This proposal is being submitted to the Minswap DAO to propose an avenue that, if taken, can provide the opportunity to increase the trading volume of Minswap’s native token $MIN in an organic manner.
The proposition is simple: Parallel to the existing ADA-MIN liquidity pool that is already in place, deploy an additional liquidity pool in the form of OBYUSD-MIN where Obymare’s stablecoin OBYUSD is being used as the asset against which the native token MIN is paired. A thorough explanation of;
- The current problem — and thus the need for an additional liquidity pool.
- Obymare
- OBYUSD
- The proposition from Big Blymp
has been elaborated upon below.
Scope of Changes
- Implementation of secondary liquidity pool pairing $MIN with a stablecoin on Minswap to allow for arbitrage volume to occur.
- Effective merge between current Emmisions Council’s plan to reduce LP Depth of MIN-ADA and reallocate into a yield-bearing, volume increasing strategy for $MIN.
Problem statement
Currently, Minswap’s native token $MIN has two main liquidity pools, both in the form of MIN-ADA.
With a cumulative liquidity pool depth of over 14M ADA, the current trading volume does not justify the depth of liquidity for $MIN to be this deep.
Source
The best way to visualise whether a token’s liquidity is being allocated appropriately is to compare the Liquidity Depth of said token to the Trading Volume said token amasses. In isolation, this derived metric is of little value however, in a comparative manner, it allows one to determine whether both the already allocated liquidity is being utilised well and whether a new liquidity provider should allocate liquidity to ‘token a’ vs ‘token b’.
Below are three embedded charts comparing the Trading Volume and Liquidity Depth of $MIN against those of two other major tokens in Cardano: $SNEK and $IAG.
24hr volume timeframe
Source
7D volume timeframe
Source
30D volume timeframe
Source
From the above, it becomes clear that the efficiency of the liquidity of $MIN is severely ‘underperforming’ that of what is possible in Cardano. Part of this is due to the limited CEX deployment of $MIN (which quite rapidly increases volume and thus arbitrage due to CEXes using orderbook logic) and, the other part is due to limited arbitrage opportunity on-chain. With a deployment of a parallel OBYUSD-MIN liquidity pool, we aim to help Minswap resolve the complex and layered issue of increasing trading volume in an organic and sustainable manner - with no ongoing overhead costs being a bonus via Obymare.
DEX Token ‘Dilemma’
Projects with tokens often aim to deploy their liquidity across multiple DEXes, and may even employ market makers to arbitrage between them – generating volume, volatility, and profit. However, DEX-native tokens typically can’t be deployed meaningfully across multiple DEXes due to conflicts of interest, as other DEXes are, by nature, competitors. As a result, they must explore alternative arbitrage strategies.
With $MIN, this could involve cross-asset arbitrage within Minswap if $MIN were deployed against multiple asset pairs, and/or CEX ↔ Minswap arbitrage.
This proposal will focus on the cross-asset arbitrage model as the core actionable method.
What is Obymare
Obymare is a crypto-collateralised stablecoin protocol that leverages ADA as the sole collateral asset to mint the ADA-backed stablecoin OBYUSD. As an interest-free, fixed-fee loan design that allows the minter to retain their staking rewards, it offers an attractive yield opportunity for capital deployers wishing to earn yield on their ADA holdings while still accessing a stablecoin. Additionally, designed as a completely immutable protocol, Obymare has no governance structures. This means that any capital deployed into the protocol can never be subjected to the proxy decisions of a third-party “DAO”. With an audit already complete and our codebase fully open-sourced, Obymare is currently in its testnet phase on the Cardano Preview testnet.
What is OBYUSD
OBYUSD is the ADA-backed stablecoin that is minted from Obymare when a minter opens a collateralised debt position (CDP) on Obymare’s platform. With a minimum collateral ratio of 130%, a fixed minting fee of 1% on the amount of OBYUSD minted (payable in OBY) and no ongoing interest, OBYUSD offers the most competitive CDP stablecoin option on Cardano, catering to long-term DeFi users and capital deployers.
To read up more on Obymare, please do visit our website obymare.com - from where you can also access our Litepaper, Whitepaper, Audit report, Open-source codebase and our app on the Preview testnet.
For completeness, Obymare is a product built by Big Blymp (https://www.bigblymp.com), the builders of Yamfore (https://www.yamfore.com/), which is already live on Cardano.
The proposition from Big Blymp for Minswap
The proposition from Big Blymp to Minswap DAO is the creation of an additional Liquidity pool for Minswap’s native token $MIN, utilising OBYUSD as the asset against which the $MIN is to be paired. This endeavour has multiple benefits, systematically discussed below:
The opportunity for arbitrage
Currently, both liquidity pools of $MIN being paired against ADA cause a very unilateral market dynamic of $MIN and its price action. Furthermore, a significant dependency is placed on the USD value of ADA for the valuation of Minswap as a protocol — a factor that is important to consider when examining Minswap within the broader Web3 space.
By introducing an additional liquidity pool, an arbitrage opportunity is created.
Providing a better Volume:Liquidity Efficiency setup
As mentioned above, the current efficiency of the liquidity provided for $MIN is suboptimal, performing significantly below what other major tokens, such as $IAG and $SNEK, are achieving. Ideally, we would want to model the amount of volume a secondary liquidity pool for $MIN would generate as this would tell us the exact numerical increase to the overall trading volume of $MIN. However, the mathematical ability to determine that is currently outside our scope (it is dependent on a calculation correlating the price impact on the new pool dependent on its liquidity depth whilst simultaneously needing to determine what price slippage on the initial ADA pegged pool would trigger the secondary pool for arbitrage). As a solution, we present to you what the efficiency of the additional OBYUSD paired liquidity pool would be given six different scenarios:
- Where 5% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
- Where 10% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
- Where 20% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
- Where 30% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
- Where 40% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
- Where 50% of the trading volume from the MIN-ADA pool is also routed to the MIN-OBYUSD pool
All this data using historical values has been compiled into this dashboard below for you to view
The takeaway: Under every scenario, the efficiency of a smaller secondary liquidity pool is greater than solely the MIN-ADA one. This would likely incentivise greater open-market liquidity providers too to provide liquidity to the MIN token as it makes greater sense to do so. Whilst the argument can be made that “by routing x% of volume through a smaller LP will always be more efficient”, 5% of the MIN-ADA LP would equate to a liquidity depth size of 700k+ ADA, a number far from our proposition below - see “The process” section.
The data for the above charts has been acquired using Ch!cken.ada’s open source Eggsact Data Forge tool, accessible here. The full dashboard of all the charts has been publicly shared here: https://docs.google.com/spreadsheets/d/e/2PACX-1vQYsyBrmz9X5Fm-cjvn4D3uJeem2e9gU38_2LfZ4Us9dEXV_otA-YHKhnPHiQTzGgA7X9MlABBChS1w/pubhtml?gid=1589960738&single=true
For access to the exact data being cited in the charts above (to verify if desired), it is accessible here: MIN Data | SNEK Data | Iagon Data
Providing liquidity in a form that isolates Liquidity Providers from dual exposure
As mentioned above, current liquidity provision mechanisms are highly dependent on ADA. Not only does this expose the valuation of the protocol to the USD price of ADA but it also forces liquidity providers to take on dual asset risk — exposing themselves to both the price of ADA as well as the price of MIN.
To mitigate this dual exposure for both Minswap as a protocol and Liquidity Providers, setting up a liquidity pool pairing MIN against a stablecoin acts as an optimal solution.
Why utilise Obymare
Given the benefits explained above, the only question left to answer is “Why utilise Obymare for this endeavour?”
To answer this thoroughly, we will go into detail on each of the aspects we believe are crucial for this:
Most competitive CDP stablecoin framework.
Obymare offers the most competitive CDP-stablecoin framework on Cardano, featuring a fixed 1% minting fee, a dynamic 1-3% redemption fee dependent on the CDP being redeemed against, no ongoing interest payments, and no governance structures. This design makes the protocol completely immutable and safe from any future parameter changes that a DAO may decide upon.
Removing the “choice” factor
By utilising a CDP stablecoin for this endeavour, Minswap DAO is not forced to choose between selling ADA and committing to a new strategy allocation. Instead, Minswap DAO will simply leverage the underlying value of the ADA without selling it to mint the stablecoin OBYUSD, which can then be paired against existing DAO MIN reserves (acquired from liquidity withdrawal as per the Emissions Council or idle $MIN reserves under the DAO treasury) to create this new liquidity pool. Of course, appropriate management of the CDP will be required, but we elaborate on this further below in the “The Process” section.
Yield benefits
Especially in light of our 0% ongoing interest parameter, any capital deployer utilising Obymare to mint the stablecoin OBYUSD retains the complete nominal amount of ADA collateral they deposit in the CDP. With this ADA continuing to earn delegation rewards for the minter, it serves as an additional guaranteed* yield avenue for the tenure of the CDP’s position being open.
*subject to the delegation rewards of the chosen Stake Pool
Rebate structure
Given that we, Big Blymp, are presenting this proposition to the Minswap DAO, we are also willing to offer a rebate of up to 50% of the minting fee that the Minswap DAO will incur to mint OBYUSD for this endeavour, up to a value of USD 2,000. We believe this is ultimately a mutually beneficial endeavour and thus, we wish to see Minswap DAO embrace this opportunity for the yield potential and value it brings to Minswap’s token, $MIN.
The process
With the overview out of the way, we would like to provide the Minswap DAO with both a direct numerical proposal and the necessary tooling to aid in the creation of this new Liquidity Pool.
Exact numerical proposition.
From the data and visualisations above, we can see that for any liquidity depth from 100k to 500k, a secondary liquidity pool will always be more efficient. Thus, we propose to the Minswap DAO to set up a liquidity pool for OBYUSD-MIN, targeting a liquidity pool depth between 250k ADA and 500k ADA.
Tooling
To aid in understanding what a 250k ADA LP depth would look like, we defer the DAO and its members to this tool here: https://docs.google.com/spreadsheets/d/1wC_ZFABymnuKXFfkzLLOt2gfYcEEHq6Kv2X0pxl4kRY/edit?usp=sharing
Because the actual process of acquiring OBYUSD involves minting it utilising ADA at a desired collateral ratio, the first step would be to decide on this collateral ratio. We propose a 225% collateral ratio for minting OBYUSD, as this sets the liquidation price far enough at $0.46 USD per ADA.
At the current MIN-ADA pricing of $MIN (at time of writing, the tool is dynamic), this would mean that to achieve a minimum LP depth of 250k ADA, 4.55M $MIN must be deployed, along with 281,295 ADA. To accomplish the 500k ADA worth of LP depth, this would require 9M $MIN to be deployed alongside 562,590 ADA (at current $MIN pricings). We propose that this capital be withdrawn directly from the MIN-ADA LP (the portion under the DAO’s control) to support this endeavour instead of deploying additional treasury funds. This would closely align this proposal with the existing and ongoing activities of the Emissions committee, as outlined in the earlier proposal here.
Ongoing management
We, at Big Blymp, do not wish to become a proxy party for Minswap DAO in its activities or capital management. Therefore, we entrust the execution of this proposal to the two existing Working Groups within Minswap’s Community: the Emissions Working Group and the recently formed DAO Treasury Management Working Group. We do, however, remain available and at their disposal should any consulting on this proposal be required.
Because managing a CDP is not a static process, ongoing management of the CDP on Obymare, or the newly set-up liquidity pool, is ceded to both parties, allowing for responsiveness in volatile market scenarios to be executed without a follow-up DAO proposal.
Additionally, a third sheet has been included in the calculator tool provided above to enable the DAO Treasury Management Working Group or any other member to understand the yield possibilities through the strategy of deploying ADA into an OBYUSD-ADA liquidity pool. We believe that deploying idle ADA reserves into the OBYUSD-ADA Liquidity Pool is a fantastic way for the idle ADA to earn greater yield than current Cardano delegation rewards, as the current delegation rewards are at an average of 2.34% (source: Waffle Capital’s June Cardano Insider report)
Step-by-step pathway
Below is a simple step-by-step pathway for the respective working groups above to act upon should this proposal pass. We will be providing numbers using the minimum proposed 250k ADA LP depth, with further expansion desires ceded to the respective groups above. Lastly, revision of the exact numbers at time of action using the calculator tool is advised – again, ceding the decision to the respective working groups above.
- Withdraw LP from the MIN-ADA LP to receive 281,295 ADA and 9,674,956 $MIN
- Deposit the 281,295 ADA into Obymare to mint OBYUSD at the 225% Collateral Ratio
- Pair the minted 100,442 OBYUSD along with 4,300,000 $MIN to create the new OBYUSD-MIN liquidity pool. We recommend matching the LP fee from the MIN-ADA pool of 1% for this new pool of MIN-OBYUSD. Decision to make the LP fee on this new pool lower is also supported - we leave the decision to the respective WG above.
- The remaining 5,347,956 $MIN can be retained by the Emissions council as a part of the ongoing liquidity thinning process.
Costs
The proposal above bears only one cost, which is the minting fee that will be incurred when minting OBYUSD. This minting fee will be payable in $OBY – which Big Blymp is willing to rebate Minswap DAO 50% of up to 2000 USD.
Apart from this minting fee, the proposal is, by nature, a capital deployment strategy for Minswap DAO to consider, providing an avenue to increase trading volume on the $MIN token and diversify liquidity options for $MIN in a cost-efficient manner (compared to CEX activations).
Main Links shared above.
Complete Dashboard with all charts: https://docs.google.com/spreadsheets/d/e/2PACX-1vQYsyBrmz9X5Fm-cjvn4D3uJeem2e9gU38_2LfZ4Us9dEXV_otA-YHKhnPHiQTzGgA7X9MlABBChS1w/pubhtml?gid=1589960738&single=true
Calculator to understand LP setup numbers and yield benefits: https://docs.google.com/spreadsheets/d/1wC_ZFABymnuKXFfkzLLOt2gfYcEEHq6Kv2X0pxl4kRY/edit?usp=sharing
Summary
In closing, we at Big Blymp propose that the Minswap DAO create a new OBYUSD-MIN liquidity pool to enhance $MIN’s trading volume and capital efficiency. Analysis shows that even with just 5–10% of the current ADA-MIN volume routed through a smaller OBYUSD-MIN pool, the volume-to-liquidity ratio significantly outperforms the existing setup. A target depth of 250k ADA is proposed, using 281,295 ADA at a 225% Collateral Ratio and 4.55M $MIN reallocated from the DAO’s existing ADA-MIN liquidity position. The additional pool would reduce dual-asset exposure for liquidity providers and introduce a stablecoin-paired liquidity pool, allowing for arbitrage opportunities on $MIN that are currently not possible. Obymare’s protocol structure ensures no ongoing interest payments, ensuring the full nominal amount of the ADA acting as collateral remains, the minter maintains ADA staking rewards (which in this case will belong to the Minswap DAO), and we are willing in this proposal to rebate the minting fee incurred up to $2,000. We believe this is a low-cost, data-driven approach to enhancing $MIN’s liquidity efficiency and trading activity within Cardano’s ecosystem.