This proposal aims at providing at least $136.8k of STARS/USDC liquidity on Osmosis, jointly owned by Stargaze Community Fund and Osmosis Community, meaning it won’t require any incentives and won’t be subject to sell pressure from mercenary LPs. This liquidity will provide a direct route for STARS<>USDC swaps, reducing slippage and fees on STARS<>OSMO<>USDC multihop swaps.
Osmosis Community Pool to provide 64.8k USDC that will be matched by Stargaze Liquidity DAO with $64.8k STARS, resulting in $136.8k of STARS/USDC liquidity on Osmosis.
The Stargaze Liquidity DAO is requesting 64.8k USDC from the Osmosis Community Pool to the Stargaze Liquidity DAO Osmosis Address (osmo1z207wwm20g88tjc77vne38nhvpxrmz7433u3euw0mshp8ldc3xfsrhw87t). Stargaze Liquidity DAO will move the matching STARS to Osmosis, provide liquidity to pool 1228 (STARS/USDC), and manage the range as required. Osmosis Community will own 50% of this POL, which another DAO can manage if the Osmosis Community wishes. Otherwise, the Stargaze Liquidity DAO will manage it on their behalf until the Liquidity DAO ceases its term in which the liquidity will be returned at a rate of 50% of value to each community pool, or another party is decided via governance to take control.
The proposal is to gauge sentiment from the Osmosis Community on this idea for STARS liquidity on Osmosis. There is a similar proposal from Manta DAO to provide ~64k of USK on Kujira BOW, with Stargaze and Manta DAO owning 50% of the PoL.
Should the Osmosis Community be against this idea, the Liquidity DAO will fall back to using the stOSMO in the Stargaze Community Pool as collateral to mint USK, swap to USDC, to raise the required USDC for the PoL on Osmosis.
Stargaze and Osmosis have previously made a liquidity deal resulting in the Stargaze Community pool owning (if I’m not mistaken) around $1 million in STAR/OSMO liquidity. Is there some reason that Osmosis should be asked to provide USDC for this deal, other than the fact that it is available, and furthermore, is there some reason that Osmosis should provide anything at all? It would seem much more effective to repurpose the existing protocol owned liquidity.
I do commend the initiative to move PoL to a USDC pair rather than an OSMO one. Although OSMO has historically been the ubiquitous quote asset on the dex, recently more USDC pairs are finding traction as "direct’ routes, and are increasing more important since the multi hop swap fee discount was deprecated and taker fee introduced.
I am also a bit wondering where the need of this request is coming from.
Is the current liquidity not sufficient? Is the slippage on the pool to big?
Are there external incentives on the pool to attrack more liquidity? What other plans are there to solve the root cause of the issue before we go to PoL?
While STARS is a valuable asset, I don’t think the Osmosis community should rush in to using its community pool USDC for any purpose without coming up with a comprehensive framework for how this USDC can and should be used.
Unlike the community pool OSMO, the USDC in the pool is an extremely scarce and valuable resource. If the STARS price falls, that USDC will be removed from the liquidity pool and be lost. Under this proposal, this would also effectively give half of this USDC to Stargaze, which doesn’t feel like an equivalent exchange for a protocol’s native token.
If Stargaze wants to create USDC liquidity for Stargaze on Osmosis, there’s actually a reasonable path to doing this with single-sided STARS liquidity:
But as far as actually using the USDC in the pool, I think we should wait, and be more intentional about it vs handing it out as POL to the first protocol to ask (even if it’s a great protocol like Stargaze!), if that makes sense.
Problem here ofcourse is that it effectively works as an added resistance level of liquidity which needs to be sold before the price can move up again. So if Stargaze decides to want $150k of liquidity it needs to sell $75k of StARS.
But that $75k needs to change hands first to get USDC back
Yep that’s true, of course, but if the goal is to create a more liquid market for STARS I think the tradeoff is probably worthwhile.
Stars does ~300-500k in daily volume, most of which is on Osmosis. With the position set at a relatively wide-band, the market should be able to absorb that position rather easily!
I agree with Robo in that the main question I think this proposal asks is whether Osmosis wants to deploy USDC from the Community pool for protocol liquidity or reserve it for another purpose.
Stargaze is a reputable chain and previously had liquidity agreements with Osmosis, so if we are going to use USDC for any liquidity with external partners then Stargaze should easily pass that bar.
I think a single-sided mechanism is great for establishing protocol liquidity in USDC at the cost of price performance. It effectively works as a DCA for the token only when the price is increasing.
Since a STARS/USDC pool already exists and gets a higher volume:liquidity ratio than the STARS/OSMO pool then it already has the potential to grow organically. However, the volume:liquidity ratio is pretty low for both compared to what is needed for trading.
The important thing for extra liquidity on STARS is providing resilience when STARS are used as a monetary unit for NFT trading, which is already provided by the deep protocol owned STARS/OSMO liquidity. It could probably be compared more to LSTs, in that you want liquidity for price stability during spikes rather than to cater for typical trading.
This does provide a bootstrapping of USDC to OSMO trading though, which is struggling to gain liquidity to begin with as it has a large pool to compete with to attract volume. I think that if this were to be deployed then it should be:
In a lower fee pool than 1228 is
or
in an Astroport deployment that is able to change a higher fee but be more concentrated.
But the main question is what we want to use USDC in the community pool for as we have over 700k currently and growing.
Would it be possible to determine whether the liquidity in the pool would fit our definition of “enough” liquidity as we have set for the incentivized assets?
@HathorNodes given the liquidity + volume of the STARS/USDC pool and the STARS/OSMO pool, would they get / need incentives with the definition of the incentivized assets? (not saying that we should do incentives, I am just curious if the liquidity falls short if we apply the same logic here )
Pool 604: $123k (Currently $1.5M)
Pool 1096: $245k (Currently $863k)
Pool 1228: $43k (Currently $23.5k)
Note 1228 is a STARS/USDC LP and the other two are STARS/OSMO LPs. Ofc, the Stargaze Liquidity DAO may have different criteria for acceptable slippage than we do.
For non-stable pairings, we use:
25 BPS slippage for the 95th percentile of swaps.
2.5% slippage for the average swap at or above the 99.5th percentile.
So, if I understand correctly;
Pool 604: $123k (Currently $1.5M) >> has 12x more liquidity then needed to serve the current volume and still offer a limited amount of slippage.
Pool 1096: $245k (Currently $863k) >> has 3,5x more liquidity then needed
Pool 1228: $43k (Currently $23.5k) >> needs a little bit more liquidity to comply with the standards we maintain for the incentivized assets
So in essence, the Stargaze Liquidity DAO may have different criteria for healthy slippage, but there is a second party in this request. Namely Osmosis itself. And looking at the figures above there is not much need for a much higher liquidity from the Osmosis point-of-view, meaning that spending CP funds on these pools is not in the best interest of Osmosis.
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