfilled in order for this to work:

  1. We’d need deep liquidity for ARCUSD (some way for farmers to swap to highly liquid stables - e.g. crv.finance pool)

I don’t know if we’ve given this component enough thought yet. There’s a couple of ways to stimulate this - incentivize the pool, which creates the problem you’re trying to solve, use the new ‘bribe’ feature, or have some altruistic deep pockets provide millions in liquidity.

Andre released a piece on changing the liquidity mining game from farm and dump to farm an option for future rewards - worthwhile reading.

Collateral for the loan in stables is project tokens which is great since they would’ve been issued as LM rewards. Idea is that as the project tokens increase in value, it’ll offset the interest rate.

We’ll be the ones to facilitate the loan(we have some people in mind).

Agreed on the need for deep liquidity for ARCUSD

I’m thinking just as a working proof of concept, an initial loan can be done in DAI and the DAI converted to ARCUSD at a 1:1 ratio, with a smart contract allowing redemption.

For me, ARCUSD shouldn’t be a blocker on this topic because since it’s a nice to have versus a need to have, so the ARCUSD portion could be removed and implemented it at a later date and issue stables directly.

Also, I’m aware of Andre’s medium post, however although there’s alignment in theory, in practice people just dump options. Samuel Shadrach points this out occurring with the UMA kpi options and the Auctus launch: https://twitter.com/samuelshadrach4/status/1426836424251244546?s=21

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