This is a proposal for Osmosis governance to exercise its right to veto the deployment of $2m in OSMO / LUNA liquidity by Sail DAO. I’m starting this discussion early because the window in which Osmosis can veto Sail DAO proposals is unreasonably short given Osmosis’s forum discussion requirement.
Note that this is not a proposal for Osmosis governance to claw back any funding from Sail DAO.
Background
Sail DAO is a liquidity deployment subdao built on the Osmosis chain. Osmosis governance voted to create the Sail DAO as part of Proposal 708, and in the process allocated 3.5 Million OSMO to the subdao’s treasury.
The treasury’s stated purpose is as follows:
SAIL DAO will take the following Initial LP positions
1.25 mil OSMO into each ampOSMO-OSMO and bOSMO-OSMO pools
WHALE-OSMO pool (5 mil WHALE paired against OSMO at market spot ratio)WHALE ecosystem projects, or any project that wishes, can propose an OTC deal
and/or liquidity deployment with SAIL DAO, all decisions by $SAIL holders through
on-chain voting
Since the funding of the Sail DAO, It has executed on the deployment of the WHALE / OSMO liquidity and the ampOSMO / OSMO liquidity. It has not executed on the bOSMO / OSMO liquidity. It has also deployed 25,000 OSMO to a liquidity pool on Osmosis paired with ROAR, the DAO governance token of the Lion DAO, a project that started as a meme but now styles itself a treasury management DAO.
2 million OSMO remain in SAIL DAO’s treasury, of which presumably 1.25 million is already committed to the upcoming bOSMO / OSMO pool as stated in the original governance proposal.
A proposal has gone live on the Sail DAO governance forum which would effectively spend the remaining 750,000 OSMO to pair with LUNA in a liquidity pool, tapping out the rest of the DAO’s OSMO treasury.
To prevent against irresponsible spending of the community’s OSMO and keep the Sail DAO accountable, Osmosis governance retained two admin authority powers over the Sail DAO:
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The authority to veto any proposal that the Sail DAO passes, effectively nullifying it
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The “Killswitch,” giving Osmosis the authority to claw back all funding from the Sail DAO
For the reasons set forth below, this proposal seeks to execute Osmosis’s authority to veto the deployment of this LUNA / OSMO liquidity.
Rationale
It’s worth noting that any OSMO paired with unstable or poor-performing liquidity (as compared with OSMO) causes the OSMO tokens in the liquidity pool to enter active circulation. As the poor-performing token is dumped into the pool, OSMO is taken out, after which it is usually re-sold, increasing the actively circulating OSMO supply.
For this reason, it is important to be conscious of the assets with which Osmosis’s community pool OSMO is paired. Looking at LUNA, the asset carries far too much risk to justify spending 25% of the Sail DAO treasury on a pairing:
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Terraform Labs, the primary maintainers of the Terra codebase, has just declared Chapter 11 Bankruptcy, which will require significant reorganization of the company’s assets and place further maintenance of the chain at risk
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The LUNA price has fallen by 50% in the last 3 months. Against OSMO, LUNA has fallen 87% in the last 3 months. This makes future losses against the OSMO token quite likely.
Given the above facts and the fact that this would effectively utilize the last of the Sail DAO’s liquidity while placing a large number of OSMO at high risk of sustaining losses and entering active circulation, Osmosis governance should consider this spending to be irresponsible and exercise its veto power over this proposal if it goes up for voting.
