Dai liquidity in other networks

Opening a new market for Dai (and MKR, but this post is to talk about Dai) requires the interest of the project/network/Dapp/etc. -partner- in integrating Dai. This interest comes from the analysis of knowing that integrating Dai will help them attract more users and improve the usability of their product.

Once Dai is integrated into the product, it requires a market capable of fulfilling users’ requests. Although Dai liquidity grows in time, there has to be someone deploying the initial capital to get the appropriate traction during the launch. The initial capital could vary depending on the product’s market size and the demand of this new Dai market.

An example:

@Growth-Core-Unit is talking with THORChain, a decentralized liquidity protocol. Currently, USDC and USDT pools are live on THORChain, and if we manage to have a DAI pool, this will enable people to swap native, non-wrapped L1 assets (BTC, LTC, BCH, BNB) for DAI in a permissionless, non-custodial way for the first time (how awesome is that?).

To activate the pool, someone has to provide DAI liquidity. This someone will receive the fees generated from trades (The existing stablecoin pools are currently between $6-12MM in depth and have APY >20%), but that someone is also exposed to impermanent loss (this is a DAI:RUNE pool) and the risk associated to the THORChain protocol. This someone could be:

A 3rd party Market Maker

  • Pros: they take the riks
  • Cons: they take the profit of the pool, and we also have to pay them (nothing is for free)

THORChain, by convincing them to get a DAI loan

  • We could build a D3M similar solution knowing that:
    • there is no LP token at the moment. The protocol tracks things internally
    • Assets are Cosmos-based
  • They could take the loan from Aave
    • Why do they would do that if we are interested in opening a new market (they already have other stablecoins)

MakerDAO treasury

  • Pros: it could be created to support other new projects that integrate Dai, and if we do a good risk assessment, it could be profitable
  • Cons: it doesn’t exist

We want to know your opinion about this. Although this matter comes from the specific case of THORChain, we are talking with others about the same, and it would be great to have a solution not just for THORChain but for all other new markets that the multi-chain strategy is about to bring.

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I believe in my honest opinion Maker Growth should go all in on providing this THORChain liquidity pool. The Tendermint/Cosmos/Sikka folks are building a solution for the MEV problem using a technique called Threshold Decryption (@Kurt_Barry can explained it better), recently deployed on Osmosis an independent chain on the Cosmos Hub. I believe their future is bright–they have a lot of smart folks quietly developing over there, both in THORChain and Cosmos. Why not diversify? This is brilliant, go for it!

Considering the liquidity for other major stablecoins is relatively low and 1/3 of listed coins on Thorswap have less than $1 million liquidity and the total volume of the whole swap including deposit and withdraw is only $240k per day, I am skeptical that we need to risk ourselves.

Also, we can only do Dai-Rune pool, which opens up to greater risk. Therefore, if the community strongly believes in supporting them, my suggestion is asking Thorchain to allocate Dai themselves. They have a specific budget for such purpose in the first place.

If the discussion doesn’t work and the Maker community still wants to support them, finding a third party that the Maker community can provide ideally less than 300k Dai might work. The condition can be for example, a loan of one year and Maker community gets what’s left except for yield rewards.

So if 300k Dai is divided 50-50 to Rune and Dai and let’s say the price of Rune went up and increased overall, then the Maker community will get back more than 300k Dai, but if the price went down and LP is now only worth 200k Dai, then the community gets back 200k. Rewards are kept by the third party for running it.

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To clarify, I respect Growth Core Unit and also what Nadia has done. The above is speaking as a Maker community member

Good point. But don’t you agree that liquidity + trading volume across the board has diminish? I think one thing I always believed is that in order to benefit, you need to arrive early.

As an example if you would have believed in the early days in the Uniswap model of being an LP, you would have been rewarded. I truly believe being early is a good thing. These other layer 1 chains are super early. In fact Maker is super early. And as you know, where there’s risk, there’s possibly a reward.

But yes, the risk is that MakerDAO can suffer losses. As they say, risk is real, but fear is a choice.

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Sure, but if they provided their own capital to onboard USDC, USDT, BUSD, and many others, why does Maker have to pay out of its pocket to risk? If they are decentralized and trustless like Uniswap, they should just open up Dai option, no?

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Could be because liquidity was needed in order to get the order book off the ground. Could have also been that Circle and/or Binance are investors in Rune? For sure—you got folks like Delphi who are Rune investors who pushed for such—but I’m just speculating—putting two and two together.

As I said in the Rocket Chat Speculation channel—crosschain compatible is coming Soon™—if you don’t get with it—you’ll be left behind IMO.

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Yes, but once again, we can try to get a better deal out of it (you can see from my above posts that I am not saying “absolute no” Just ways to leverage our position). For example, Thorchain team can also provide at least some liquidity on their part. And this is why we negotiate. It’s a balance between growing the protocol and managing risk and saving money for the protocol.

Sir, this is a nice write-up–hot off the press:

THORChain is the reason why I started this post. Still, I’m inviting everyone to think of a solution for the future chains or protocols wanting to integrate Dai and having the liquidity challenge, because as ElPro said:

And as I mentioned in the post we have to do a risk assessment if we decide as a DAO to provide liquidity.

Now, regarding THORChain:

  • We are discussing the terms with them because we always look for a fair agreement for both parties.
  • THORChain developed a liquidity model with IL protection.
  • We don’t have to provide the RUNE liquidity part, that’s on them. We have to provide DAI liquidity to the pool.
  • We should move quickly on this one because THORChain’s network is currently capped as the protocol matures. They are listing new pools as the caps rise, so the liquidity we will need to activate the DAI pool will be higher in the next months.
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