Bootstrapping USDT and USDC liquidity on Dexter with Persistence Community Owned Liquidity (PCOL)

Governance
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Summary

This forum post suggests bringing native stablecoins (USDT from Kava and USDC from Noble) on Persistence by creating two new pools, XPRT/USDT and USDT/USDC, on Dexter and bootstrapping it using $2000 in XPRT as PCOL.

Context

Refresher on PCOL

The concept of Persistence Community Owned Liquidity (PCOL) was introduced in August 2023 with five key things in mind:

  1. Propelling ecosystem growth using XPRT
  2. Deepening XPRT liquidity
  3. Doubling down on Persisters’ alignment with Dexter
  4. Increasing dApp traction with new pools on Dexter
  5. Diversifying the Persistence Community Pool

Important Dexter aspects like creating new pools and reward schedules will be driven entirely by XPRT governance soon. PCOL goes one layer deep around the idea, “If Persisters support a new pool on Dexter, why not support bootstrapping it from the Community Pool?”

You can read all about PCOL in this forum post.

Current status of PCOL

Persistence Proposal 37 passed the creation and bootstrapping of a PSTAKE/XPRT pool with 50,000 XPRT (~$10,000 at the time).

The PCOL multi-sig, governed by the Persistence Community, has accumulated ~$430+ in PSTAKE and XPRT rewards since bootstrapping this pool. As per PCOL, these rewards will be returned to the Community Pool.

Naturally, we can see that the LP position has also suffered some Impermanent Loss. Still, it is important to note that this position will be indefinitely bonded unless directed explicitly by governance.

Between swapping XPRT for PSTAKE and creating and bootstrapping the pool, a surplus of 1600 XPRT remained due to price fluctuations and 50:50 pool creation. I suggest that this deficit amount should be used to pay for pool creation fees in the future.

Cosmos and Stablecoins

Stablecoins like $USDC and $USDT are one of the most critical lego pieces of DeFi. Together, they represent $100B+ in market value. Stablecoins have become the bedrock of flourishing DeFi economies due to their price stability, overall accessibility, financial inclusivity, and utility.

Ethereum is a prime example of one of the first ecosystems where stablecoins like $USDC and $USDT were natively minted, and grew in adoption exponentially. Following this, they expanded to other ecosystems via native issuance or bridging.

The Cosmos Ecosystem was one such where the influx of stablecoins has been through bridges like Gravity and Axelar. This came with high transaction fees, a subpar User Experience, and the security risk of the bridge. These pitfalls have led to minimal stablecoin presence, one of the most significant barriers for DeFi to flourish in Cosmos.

However, this changes with the recent launch of native USDT issuance on Kava and native USDC issuance on Noble. In just a few weeks, these two stablecoins represent $100M+ in market value within Cosmos. With native stablecoins, onboarding users outside of Cosmos and deepening liquidity within Cosmos is now easier than ever.

Stablecoins on Dexter

Dexter should position itself to capture a substantial portion of this expected stablecoin liquidity influx. Stablecoins on Dexter can have the following benefits.

  1. Increased user activity and acquisition on the Persistence chain
  2. The presence of one of the highest volume-generating token class
  3. Lesser barrier to entry on Dexter
  4. The potential influx of new traders and LPs
  5. Opportunity to build LST liquidity against stablecoins

With that in mind, I suggest creating two new pools on Dexter and bootstrapping them with PCOL:

XPRT/USDT

Pool Parameters

  • Pool Type: 50/50 Weighted Pool
  • Pool Creation Fee: 250 XPRT
  • Swap Fees: 0.3%

PCOL

  • Bootstrapping amount: 6300 XPRT (~$1000)

Incentives

To kick off, this pool can be incentivized with XPRT from the Dexter Grant or a separate tranche from the XLB incentives.

Long-term, USDT liquidity on Dexter (not just this pool) should be co-incentivized through mediums such as the KAVA Rise Incentive Program.

Incentivization should be discussed in a different forum post altogether.

Benefits

  • Deepens XPRT liquidity
  • Presents a new yield opportunity
  • Lays the foundation for a potential long-term partnership with the Kava Ecosystem
  • Expands XPRT as the base asset on Dexter, strengthening the tie between Dexter and the Persistence Ecosystem

USDC/USDT

Pool Parameters

  • Pool Type: Stableswap Pool
  • Amplification Factor: 2000
  • Spread Factor: 2.5%
  • Pool Creation Fee: 250 XPRT
  • Swap Fees: 0.01%

PCOL

  • Bootstrapping amount: 6300 XPRT (~$1000)

Incentives

The same points as the XPRT/USDT section above.

Benefits

  • Leveraging Dexter’s liquidity
    • DeFi lego pieces like Nolus and Umee can use Dexter for liquidations
    • Aggregators like TFM, Skip, and Squid can include Dexter in their trade routes because of the optimized stable swap mechanism
  • Liquidity Providers will suffer minimal Impermanent Loss as both tokens are very closely tied to each other
  • Easy to bootstrap liquidity with minimal incentives
  • Just an idea: Possibility for deeper integration with pSTAKE protocol by allowing it to accept stablecoin deposits to mint stkTokens (USDC deposited on pSTAKE can be swapped as USDT->XPRT->ATOM on Dexter to then mint stkATOM)

Participate

I request Persisters to share their feedback by answering the following questions:

  1. What do you think of bringing stablecoins on Dexter?
  2. Do you agree with the suggested pools and the individual parameters?
  3. What do you think of the suggested PCOL amount for both these pools? Should it be more or less?
  4. How should incentivization of stablecoin liquidity work on Dexter?

Following the discussion, an on-chain proposal for creating and bootstrapping the XPRT/USDT and USDC/USDT pools on Dexter with PCOL will be put up, considering relevant inputs from community members.

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Having thoroughly gone through the details of these discussion, it is pertinent to have both stablecoins come onboard on Dexter.

Dexter is obviously a successful DEX and with just 3 pools (currently), it has amazed the ecosystem with so much TVL. We all wish to have a good bag of liquidity and expose to almost a 1% impermanent loss and thus, with stablecoins, this will be achieved.

For bootstrap, i believe there should be an increase from $2000.
Thank you

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  1. What do you think of bringing stablecoins on Dexter?
    Bringing stablecoins onto Dexter is a fantastic idea! It not only broadens the offerings on the platform but also aligns well with the growing importance of stablecoins in the broader DeFi landscape. Stablecoins are known for their stability, making them a valuable addition to the ecosystem.

  2. Do you agree with the suggested pools and the individual parameters?
    The suggested pools, XPRT/USDT and USDC/USDT, seem well thought out. The 50/50 weighted pool for XPRT/USDT and the Stableswap Pool for USDC/USDT offer a diverse set of options for liquidity providers. The parameters also appear reasonable, ensuring a fair and balanced setup.

  3. What do you think of the suggested PCOL amount for both these pools? Should it be more or less?
    The suggested PCOL amount of 6300 XPRT for each pool seems like a good starting point. It provides enough incentive to bootstrap liquidity without being excessive. However, it’s essential to remain flexible and adjust these amounts based on community feedback and market conditions as we move forward.

  4. How should incentivization of stablecoin liquidity work on Dexter?
    Incentivizing stablecoin liquidity on Dexter is crucial for attracting liquidity providers. The idea of using XPRT from the Dexter Grant or exploring separate incentives from XLB is promising. Long-term partnerships, like the KAVA Rise Incentive Program, can also play a significant role in sustaining stablecoin liquidity. Further discussions on incentivization methods should be conducted to gather more insights and refine the approach.

  5. Following the discussion, an on-chain proposal for creating and bootstrapping the XPRT/USDT and USDC/USDT pools on Dexter with PCOL will be put up, considering relevant inputs from community members.
    This approach of seeking community input and then moving forward with an on-chain proposal is excellent. It ensures that decisions are made collectively and with the best interests of the Persistence community in mind. We look forward to actively participating in this process.

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Because of the volatility of rates of various native tokens, the Crypto market experiences a lack of stillness. It is extremely hard to work on a Market that only consists of volatile assets because you just don’t have a solid basis for financial operations. That’s why stablecoins are a crucial tool for DeFi and we can only appreciate bringing native USDC and USDT on Persistence, especially when they are represented in the Cosmos ecosystem already. We believe that this will boost the development of the Dexter exchange in particular and the Persistence ecosystem in general. Good luck!

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1. What do you think of bringing stablecoins on Dexter?
Native USDT/USDC metastable pool is perfect fit for Dexter. To bring users and volume to Dexter, adding pools with decent daily volume is vital.

2. Do you agree with the suggested pools and the individual parameters?
I worry for the value of XPRT. I’m not clear on the tokenomics. But are there any value accrual or burn mechanisms? In other words, what prevents XPRT from being a farm and dump token?

3. What do you think of the suggested PCOL amount for both these pools? Should it be more or less?
I would suggest the more PCOL that can be added, the better.

4. How should incentivization of stablecoin liquidity work on Dexter?
If rewards were 10% paid out in XPRT, I’d imagine most LPs would sell/dump the XPRT for stables. We’ve seen what has happened to OSMO after using OSMO to reward LPs. I just don’t see it ending well for XPRT if it’s the farming reward token.

Ideally real yield would be enough to incentivise LPs. Higher fees? Would a a slightly higher fee than 0.01% be attractive to LP providers? How much would this discourage people swapping? External incentives from Kava Rise and Noble incentive program (if there is one), would be nice.

With the Alliance SDK, LP tokens can be used as stakable assets to receive a portion of native staking rewards. This could divert a portion of XPRT inflation to LPs. So additional XPRT would not be required. Of course this would mean XPRT staking rewards would decrease slightly for XPRT stakers.

If XPRT is to be used as the reward token, how about automatically staking the rewards. Users could then unstake to sell. But I’d imagine a percentage of LP providers would just leave the tokens staked.

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Thank you for sharing your thoughts @Abramlinco.

What would you suggest as the increased bootstrapping amount?

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Agreed @Sergey.M_Stakeflow

Stableccoins in Cosmos will present a unique opportunity in terms of user onboarding and DeFi yields. Dexter (Persistence) should be in a place to capture this value.

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Thank you for your insightful thoughts @SuperEra

Great to see Persisters well aligned with this.

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Thank you for sharing such valuable points @Rebel_Defi

What amount would you suggest?

You can read more about the proposed changes discussion we had on the Forum earlier this year.

Considering the example of Osmosis here, the swap fee on Stable CL pools is ~0.01%. I think that it is imperative for Dexter to remain competitive in this scenario, especially if it is to bootstrap deep stablecoin liquidity and facilitate high volume trades.

This seems very interesting. Is there any other protocol doing something similar? Just thinking out loud here, but inflation can also be used for Incentivization across the board for the Persistence Ecosystem (and not just LPing on Dexter). What portion of inflation would you allocate to such a module?

Another interesting point. What do you think of incentivizing with liquid staked XPRT (if/whenever that is launched)? Could it potentially solve the problem you foresee if there are enough use cases?

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