MIN + OPTIM Farm on OADA<>ADA Pool

DeFi_Optimist · September 26, 2024, 8:15pm

Proposal: MIN + OPTIM Farm on OADA<>ADA Pool

Overview:

In response to a recent proposal from the Minswap community, led by Smurfy, advocating for the integration of an OADA/ADA pool, the Optim DAO seeks to further this initiative by outlining and expanding upon the mutual benefits of collaboration.

Smurfy’s proposal recommends allocating 500k ADA from the Minswap DAO wallet into the pool. To enhance the attractiveness of this pool, the Optim DAO is prepared to match up to 250k ADA from its own liquidity, creating a total seeded TVL of 500k ADA—250k provided by Optim DAO and 250k by Minswap DAO.

Additionally, institutional liquidity providers have shown interest in supplying the remaining liquidity to reach a pool size of 1 million OADA and 1 million ADA, contingent upon the provision of appropriate incentives.

This liquidity provider expects an overall APY of 4.8-5%, and our proposal aims to meet that target with the launch of a double farm for the OADA<>ADA pool, featuring both OPTIM and MIN rewards.

Previously, a stableswap was proposed for this pool and farm. However, given the technical restrictions, some liquidity has temporarily been added by the liquidity provider to a regular pool to test pool dynamics of a non-stableswap.

While this looks to be deployed on an ongoing basis, especially as Minswap explores the technical implementation of stableswaps supporting OADA, the deployment of incentives will ensure liquidity is sticky and continues to increase as OADA grows in circulation and deployments across the ecosystem.

Based on existing comparisons—such as the DJED/USDM stableswap on Minswap—we estimate that the OADA/ADA pair could generate trading fees of ~0.1% APY and expect an additional 1% from ADA rewards. With this baseline of 1.1% APY, a combined 3.7% APY from OPTIM and MIN emissions would be required to meet liquidity providers’ expectations.

To achieve this, the Optim DAO is requesting that Minswap provide MIN emissions covering 3% of the required APY, while the Optim DAO would match 25% of this contribution with OPTIM emissions, bringing the total to 3.75% APY.

At the current ADA price of $0.40 and a pool size of 2 million ADA (1 million ADA and 1 million OADA), the following contributions would be necessary:

MIN

((2,000,000 * 0.40 ) * 0.03 ) = $24000

$24000 worth of $MIN tokens, or at current MIN price of $0.0168, 1428571 tokens.

Rounded, we can say 1.43m MIN tokens.

OPTIM

((2,000,000 * 0.40 ) * 0.0075 ) = $6000

$6000 worth of OPTIM tokens, or at current OPTIM price of $0.146, 41096 tokens.

Rounded, we can say 41k OPTIM Tokens.

We believe this joint contribution is a fair and reasonable approach that provides the proper incentives for all stakeholders while ensuring the success of the double farm.

The proposed emissions would be distributed over the duration of 1 year.

1.1 Project Overview: What is OADA and its Impact on Cardano?

OADA is the newest DeFi product from Optim Finance, designed to enhance yield opportunities, governance, and composability on the Cardano blockchain. As the first yield aggregation dApp on Cardano, OADA deploys ADA reserves into productive strategies via Algorithmic Market Operations (AMOs) to generate yield for users.

The OADA system aims to deliver an attractive yield product while also improving liquidity and network security as Cardano’s ecosystem evolves. As such, OADA plays a crucial role in the next phase of DeFi on Cardano, enhancing the resilience of the underlying layer-1 protocol.

Optim Finance is an experienced team that has been building on Cardano for nearly 3 years with a strong track record of delivering innovative DeFi products. Optim’s first product, Liquidity Bonds, have securely handled over 150M ADA in cumulative TVL over the past two years since mainnet deployment.

1.2 Token Utility and Current Holders

The OADA system separates ADA into two token components: OADA and sOADA.

OADA: A stablecoin pegged to ADA, without staking rewards or governance functionality.
sOADA: A non-pegged token that captures all the yield generated by the system.

This proposal specifically focuses on the OADA token, which can be minted 1:1 with ADA and is useful across the Cardano ecosystem for liquidity provision, trading, and as collateral in lending protocols. Users seeking to convert OADA back to ADA must swap it on the OADA/ADA stableswap on Splash, or other dexes as more pairs become available. There is no direct redemption mechanism. This is done to more fairly price the cost of exiting the system with slippage rather than tiered fees.

OADA maintains a narrow peg range of 0.99-1.01 through the Splash DEX AMO, which balances the pool using ADA reserves and freshly minted OADA. While the current holder count is modest (84), this is expected, as most circulating OADA is actively deployed in smart contracts for liquidity, or staked.

1.3 Why a MIN + OPTIM Farm? Benefits to the Minswap Community and Ecosystem

A MIN + OPTIM farm would enable the OADA/ADA pool to achieve the necessary APY to attract institutional liquidity, which in turn would drive volume and liquidity on Minswap and across the Cardano DeFi ecosystem.

As OADA adoption continues to grow, its role within the ecosystem will expand. The recent seeding of a 1M ADA OADA/USDM pair on Sundaeswap is a prime example, positioning OADA as a key asset in arbitrage across dex pairs. With Minswap’s existing infrastructure supporting multi-pair routing, the OADA/ADA pool could capture significant arbitrage volume from the start. This will become even more attractive as aggregators such as Dexhunter integrate double routing as well.

Moreover, Optim recently proposed the Cardano Catalyst Partner Program which is designed to accelerate OADA adoption across the ecosystem. The program democratizes access to the ADA TVL (currently 20.5m ADA and growing) for the sake of Catalyst voting power in upcoming Catalyst Funds. The Optim DAO is already engaged in partnership with projects such as Fluidtokens, Clarity, and more. In fact, Fluidtokens has chosen to launch their OADA pair on Minswap.

DEXes participating in the program are required to provide at least 2.5 million OADA in liquidity, but the Optim DAO could be open to voting to adjust this requirement down for Minswap to make the pool more attractive. More details about the program can be found here.

If the DAO votes to lower the DEX requirement to make the proposed OADA/ADA pool on Minswap qualify, the Minswap DAO could then also consider qualifying for additional Catalyst votes with their own MIN/OADA pool, which would also help bootstrap arbitrage volume via Minswap DEX’s native multi-pool routing.

1.4 Tokenomics and Supply

OADA operates with a dynamic supply model, minted and backed 1:1 by ADA. As such, it doesn’t follow traditional tokenomics or have any vesting schedules. The supply adjusts based on the ADA reserves in the system, ensuring full backing and flexibility in response to market conditions.

1.5 Audit Information

The OADA core system has been audited by Anastasia Labs and is open-source. A bug bounty was conducted with no critical issues reported. For further details, the whitepaper, Github repository, and audit report are publicly available.

This proposal highlights the mutual benefits of establishing a MIN+OPTIM farm for the OADA/ADA pool, aligning incentives between the Minswap community, the Optim DAO, and institutional liquidity providers, while promoting deeper integration of OADA into Cardano’s DeFi ecosystem.

Ch_cken · October 2, 2024, 6:29pm

These considerations are directed to the Minswap DAO. Take my opinion with a grain of salt.

Effective liquidity management is crucial. After completing my current proposal, which aims to offer a solution for this, I plan to analyze options for MIN-stablecoin pools in a follow-up paper.

This proposal suggests utilizing ADA from the treasury.

In my view, ADA in the treasury holds significant importance. On the other hand, MIN tokens in the treasury have limited utility without diluting the utility of MIN holders. Their primary viable use cases are either as a payment mechanism— which could create sell pressure as the token’s value is realized— or for providing liquidity. Since the MIN-ADA pool does not require additional liquidity, the next best option, in my opinion, is to use it for MIN-stablecoin pools. This would facilitate arbitrage opportunities and position the treasury to shift more liquidity to stablecoins during a bull market when valuations get bubbly, preserving treasury assets and their value.

This excerpt reflects my beliefs, which I plan to substantiate with mathematical analysis and research in future papers.

Personally, I would be open to utilizing the MIN tokens in the treasury, but not the ADA. I anticipate that ADA will be necessary for securing key partnerships and other initiatives following the Dubai Summit, especially as Binance begins to show interest. We may also need to enhance centralized exchange (CEX) liquidity in preparation for increased demand. For these reasons, without conducting a comprehensive analysis, my preliminary stance would be to oppose using ADA. This decision is not influenced by OADA, but rather by a focus on prudent treasury management and reducing exposure to min. Good idea, but may not be the best time or may be better if we pair it with MIN (which will be explored in a paper coming up).

With that being said, if we do end up going this route then I would say that we must do a detailed analysis of how much ROI we are making on the ADA we allocated.

How much revenue can we project based on the volume of OADA with 0.75% pool fee. How much of this is ADA vs OADA.
How stable is the OADA asset if we were to hold it in our treasury as a stable coin to spread out our treasury assets and protect us against downside if the L1 crashes?
Can this ADA achieve a better ROI if deployed into other venues or to increase CEX exposure?
What % of the available ADA (that is not in liquidity pools) is this proposal asking for?

If we feel that we have ample ada leftover despite this allocation we should go for it. If the answers to these questions makes sense then we should go for it. I currently do not have the bandwidth do dive deeper than this and I apologize for any oversight, but these are my initial conclusions at a first glance.

CWSchub · October 2, 2024, 6:37pm

I’m curious as to why the proposal asks the Minswap DAO to contribute 4x the amount the OPTIM DAO is ready to contribute.

DeFi_Optimist · October 3, 2024, 10:40pm

The initial consideration was that Minswap would be benefiting from the provided TVL, volume, and fees.

25% seemed like a clean round number. We would be willing to bump it up to 33% of the total provided in OPTIM, against 66% provided in MIN.

calles · October 10, 2024, 10:32pm

I feel this is not a fair deal. This allocation seems too convenient for Optim, and Minswap not getting anything out if, since volume for the pool is very low. I odnt even see how this pool should receive any preferential treatment. MIN rewards follow a formula,.

zygomeb · October 16, 2024, 11:34am

I’ve decided to reply myself since the comments I made internally were not being relayed here.

A few points:

The Minswap Pool is not a stableswap we can use for ADA/OADA, and this is acknowledged as a shortcoming on the design of it
Volume on the Actual Stableswaps is the relevant part, and while not being ‘astronomical’, it pulls in consistent numbers. On average, ~45k ADA daily volume, where it comes and goes in spikes as people wind down their positions in the system. (Attached image from a pool live for the last 23 out of 30 days tracking)

There are two paths for this proposal to go, assuming that there is interest in following it.

Thinking about it like a farm box, where there’s parked ADA+OADA and Minswap DAO benefits from more ADA to vote with and redistribute staking, while catching no volume (as it isn’t a stableswap, and as such, can’t support any volume)
Thinking about it as a partnership, where it has long term benefits for Minswap DAO by working with the Optim DAO on supporting liquidity and volume going through OADA pairs. This would involve making it an actual stableswap we can use, that can support volume through it and not simply an ADA farm box.

Personally I prefer thinking about it as the second version, given the potential for extension into working together on leverage trading facility and OUSD pairings. I’m less interested in farming, as more benefit is yielded by integrations. Of them, to make this pair into anything real and meaningful beyond a farm box, would require either an adjustment to the code of the stableswap, or a routing through a “wrapped ADA” token internally on the Minswap side.