Veto the Sail DAO OSMO / LUNA Liquidity Deployment Proposal

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:

  1. The authority to veto any proposal that the Sail DAO passes, effectively nullifying it

  2. 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:

  • 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

  • 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.

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Just to add some personal thoughts outside the body of the main proposal, I’m extremely disappointed in the direction that this DAO has taken. There has been very little consideration of a long-term sustainable structure, preferring instead to spend as much of the treasury as possible in the first month and remove any opportunity for deploying additional capital without taking it from any of these existing pools.

This fund, imo, was never meant to operate as a second community pool for projects to raid in a first come first served liquidity grab. That’s what it seems to have become. :confused:

I was excited for this DAO when it was proposed because of all the potential options that this could have opened up, but in the end it looks like it was just a way to backdoor the Osmosis community pool for funding for a select few terra projects after all.

EDIT: At the same time, I recognize the DAO’s need to have some autonomy from Osmosis’s governance. This is just far too extreme. A smaller spend might make sense, but not the remainder of the treasury.

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In other words, they are not to be trusted. Next step/proposal is to claw back all funding from the Sail DAO. They won’t get another chance to mess up.

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The $2m size is too high. I agree with the logic made in this post.

This is sad to hear if true.

Have we given them an opportunity to respond? Would be nice to hear their side for me personally, before anything.

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Btw, here is where their forum takes place!

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Ah, thanks for sharing

Ouf :sweat_smile:

Strongly agree here. I was excited for a smaller subDAO to emerge and start planning reasonable liquidity swaps. Instead, this feels like it has just become a wrapper for a few pre-planned swaps that would not pass alone.

I believe that $1m of LUNA would have been excessive for the Osmosis community pool itself to swap for similar reasons to Robo.
I probably would have supported a few hundred thousand there, though… before the Chapter 11 declaration.
LUNA has been one of those tokens that has struggled to obtain liquidity on Osmosis despite having a volume to liquidity ratio that makes liquidity provision highly rewarding.

An injection of $50-100k would likely be beneficial for establishing a functional market, however this is still a gamble as liquidity does not guarantee volume.

For a subDAO to spend all of its available funds on it makes no sense.

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Is that not already a red sign on its own? We have pools with questionable coins which attract liquidity due to a nice APR. But a coin which has been existing for longer, has a nice APR and doesn’t attract liquidity means people simply won’t take chances with the asset and don’t want exposure to the asset.

There are luckily more sensible comments here as well from others who are thinking this proposal should simply never pass.

Deploying Drama has been initiated, nice.

I already feared things would get too smooth in here.

Our team doesn’t agree with this use of funds. We will be vetoing.

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I agree I don’t see the point of this OSMO/LUNA pairing with that much liquidity. I am a small holder but i’ll vote against this if needed