Disclaimer – I am a member of the TFL team.
Context
Last week, I discussed the importance of UST liquidity on Ethereum, specifically with respect to the Wormhole UST - 3CRV Curve pool and a proposed community plan to significantly bolster liquidity in this Agora post.
On Ethereum, the largest source of stablecoin liquidity comes from the Curve 3Pool (3CRV) which has over 4B in combined liquidity between DAI, USDC, and USDT. The most important note here is that all three of these are relatively centralized stablecoins. Over the past three months, we have seen a rapid increase in stablecoin market share by decentralized stablecoins; UST market cap has grown from 2.5B to 8.3B, Abracadabra’s MIM 0 to 3.7B, and FRAX 0.68B to 1.3B.
To create sufficient liquidity between the most prominent decentralized stablecoins in crypto, the Terra community should enter into strategic partnerships with MIM and FRAX. Strong liquidity between these three stables is important as defi begins to transition from centralized to decentralized primitives throughout all chains and applications.
To grow MIM, FRAX, and UST liquidity, the Terra community can provide joint incentives via Votium on MIM-UST and FRAX-UST pairs. As discussed in the proposal linked above, Votium continues to be the optimal method of incentivizing Curve liquidity due to its capital efficiency (please check out the post for a refresher on Convex, Curve, and Votium).
These partnerships are optimal for UST growth since as compared to the UST-3CRV pool which is entirely incentivized by the Terra community pool funds alone, matched SPELL and FXS incentives from Abracadabra and Frax allow for half the amount of LUNA incentives from the community pool yet cumulatively equal the same total amount.
Under this proposal, UST funds withdrawn from the community pool would be swapped to LUNA before each gauge vote via TerraSwap/Astroport to not dilute the LUNA supply.
Proposal 1: MIM-UST Incentives
The MIM-UST Curve pool has nearly $630M in liquidity and $105M in daily volume, mostly due to Abracadabra’s UST Degenbox strategy, placing it as the 3rd-most used Curve pool.
Abracadabra has committed 6.6% of weekly SPELL emissions to Votium UST-MIM incentives. Currently that equates to roughly 153,000,000 SPELL per gauge vote which at current price of $0.0174 is worth $2,600,000.
Under this proposal, the Terra community would provide an additional $1m in LUNA incentives per gauge vote for the next 6 months.
Total funds for Proposal 1: $12m UST swapped to LUNA (~172k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months.
Proposal 2: FRAX-UST Incentives
This Convex / Curve pool does not yet exist; however, the Frax team is currently working to push it through Curve voting and have it created.
Similar to Proposal 1, Frax plans to provide $500k in FXS Votium incentives for the UST-FRAX pool. The plan is to match incentives with an additional $500k in LUNA incentives per gauge vote for the next 6 months.
Total funds for Proposal 2: $6m UST swapped to LUNA (~86k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months
fin
All funds withdrawn from the Community Pool will be kept in a multisig wallet: terra1jrhxdtwxrsxw3t2al6t3sga89974juhpccuxct
The multisig will be controlled by 5 members with 4/5 quorum required: @JeremyDelphi, a member of the TFL Finance team, myself, @Papi, and @lejimmy
This marks the beginning of a long, symbiotic, glorious relationship with MIM and FRAX.
tldr
- Proposal 1: $12m UST swapped to LUNA (~172k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months for MIM-UST incentives.
- Abracadabra to provide additional 153M SPELL incentives per gauge vote (~$2.6m)
- Proposal 2: $6m UST swapped to LUNA (~86k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months for FRAX-UST incentives
- Frax to provide additional $500k FXS incentives per gauge vote.