[Draft Proposal] - Participate in Fei:Ondo Liquidity-as-a-Service Program

Proposal

Leverage the Fei+Ondo Liquidity-as-a-Service (LaaS) product to provide liquidity for the Gro DAO token in a more capital efficient manner. The proposed partnership is a cheaper liquidity alternative to Gro’s existing yield farms and if proven to be effective, the DAO can revisit whether paying high yield farm APYs across multiple pools is the best strategy for growing the protocol and rewarding early users.

What is the Fei+Ondo Liquidity-as-a-Service?

The Fei+Ondo LaaS lets DAOs unlock liquidity in their native governance tokens without needing to borrow or raise capital in a base asset to trade their governance tokens against. The service involves a DAO providing its governance token into an Ondo Variable Yield pool, while Fei invests FEI into the corresponding Fixed Yield pool. The DAO pays a fixed yield to Fei and receives all excess yield that accrues to the underlying liquidity pool.

More resources on the Fei-Ondo partnership here:

Partnership Structure

I propose Gro DAO pilot the Ondo Liquidity-as-a-Service offering, where we can allocate 1 million Gro tokens from the Gro DAO Treasury (1% of total token supply) to an Ondo Vault; this amount would be LP’ed with Fei to LP on Uniswap or Sushiswap. Currently, the program lasts 30 days and at the end of the 30 days, Gro DAO would pay a ~0.2% fee (2% annual fee divided by 12) on the value of Fei in the vault at expiration and reclaim its Gro tokens. This ~0.2% fee can be partially, if not fully covered, by the accrued trading fees of the vault.

The key risks are impermanent loss and smart contract risk. Ondo Finance has three audits that can be found here.

Background on Ondo

Ondo is a decentralized risk marketplace that lets different sets of investors pool assets together to provide liquidity with different risk profiles. The Ondo protocol manages this risk transfer through tranched Vaults. Ondo Vaults exist in isolation from each other to prevent the mixing of risks. Each Vault has a Fixed Yield pool (“FY”) and a Variable Yield pool (“VY”), each of which deposits a different asset that is ultimately invested into a single AMM pool. The FY seeks to deliver a stable yield with mitigated downside risk, whereas the VY seeks to maximize returns by using leverage.

Why Do This?

The best way to drive network effects for a protocol is to properly align interests of its participants and there are more effective ways to do this than yield farming rewards. We want wide distribution of tokens to those that use Gro products (VAULT, PWRD), not distribution into the hands of mercenary farmers. I think this proposal helps build a more user-centric and user-owned network.

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That sounds awesome! It’d be good to deepen liquidity so that our token price wouldn’t be impacted by large-volume trade as much as it does now!

Should we go with $5M (~430K tokens) instead of 1mn Gro DAO tokens for this program, so we can diversify and seed liquidity through other programs as they become available?

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Yeah, that’s a good idea. Never hurts to keep options open, and I think a future Tokemak partnership makes sense too. That might just take some more time.

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Correct me if I’m wrong joyce, but I think the treasury has 13 million GRO tokens? It may be useful to think of the allocated amount for this partnership in terms of percentage against the treasury. Especially if this will be a long term move, even if there is some negative price action since the treasury would be able to reclaim some of the GRO sold via fees and that can be taken out of circulation for some time or reused for other initiatives at a more opportune time

Barring any other aggressive partnership that takes higher precedence I think targeting 5% of the tokens in the treasury for an initiative like this is reasonable leading to 650k tokens. That will make the pool have as much liquidity as around current pools. If there’s an option, maybe a staggered liquidity provision can be done e.g 3% initial phase then the full 5% if we’re confident on the results

Hey @Slacking - the Treasury now has 1.8 million minted GRO token (from the 5 million minted GRO tokens for the LBP*) and could mint an extra 8 million GRO tokens, so you’re right that altogether the treasury has 13 million GRO tokens minus what been distributed in the LBP.

With the current token price, $5M worth of GRO tokens would be ~474k tokens (~3.6% of the 13 million). As you said, if the program proves successful we can increase allocation to 5%; if the outcome is less desirable we can also sunset the program.

There is now a related community post with more details around different liquidity partnership! Please see GRO Liquidity Partnership Overview

I think this is a good idea since it deepens liquidity for the GRO token and provides further price stability. This should neither provide buying nor selling pressure since equal amounts of GRO and stable coin liquidity is added into the market. I’m supportive of the 450-650k GRO range to begin with.

couple of more points:

  • This would be within scope of the already approved market maker seeding in the initial DAO vote.
  • Cost to the DAO seems relatively low at 2% annualized of the borrowed funds. It’s more expensive than Tokemak’s market making and less established liquidity (FEI instead of USDC/ETC), but it’s also much faster to market as it’s unclear when CORE2 reactors go live.
  • If I understand correctly the partnership could be scaled up and down depending on how it performs.
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Increased liquidity is always good for our project + Ondo is one of the projects we can trust

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Just a quick followup on the 13 million GRO for the treasury. I think the Fair launch sold 2.5m~ tokens right? So 1.8 + 2.5 + 8 = 12.3m tokens. Wondering where the rest of the 700k was allocated to :thinking:

The LBP distributed 2.74m tokens in the end and the remaining amount has been used to seed AMMs (Uniswap v2, Balancer) after the LBP :slight_smile:

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Updates following discussion with Fei/Ondo team:

  • APY has increased from 2% to 5% annualised fee. Fei has committed to a 3-month TRIBE incentives program where we can stake the LP tokens to earn 10K TRIBE per week per $1M deposit into the LaaS program that would more than offset the increase in fees.

  • After further discussion in the last few days, this program will be structured to start with a 3-month vault followed by a perpetual vault in 6-8 weeks from now. The two vaults will run in parallel for 4-6 weeks. By the time of expiry, we can decide whether or not to roll over the 3-month vault or move the assets to the perpetual vault, or sunset the program if we have found other means to provide GRO liquidity to the market.

  • Gro Treasury will allocate $5M GRO in total over the next 3 months across the two vaults. We will first start with allocating $3M GRO (~422k GRO at the time of writing, i.e. 3.25% of 13 million GRO under treasury) over the next few days, followed by allocating another $2M GRO in 6-8 weeks into the perpetual vault.

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