Use Minswap DAO treasury funds to mint USDM and seed USDM/ADA pool

Proposals
1

Introduction

This proposal advocates for the Minswap DAO to utilize its treasury funds to mint USDM, the first 1:1 fiat-backed stablecoin on Cardano, and subsequently establish a 50/50 USDM/ADA liquidity pool within the Minswap DEX. This initiative aims to enhance the functionality and security of the Minswap ecosystem, while generating sustainable yield for the DAO and its stakeholders.

II. Advantages of Minting USDM and Establishing a USDM/ADA Pool

Enhanced Security and Stability: USDM’s stable nature mitigates volatility risks associated with other cryptocurrencies, providing a secure and reliable store of value for the DAO treasury.

Increased Liquidity: Minting USDM and establishing a USDM-ADA pool will attract new users and investors, significantly increasing liquidity within the Minswap DEX. This, in turn, benefits all users by tightening spreads and reducing slippage during trades.

Sustainable Yield Generation: The USDM/ADA pool will generate passive income for the DAO treasury through various mechanisms like swap fees and potential future yield generation protocols. This additional revenue stream can be used to fund future Minswap development initiatives and community projects.

Greater Flexibility for Users: The presence of a readily available USDM pool allows users to seamlessly enter and exit the Cardano ecosystem, facilitating various investment strategies and fostering a more user-friendly experience.

III. Implementation Details

Minting USDM: This proposal outlines the specific amount of DAO funds to be allocated for minting USDM. This allocation should be carefully determined based on factors like market conditions, risk tolerance, and potential future needs of the DAO.

Establishing the USDM/ADA Pool: It’s also important to consider how we ratio this liquidity. The benefits of Ada being paired with a stable will reduce overall volatility and allow for greater liquidity in the market thus the greater amounts in each pair will increase this exponentially.

Poll amounts:

Option 1) 125k Usdm and 125k worth of ada
Option 2) 80k Usdm and 80k worth of Ada
Option 3) 65k Usdm and 65k worth of Ada
Option 4) 55k Usdm and 55k worth of Ada
Option 5) 40k Usdm and 40k worth of ada

Note: Each option can be reconsidered once the LP is established and Usdm has been in operation for a period of time.

If approved the designated team from the DAO will work with a pre determined escrow or trusted 3rd party to manage the transfer of USDM to the DAO’s designated wallet.

IIII. Risk assessment and Mitigation strategies:

Liquidity Management: Difficulties maintaining sufficient liquidity within USDM/ADA pool could lead to increased slippage for users swapping between these tokens.

Market Volatility: Sudden and significant fluctuations in the price of ADA could impact the overall stability of the USDM/ADA pool potentially causing impermanent loss for the liquidity providers.

Mitigation strategies:

Liquidity Incentives and Monitoring: Implement incentive programs to attract liquidity providers to the USDM/ADA pool. Continuously monitor pool liquidity and be prepared to adjust incentives or pool parameters as needed.

Diversification: Consider establishing additional liquidity pools with other Cardano native assets to mitigate the impact of ADA price volatility on the overall USDM ecosystem.

IV. Conclusion

Minting USDM and establishing a USDM/ADA pool presents a compelling opportunity for the Minswap DAO to bolster the Minswap DEX and generate sustainable returns for its stakeholders. By leveraging USDM’s stability and the established reputation of ADA, this initiative can significantly enhance the security, flexibility, and overall user experience within the Minswap ecosystem.

We encourage the DAO members to carefully consider this proposal, engage in open discussions, and ultimately vote to determine the best course of action for the continued growth and success of the Minswap DAO and the Minswap DEX.

Should this proposal go on-chain?

  • Yes
  • No
0 voters
4 Likes
2

We will need to think about sizing of the usdm mint and total LP position relative to the current asset allocation of the Treasury, but this is an amazing proposal and can’t wait to see this on chain! We will also need to analyze the risks of USDM. I am a fan of Fiat backed stables personally and believe the centralization, regulatory and liquidity risks are more than offset by the increased peg stability in general. But to be honest I still need to dig into the USDM offering, including custody, liquidity and solvency risks .

6 Likes
3

Thank you @blockjock for the Proposal.

This is a chance for Minswap to contribute to the USDM launch strongly and ensure a deep USDM/ADA Pool.

One thing I would like to mention for all Proposals going forward, to please follow the Temp Check Discussion followed by Temp Check Poll structure. You can read the details here.

Another thing I would point out, is that as we commence to deploy DAO Assets, we need to prioritize risk management. This was learned the hard way on the latest Proposal to add Liquidity to Lenfi, where a risk previously unknown was discovered just after the Proposal had been on chain for some days. One of the solutions that has been proposed is forming a Treasury management committee that would be monitoring and adjusting the asset allocation of DAO assets as they are deployed.

For the Mehen Proposal, this starts out by commencing perhaps with deploying smaller quantities into the USDM strategy at first. And adding as we see activity picking up and DAO Treasury growing. Currently the DAO Treasury has 825k ADA or 600k USD, using 110k USD as in Option 4) would be already almost 20% of the DAO Treasury. This is also considering there will be a Proposal to list MIN on prominent CEX soon which would entail high costs.

@blockjock I would thus strongly recommend adding a lower option as well for those 2 reasons such as 40k USDM and 40k USD worth of ADA.

7 Likes
4

Having a proper stablecoin would need to be backed with a range of pools, perhaps considering adding MIN/USDM to that list as well. But I like the overall idea and rejoice we finally have a good stablecoin on ADA.

1 Like
5

Finally :slight_smile:
I will agree with purrito for more options with smaller amount taken from the treasury

1 Like
6

great idea and have made the suggested edit along with a quick note.

5 Likes
7

I really wish we had a working Treasury MGMT group because my preferred choice would be “allow Treasury MGMT working group to allocate up to $$ USDM”. This would put the maximum amount that a working group could allocate to a strategy while if some unforeseen risk comes up between DAO vote and deployment, or even after deployment, the working group can move quickly.

3 Likes
10

We would need to set up the Treasury MGMT working group before this Proposal goes live.

This doesnt seem possible unless we expedite other Proposals that allow for quick setting up and funding of Working Groups under DAO structure/funds. Meanwhile, the community has been pretty vocal about getting USDM liquidity set up asap, so it doesnt seem like it will be possible.

My suggestion: do this proposal under current DAO Treasury management set up, and eventually transition these duties to the Treasury MGMT working group, once that is created.

2 Likes
11

I 100% agreee. I am just wondering if u e can future proof this proposal a bit and allow for a future Treasury MGMT working group to adjust sizing if needed.

2 Likes
12

Definitely need a working group to manage the seeding of this LP and of course decide prudent amt, the poll should be a suggestion as to how much but then the working group can decide what is best based on current treasury total and other things that will need treasury funding in order to be completed.

2 Likes
13

Here is a review of the risks

2 Likes
14

Definitely need more in between options
But lets get this on the polls.
About time

1 Like