“An AP has a continuing managerial role in making decisions about or exercising judgment concerning the network or the characteristics or rights the digital asset represents including for example: Determining whether and where the digital asset will trade. For example, purchasers may reasonably rely on an AP for liquidity, such as where the AP has arranged, or promised to arrange for, the trading of the digital asset on a secondary market or platform.” (4th factor of Howey- reliance/efforts of others factor)
The SEC digital framework guidance speaks specifically on the issue being a liquidity provider and how this thread has progressed, people are wanting TF to be a core liquidity provider, so that would be a risky move / drawing attention from the SEC. Further, in US law, if a regulatory body gives you guidance and specifically calls certain actions out, via examples, and you go against their guidance, then there is a much greater likelihood that they will go after you because they will say you know/should have known better because they specifically called X action out and you went against it. The “I didn’t know any better” excuse goes out the window and so they will typically be heavier handed in terms of punishing.
So again - for forces that be - this is not legal advice, or maybe it is: spin up a DAO pool which aims to promote “the Tezos protocol through grants and other capital deployment vehicles.” Where have I seen that quote before? Oh wait, it is the mission statement of the Tezos Foundation.
I’m not trying to be facetious, @AlexL - I’d love to learn how the Howey test applies to decentralized, community-driven pools of assets like a DAO. Look at US-based teams and tokens like BarnBridge which have managed to do just fine with the SEC in launching DAO pools - with proper legal guidance and outside the bounds of a nonprofit. Separately, I have also raised ideas around US-based 501(c)(3) and 501(c)(4) organizations above which are mission-aligned (emphasizing mission based on the TF’s mission statement).
Ultimately, I think this legal discussion digresses from the crux of the issue; where there’s a will, there will be a way - if the TF actually wants to support the Tezos protocol by funding core liquidity pools, without raising antennas at the SEC, they will spend capital on formal advice on a legal structure. Now, if they inform the community that launching core liquidity pools is the #1 priority and needs to happen ASAP, without waiting for legal advice, I’m all game.
My only advice to the core devs + TF is that do not dilute the supply further if you have ways around it. Not to mention, competitors like Ethereum are actually going to adopt deflationary measures soon. I do understand how PoS incentives work, so my issue isn’t so much with baking/staking/inflation/deflation, but rather with deliberate decisions around diluting the supply when you may not have to.
You also have a live, working example in the form of Dexter - just look at the slippage and the spreads and the overdependence on the broader community for liquidity and depth in Dexter pairs. In a way, the lack of depth/liquidity on Dexter is causing friction over at Kolibri.
Is Dexter a great DEX? YES.
Could Dexter sustain/succeed without help? PROBABLY YES.
Can Dexter use liquidity and depth from a “DAO-like Treasury” right now? HECK YES.
Should Dexter be successful in three months rather that six-to-nine months? MOST DEFINITELY, YES!
On the last point - given enough time and Tezos’ capabilities, I think Dexter will be a-OK. One could also argue that Dexter needs an incentive mechanism like an LP/governance-token to attract liquidity providers. However, such an LP/governance-token won’t lead to outright dilution of the Tezos supply. Contrast this with what’s proposed in the Liquidity Baking idea above: liquidity providers will have the incentive in the form of 2000% rewards, BUT those rewards come at the expense of existing investors through further, perhaps unwarranted, dilution.
The other factor to contend with in the Tezos ecosystem is urgency; to paraphrase Danny Masters from one of his recent interviews, we needed a protocol like Compound on Tezos, like yesterday. If there are legal ways for the TF to catalyze solutions like core liquidity pools on launch day rather than waiting on the kindness of the community for months [to attract liquidity], those solutions should be proactively pursued. And pursued without actually diluting the supply with the potential help of TF’s own multibillion-dollar liquidity pool.
Let’s add a bit of nuance here. Just because you’re a foreign entity, doesn’t mean you can eschew US regulation. You quote TF’s mission statement, which talks about capital deployment vehicle, but you’re missing the part that should be pretty clear and unspoken, or namely “within legal bounds”.
How Howey applies to decentralized communities? Well that’s to be determined as the SEC is grappling with this concept as we speak. Yes, we have guidance from Hinman’s speech (2018) which was later affirmed by previous SEC Chairman Clayton that they believe certain blockchains are “sufficiently decentralized” not to constitute a security anymore. But does that mean that concept is static? Probably not, since we know it’s a constant balancing test, we have case law indicating things that was once a security and not being a security anymore and vice versa, and we have previous CFTC chairman saying that they are keeping an eye on Eth 2.0 and whether moving to POS they will need to revisit their analysis of whether it is a commodity, which he is quoted saying the SEC is doing the same examination which is hinting that the security analysis is being revisited by the SEC when the time comes. Lastly, can DAOs be securities? Absolutely, just look the “DAO Hack” guidance from the SEC in 2017 and Slockit. The SEC took the position that the DAO they were creating was indeed a security. I actually wrote my LLM thesis on this issue in 2019 and still working on getting it published in different law reviews, and I would be more than happy to share it with you. (as you can imagine, the landscape is constantly changing)
The next example you give, is Barnbridge a defi protocol built on ERC-20. What I don’t quite understand, which you might be able to clarify is what does that have to do with a foundation providing liquidity? Is Eth foundation providing liquidity to Barnbridge? I looked through their documents and it doesn’t appear so, so what does that have to do with TF being a liquidity provider? A bit of nuance is needed here again. In my posts above I am speaking strictly about TF being a liquidity provider, not the issue of whether US Sec Reg allows DAOs (which they do). Your idea of launching a US based entity under 501c3 or 501c4 is a possible idea, but it would be better suited in a 501c6, however, you still have the issue of the SEC digital framework which doesn’t like AP’s/issuers touching the market at all, so therefore if it were to possibly work, you would need someone not affiliated with TF at all taking the initiative.
Once again, a bit of nuance is needed. If you think the SEC isn’t smart enough to catch on to things like the above quote, then you’re underestimating the SEC. If TF funds something to get legal advice to form a legal structure to fund this endeavor, then the SEC could probably do something similar of piercing the corporate veil to find a security violation. Now, could TF fund legal advice to form a legal structure and not trigger sec regs? Yes. But the moment they do actions outside of getting legal advice etc., then they’re treading some rough waters, but let’s say they get the legal advice and figure out the legal structure and post it as informational material and then someone in the US (unaffiliated with TF) takes the lead and initiative to spin an entity up, would that trigger sec violations? Maybe, maybe not, but this would probably be the safest scenario IF it were to happen.
Next, you bring up the issues of dexter and liquidity. No doubt there is issues with this, however, relying on TF to solve this by being the liquidity provider is a very risky move as explained in my previous post. You don’t see Eth foundation or Btc foundation being liquidity providers. I wonder why? Coincidence? Maybe maybe, not. If I were a betting man, I would bet it wasn’t by coincidence.
LP/governance token for dexter? That would be on the creators of Dexter and their decision alone. TF funded the devs to create the project and that’s it. They have no control over Dexter and how it operates as the only relationship between the two that I know of, is just that TF funded the devs to create it. The decisions that are made in Dexter are on the devs that created it, which, once again, some nuance is added here, in that Dexter and TF have no relationship besides TF funding them to develop it. Business decisions made by Dexter are by the Dexter team, not TF (that’s the point of decentralization).
To your last point on urgency. Yes, I agree urgency is needed, but I would add, urgency with caution. The last thing the ecosystem needs is another round of litigation, this time by a regulatory body. I would say the harm of am event like that is 1000x greater than the urgency needed to get liquidity into something like Dexter. Are there ways to do it? Yes, but to have it in open discussion like this and trying to draw TF to respond is NOT the risk averse way of going bout an endeavor such as this.
I do applaud your effort in highlighting these issues and getting creative, but there are probably better ways to accomplish what you’re seeking as described above. I do love your energy and tackling these issues, which shows our community is thoughtful and caring about the overall ecosystem. I would be more than happy to brainstorm with you on these topics, just PM me.
@AlexL I’ll gladly PM you to discuss an ultimate solution, given the two of us were to magically come into variance power over TF funds .
All your points are well-taken and I wasn’t challenging the lawyer in you - but like a good lawyer would, you took to some of my examples as argumentative… which must be a sign that you’re a good lawyer. Hah.
Regardless, the examples (BarnBridge, Dexter, etc.) were meant to be just that - examples. Not concrete proofs of solutions which the TF should actually pursue. As you concluded, there are probably other ways to go about it - and my intention with my original post wasn’t to invite the TF to comment on something concrete… just that the TF (if it is involved) along with the core team reconsider the idea to further dilute the existing supply. And if there are ways, avoid depending on the benevolence of the greater community in jumpstarting some of the core solutions.
Ultimately, I’m on the same page with you on the topic of the SEC.
TF providing liquidity on dexter is a terrible idea. Assuming dexter releases a governance token (they’ll fail if they don’t), do you really want TF having sole control of dexter from liquidity mining?
Also there is absolutely nothing concerning the SEC preventing TF from simply holding tzBTC. To suggest otherwise is an irresponsible and dangerous conspiracy theory.
I realize I shouldn’t have mentioned Dexter since folks would interpret that I’m promulgating the idea that the TF should just back Dexter - I know and agree that it is a terrible idea. What I did want to bring up is how Dexter is struggling (both in terms of adoption and time/urgency) due to lack of liquidity, nothing else.
Ultimately, my beef is simply with the idea that XTZ supply should be diluted further + the prospect of the core liquidity pools struggling to get traction for months because of their overdependence on the community.
Since LB is postponed is anyone else interested in a discussion about which pair we should subsidize?
As I mentioned earlier I’m all in favour of subsidizing an xtz / stablecoin pair instead of tzbtc.
Not only it seems reasonable to have liquidity to be able to hedge or trade against a low volatile to fiat asset, it also gives an opportunity to drive adoption to our native assets, whereas tzbtc is a custodial asset which I’m not a big fan of
There’s a few months before the next proposal so we might have checker up and a few usecases (and probably a DSR-like mechanism) for Kolibri to help maintain its peg
My point isn’t that the broader community shouldn’t support the pools - and again, I’m not talking about ALL pools or setting a precedent. I’m just focused on these core pools which are being deemed essential to the ecosystem. Ultimately, the community and its participants will be the market-makers. And the level of adoption will drive success.
The only reason I’m focused on this topic is because there’s the proposal to dilute the supply even further when the TF could [if there are legal ways] potentially jumpstart these core pools with the liquidity it ALREADY has available.
Now, if there are no legal ways around this, I understand. But I at least want the TF to explore before we claim the idea to dilute supply as “ingenious.”
As far as the long-term goes, absolutely, the community drives these pools forward (I hinted at the sunsetting mechanism if the TF is able to get involved at inception).
I do want to point folks to the proposal again – the whole reason this is being proposed is to compete with pools like Uniswap. And I think this is being proposed because the sense of urgency is being felt across all parts of the Tezos ecosystem - if the community were so advanced/seasoned, we wouldn’t be discussing this topic because we would already have had an answer to Uniswap. Which highlights my other point - that I don’t think the community will be able to get these pools to multimillion dollar levels on their own in a couple of months without help.
Decentralize, sure – but nothing wrong with getting some help along the way; especially if the helper is something/someone the community funded (at least the ICO investors like me and perhaps everyone else in this thread).
In my first response, I did mention that the core pools be quickly expanded to include other assets like ethereum, gold, etc. I do like the idea of also including cross-chain stablecoins. I don’t think there’s anything wrong with launching tzBTC first given the peg can be maintained/sustained.
TF is on its own, I’d love to see TF add liquidity but they have to act with respect to the laws, we can’t suggest them this kind of actions
I believe the whole point is to bring liquidity to xtz traiding pairs, we’re not in a position to compete with multibillion dollar uniswap
And I don’t see a reason to subsidize eth or gold pairs on the protocol level, a liquid major pair is enough
Suibsiding an xtz/stablecoin pair is enough
having this stablecoin listed on a decent cex would be great though
It’s 6.25% of baking rewards. Additionally, in the current version of the contract we have it burning .1% of every trade, which makes it self-funding at 7.2mm daily tez volume while still having a lower fee than Dexter.
I think Dexter could also be suffering from a lack of confidence in the platform.
You can’t almost lose all user funds due to a fatal bug and then expect people bring back liquidity on the platform. I’m a dexter user (swapping tokens) but I would never put liquidity in nor encourage any friends to do so at this stage.
Lack of confidence or lack of incentives? With liquid assets, why deploy capital into dexter when it’s not incentivized and one can get orders of magnitude greater returns by parking capital elsewhere?
Governing a protocol isn’t a use case? It’s THE use case. If you’d prefer to participate in an ecosystem that isn’t decentralized and decisions are made in a black box, I have no idea what you’re doing here. Your blind hatred of governance tokens is very odd and not productive, did you lose a lot of money buying one? XTZ is the governance token of Tezos, is it a shitcoin because it’s a governance token? If XTZ wasn’t a governance token and just a form of money, with all governance decisions made by a centralized entity, like Kolibri and dexter, might that entity be more subject to regulatory action from SEC-like groups? Seems like a risky proposition to not decentralize.
I’ve got no hatred of governance tokens at all, you completely misunderstand me. I’ve made way more money on shitcoins on ethereum than I made with xtz
However I don’t like useless tokens.
There’s no need for governance in Dexter. what are you going to govern? what’s your skill set?
afaik uniswap token holders haven’t made a decision. and they probably won’t. because there’s a team with their own vision.
Also what’s your discord name? you might have been a very active kolibri discrord member if you’re so interested in governance
One use case of a governance token on Dexter would be to have the community decide which pair to introduce next - avoiding the same debate we’re having here (vis-a-vis tzBTC vs. stablecoin). On Kolibri, the use case is pretty straighforward in that you can use the governance token for issues like the level of the stability fee.
Another would be to incentivize liquidity providers via yield farming. Just like this proposal is planning to compensate liquidity providers thru additional XTZ, a Dexter/Kolibri governance FA token could be the glue that holds together the respective ecosystems.
You could also have governance tokens evangelize the ecosystem - for e.g. due to AAVE and COMP’s success, both those tokens are widely used to jumpstart new liquidity pools and swap farms in the ETH world.
Arguably, governance tokens derive value from the success of the said platform, and as such could be used to provide grants, sponsor hackathons, etc. An FA token on Dexter could have easily incentivized a security team to find what Nomadic Labs found, if there was a compensation involved. Most of these projects relied on grants from the TF - a governance token would actually work as a long-term incentive for these teams to keep supporting and making their platforms successful.
Consider the use case of the mandala art seed - the seed is not a governance token; however, as a scarce utility, people have “aped in” to purchase seeds. Ignoring the theatrics around what the site is trying to do, you can use something similar to “seeds” in the form of a governance token to attract users/depth to any platform - airdrops, community rewards, grants, etc. Check out PoolTogether on the ETH side: it is a lossless lottery, has its own governance token, but more importantly, it renders value to other stablecoins and governance tokens.
In short, there are many use cases of governance tokens within well-functioning projects. I completely want future projects from within Tezos to launch with their own governance tokens - let the consumers/community decide whether the governance tokens are shitcoins or carry actually use cases. For well-run projects with a long-term mission, governance tokens are a must.
These core liquidity pools could have their own governance tokens to avoid further dilution of the XTZ supply (yet another use case, by the way). Which brings us back to this topic of Liquidity Baking.
Thanks for correcting and highlighting the burn mechanism, Sophia. Is it safe to assume that this logic will lead to XTZ dilution if/when the volume is less than 7.2mm? Interested in learning how the team arrived at 7.2mm. Also, care to comment on whether it makes sense to co-launch tzBTC alongside a stablecoin to further support volume (I imagine tzBTC, as “trolleps” indicated above, will mostly be used to park capital vs. a stablecoin which could actually be heavily utilized from the get go)?
No, it’s not a usecase for a governance token,
it’s a dex, everybody can use dexter’s contract to create a trading pair. Listing on their frontpage is different, not sure why they don’t allow everyone to add tokens but it might have to do something with legal stuff or avoiding responsibilities for unintentional scam listing.
We can just make an unrelated to the dexter’s team frontend and list everything
Giving people a token is not a usecase either. Doing something meaningful with it is.
No, not like that. Here the liquidity is gonna be incentivized with something already meaningful - xtz
Can you mention some please?
You can make a good token that recieves part of the profit or something because even though everything is open sourced network effects matter.
What we see on ethereum is not about governance tokens. No one cares about governance in this projects, the teams usually don’t give away the control.
It’s just a rising tide of whale capital looking to make money somehow. So let’s not call it governance tokens, let’s call it shitcoins. I’d love to get shitcoins for every activity on the network, I’m LPing anyway. But It’s unrelated to the topic
If you put in the effort to click the first link, study/research the list of institutional/individual investors voting on Compound - on the list, around #50, you’ll be pleasantly surprised to find our dear friend, Luke Youngblood (Kolibri), making their voice heard on a “shitcoin.” This is the same Compound which Danny Masters said was needed on Tezos, like yesterday. The idea isn’t so much about who’s voting - it is about attracting serious capital to really good ideas. If you have been an angel investor or dove into the venture capital/startup mindset, it’ll be really easy for you to understand that success is closely related to incentives. A Dexter or a Kolibri cannot incentivize XTZ because they don’t control the base layer.
The last example in the list, BarnBridge, actually turned over their ENITRE treasury to the community token holders ($500M TVL). Now it is up to the community to actually govern the protocol (the original team is still incentivized to make the platform successful because they set aside a portion of the initial supply for themselves over a 2-year vesting schedule).
Am happy to argue/debate/discuss governance tokens with you in Discord (same username on the Tezos Discord server). Let’s please get back to Liquidity Baking :D.
Yes, some dilution if daily volume is less than 7.2mm and the opposite if greater. The reason for that figure is it’s .1%, which along with the .1% fee to liquidity providers still makes it cheaper to trade on than Dexter that has a fee of .3%.
Afaik tzBTC is currently the only asset mature enough for this. Checker has not even been released yet. I don’t think you’re correct that it won’t be used. A lot of the purpose of liquidity baking is to onboard capital to tez by drastically reducing slippage and decreasing the risk of holding it.
Btw, there will be a liquidity token for the liquidity baking CPMM as well as for Dexter 2.0.
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