SPS Governance Proposal - SushiSwap Bonding Protocol Launch Partnership

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(Edited)

Community Proposal #15

We have been presented with an opportunity to participate in the launch of SushiSwap's new Bonding Protocol. It's a bit of a complex concept and a reframing on how liquidity pools should work overall, so I'm going to do my best to breakdown what a DeFi Bond is and we'll discuss the terms of the proposal at the end.

Currently we are offering LP incentives to rent liquidity in our liquidity pools. When the incentives stop, the liquidity providers will likely remove those funds and put them elsewhere seeking higher returns. It's a net negative form of token emissions as we're spending and in the end will likely be left with nothing to show for it.

Enter an alternative liquidity pool funding structure: DeFi Bonds! A DeFi bond is different from a traditional "liquidity mining" set up like the ones we are currently using on all of our pools. In a DeFi bond, the DAO would sell tokens for the creation/funding of a pool and then the DAO would own the funds forever.

Here's how it works: First a smart contract for the bond market is created. The terms can vary, but in the example we'll be using today, let's assume we offer a 5% discount and there's a 5% backend service fee for successful funding that goes to the host of our pool, in this case SushiSwap.

We then allocate a set amount of tokens that we want to sell on the bond market. The amount of tokens allocated for bond sales goes into a wallet to be offered for sale under specific terms. The tokens will be locked for a set amount of time, only a set amount can be purchased per day so they don't all unlock at once, and the bonded tokens can only be purchased with LP tokens. This means that the people buying our tokens are building DAO owned liquidity pools that the DAO will earn the fees on going forward. The DAO is also free to take that liquidity out of the pools and move it elsewhere or use as it sees fit.

The difference in this approach is pretty substantial to what we have been doing. Instead of paying to essentially borrow liquidity, the DAO could use that inflation to permanently own liquidity. There's a lot of opportunity to explore this further if things go well and then potentially scale back our LP inflation spending and turn that expense into Revenue for the DAO. To put it simply, would we rather own liquidity or continue to rent it for the next 3 years or so with token inflation?

That's a discussion for a later time once we see how this proposal goes and if it passes, we'll have to evaluate the effectiveness and demand for the bonds. For now, let's look at the terms on offer and decide if we want to proceed:

If this proposal passes, the SPS DAO will allocate $100,000 worth of its SPS reserves to be sold in a SushiSwap Bond Market. This is a new offering and we will be a launch partner, which means that SushiSwap will be promoting our bond market as well as hosting Twitter (X) Spaces in which we can participate to help market our pool.

The funds that are allocated will be used to build a v3 SPS:ETH pool on SushiSwap. We will offer a 5% discount on the bonded tokens with a 30 day lockup. Sushiswap will earn 5% of any sales generated. If there are no sales, this cost us nothing and we get free promotion.

Total expenses from this would be less than $10,000. We get a new LP in which the DAO will own the liquidity, we get to promote SPS and our new bond market with SushiSwap, and if things go well we can look into this as a sustainable approach to building LPs that are not a constant expense on the DAO. Thanks for your time and consideration.

Partner's Notes

How does the community benefit?
As we see it, the goal of the community is to earn rewards for contributing, to hold an appreciating, liquid token, and to decentralize the distribution of the token.

Token incentives
WHY- Loyal users who hold $SPS token or $SPS liquidity should be rewarded
HOW- This is simple, there are a million programs to facilitate rewarding users with tokens. Bonds allow users to contribute to the DAO in a permanent and meaningful way while still earning a yield for their contribution. Because the liquidity used to purchase the bonds will be held by the DAO, Users can confidently hold or sell their tokens avoiding large price impact and a race to the bottom as seen at the end most other liquidity incentive programs.
Token appreciation
WHY- Token Holders want to be rewarded for holding by having their held tokens appreciated in value.
HOW- We would never claim that we can cause the token price to appreciate as we believe anybody claiming that they can assure token appreciation in price is either lying or manipulating the price of the token artificially. What we can do is relieve the inflationary pressures that are opposing price appreciation. Bonds are a means to end the need for farming incentives permanently. This relieves the pressure of inflation, allowing demand to have a stronger effect on token price.
Token Liquidity
WHY- If holders see their tokens appreciated but they cannot sell them then they have no value to the holder.
HOW- As I’m sure you all know, the function of most incentive programs is to deepen liquidity. The problem with many of these methods is that they provide temporary deep liquidity while they run but this liquidity evacuates when the program ends, forcing a game of selling your rewards before there is no liquidity to do so. If the liquidity is instead built permanently and held and locked by the DAO, Traders can trade freely and aren't at odds with each other.
Decentralized distribution
WHY- Having more holders with less tokens each empowers the individual token holder.
HOW- One thing that we agree on in DeFi is that there is power in decentralization. We prefer tokens with more smaller holders over tokens with fewer large holders. With most current distribution methods, we see “Mercenary Miners” holding the overwhelming majority of staked tokens. These users strategically farm tokens for profit to make a living. Because of this, if rewards decrease, their position is no longer profitable and they will move their funds to a more profitable token. These large shifts can cause huge price depreciation as tokens are being sold while liquidity is unpaired, causing a magnifying effect on the selling.

Why should you vote yes?
You want to end the need for emissions permanently
You want to earn a return for investing in $SPS
You want more decentralization of holders
You want the token to be liquid for trading
You believe in sustainable DeFI

Edit: Adding an example to help illustrate the bond costs and return:

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spsproposal spsdao sps splinterlands dao defi
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I am a huge believer of decentralized platforms @clayboyn I look forward to seeing where this will go. Happy New Year my friend.

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I'll preface my comment by saying I'm by no means an expert on liquidity, so I had to read this through twice before forming an opinion. Based on my understanding, I think this proposal is a good bet, primarily for 3 reasons:
(1) It creates a more sustainable way of injecting liquidity for SPS into the market. This is essentially a test and, if it's successful, we can add more in the future to supplement or replace current forms of liquidity.
(2) It will increase adoption of SPS on SushiSwap, which gives more exposure for Splinterlands to players on Ethereum.
(3) It provides exposure via marketing. If the bonds sell out, then our expense is $10k, but that also means there were purchases, which is a good thing. If we then think of the $10k as a marketing expense, it seems rather reasonable.

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There's a lot of buzzwords in here that I feel we need to understand if we want to pass this proposal.

If I understand it right, we are simply making our own SPS DAO the holder of the liquidity offered on this (meaning both sides of the pool). We will be selling $100k of our SPS to stake $50k onto each side (presumably, from what I can tell). Then, in essence we own the whole pool and no one competes with us (no individual players).

I will admit that its very confusing and I might be completely wrong. But I don't understand what the difference of this is versus us just providing all the liquidity on a Sushi Swap pool of our own, and thus not paying the $10k. If true, why couldn't we just do that and get the same outcome and save ourselves $10k?

I think there are 2 other separate issues that also need to be considered:

  1. what is the marketing benefit from this if we look at it from the angle that we are spending $10k to get eyeballs on our project. How do we judge success?

  2. what if this succeeds, and its a great way for the DAO to fund the future liquidity pools, will our community be willing to vote against the LPs as they exist today?

I personally would like to hear from the big liquidity providers and hear from them that they would be happy with us doing away with the current liquidity provision mechanism where they make good money.

If we are going to consider providing liquidity another way (by having the DAO do it themselves), then I would at least like to know whether or not the big LP providers would accept that.

If I understand it properly, I do think this is interesting, and could be a great way to think about the future way of providing liquidity. I definitely need to understand it better and will be spending time over the next few weeks trying to get knowledge and understanding so I can make an informed vote.

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I'm not really a buzzword guy, perhaps there's just unfamiliar terms? That said I'll try to address your comments/concerns:

The DAO could 100% just open up liquidity pools and it owns millions of dollars of assets that it could do so with. That said we have a rather large portion of our overall token supply allocated to "LP rewards" which if you draw it out to its logical conclusion is us paying people to park liquidity in pools until the point we stop paying them. While we are doing that, they are also earning the fees the pools generate. Essentially the "liquidity mining" method we are using allows people to double dip their earnings and it leads to things like what we have right now, people taking out loans for tokens to put in pools because we pay more APR than the loans interest rates, so it's essentially free money for them until we stop paying. It's a short sighted method and unsustainable.

The marketing benefit is that we have one of the largest and oldest defi platforms that exists promoting us as they have a heavily vested interest in making this bond sale a success. We get promotion on their page, we get to do twitter spaces with them, and we gain exposure to defi/eth people that may not know much about our project. Success would be subjective, but if the bonds don't sell it doesn't cost us anything.

If it succeeds, I will do my best to educate our community on why "liquidity mining" is fundamentally flawed as a concept and has an expiration date. That expiration date is when we stop paying people to borrow money to prop up our pools because we pay more than they spend on the loans. The DAO could just take out its own loans and keep its inflation and pool fees.

As far as gathering the opinions of large LPs, I spoke about this with cryptoeater before bringing it public and I have had several conversations about the unsustainability of our LPs with leveluplife, but you should also consider that asking the people that are currently "mining" the rewards and have a vested interest in not changing anything could in itself be flawed. I value their opinions and perspectives, but I'm also very aware people tend to do what is in their own personal best interest most of the time.

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(Edited)

Thanks for the information Clay and I wasn't being derogative on the "buzzword" comment, it does have a ton of buzzwords that I'm not sure how they apply:

defi bonds - this doesn't fit with a traditional definition of bonds
liquidity mining, token incentives, etc are other such terms.

I feel all of these are shortcut words that conjure up an image that sounds good, but may not necessarily be understood by many. So my point is I find myself having to really dig in deep to figure it out.

and it sounds like from your answer that this is exactly us using our own funds to provide liquidity. So if we do $100k worth of SPS, that's $50k of our token and $50k of a paired token.

Is there any difference in us doing a $100k pool with our own tokens and us doing this?

Second question, there is no fee if we don't sell any bonds. Who do we sell the bonds to?

What yield do buyers of the bonds get if we aren't paying any "liquidity mining" fee? There's not enough volume of transactions to make it profitable to my knowledge without liquidity mining concessions, so I really don't know how these would have more than a 1% yield and who would buy that bond?

Third question, if we sell $100k worth of SPS, where does that money go? Are we issuing and buying our own bonds with that liquidity?

I'm not trying to be argumentative, but I don't think this is clear at all (not because you failed at explaining it, but because its complicated in general). In order to make a wise decision, I think we need to know these things. I know at least I do.

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Defi bonds are just what they're calling this. To me it would be more accurate to describe it as the opposite of a bond? Fair enough on that being buzzword-y lol.

Liquidity mining is what we currently do. Pay token inflation for people to put funds in a pool and earn a percent of that inflation for "mining with their liquidity." The "mining" in question is basically being the counterparty for pool trades.

Token incentives are the inflation we're minting and paying to the liquidity miners.

I don't take any offense, I do my best to make these proposals as simple to understand as I can, but I'm not perfect obviously. Always feel free to ask questions, I don't want this stuff to feel like a smoke and mirrors thing at all. My goal is clear and concise info so the DAO can decide what it wants to do.

Is there any difference in us doing a $100k pool with our own tokens and us doing this?

We actually very well could. I've got a draft on how to rework LPs and one of the things I really want us to do is set ourselves up for long term success so that we aren't on a deadline to lose our liquidity. It also seems prudent to me to deal with this soon as opposed to waiting for 3 more years until that inflation runs out. It's like we have a destination that we're going to get to and we can take a swift shortcut and save a lot of travel expenses or we can drag it out for 3 years and waste a ton of money to end up at the same place. All in all we really need to work on reforming our approach to LPs.

Second question, there is no fee if we don't sell any bonds. Who do we sell the bonds to? What yield do buyers of the bonds get if we aren't paying any "liquidity mining" fee? There's not enough volume of transactions to make it profitable to my knowledge without liquidity mining concessions, so I really don't know how these would have more than a 1% yield and who would buy that bond?

We'd sell the bonds to whoever wants to participate, so this could be new people that have never heard of SPS that hear about this through SushiSwap marketing efforts or it could be some of our own community members. The only yield those buyers would get is the 5% discount. The DAO owns the LP tokens and would be the one earning on any trading fees the pool earns. The thing is that if the DAO owns the liquidity, it doesn't have to earn on it. Any earnings is a bonus, the real value is we stop just paying inflation to rent liquidity. Thus it turns what is currently an expense (net negative inflation) into potential revenue, even if it's not a lot.

Third question, if we sell $100k worth of SPS, where does that money go? Are we issuing and buying our own bonds with that liquidity?
The funds are sold for liquidity tokens. The DAO would own the liquidity tokens and earn on them. The DAO could also exit it's LP position and take those funds elsewhere if chose to do so. The DAO would be the full owner of the proceeds here, sushi would take its 5%, and the people that bought the bonds get a slight discount on some SPS. It's essentially the DAO selling tokens. The reason it makes sense is we're currently just spending tokens to rent liquidity. Hundreds of millions of tokens are apportioned to LP incentives that have been being given out and are scheduled to continue to be given out for at least 3 more years. After those tokens are gone, we're left with nothing. I consider this a test case to see if there's any demand for these bonds, a bit of marketing, and if things go well, a good trial for the DAO potentially owning more of its own LPs.

I'd say the big TLDR here is this:
We don't have to do this. I look at this proposal as a marketing proposal first and foremost. Does the DAO want to take a (at most) $10,000 shot at some nice marketing with SushiSwap and try out something new? Long term, we need a lot of overhaul on our approach to LPs and it's next on my to do list after tournaments. Maybe to some extent it'll coincide with tournament work.

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. The only yield those buyers would get is the 5% discount.

and if I understand this right, the buyers of the bonds get a 5% discount for 30 days and then they can get out. If so, then that means we are back to no liquidity unless we do another bond for another 30 days.

Is this correct?

For your understanding, I am drilling down on the sustainability of this model. I do love the idea that we stop paying liquidity fees to the LPs at some point, but I really don't understand how this will incentivize money to stay invested in the LPs.

My read on it is that we will get people to buy the bond for a guaranteed 5% for 30 days, then they will cash out (I would too). From there I think we got liquidity for 30 days, but then we lost the liquidity after the 30 days. So I see no sustainability at all.

Again I'm not upset or anything, I really can't see where this gives us a sustainable model at all. In fact it seems more expensive than what we have currently.

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I think we addressed this on Discord, but to try to clear things up here...

The buyers get literally nothing but the discount on the tokens they buy. If they buy 100 dollars worth of SPS, $95 is proceeds which goes into the liquidity pool, Sushiswap would own 5% of those proceeds and the DAO owns the rest, let's call it 90 cents on the dollar after everything is said and done.

There is no ongoing commitment from the buyer. After 30 days they can do whatever they want with their SPS. The liquidity is owned buy the DAO, that's what they use to purchase the discount tokens. The DAO is free to do whatever it wants with the liquidity that it is essentially buying with SPS.

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yes we did clear it up on Discord and I appreciate you clearing it up here too Clay. Thank you!

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Providing those bonds is more or less the same thing as selling the tokens and put them ourself in the liquidity pool, but with extra costs.
From what I understand we pay the people 90% of their liquidity position, they hold it for a month and then dump the sps to buy more eth get liquidity and then buy another bond than dump again and so far.
So in total we are offering a 120% APY on liquidity since it is a 10% with 30 day vesting period?

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I addressed this is in Discord but I'll share my thoughts here as well for posterity:
The APR is very incorrect. We'd be paying 5% discount on tokens with the 30 day lockup. 5% of whatever is sold also goes to sushiswap. If we sell nothing, we pay nothing at all and just keep our tokens.

I love this concept of making a more sustainable DeFi and the DAO owning liquidity positions = income for the DAO. I'd like us to consider that something like this (even if not this exact deal) is a much better approach to defi than spending hundreds of millions of tokens to rent liquidity for another 3 years that all goes away when we stop the payments.

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(Edited)

You are right the apy is just 60% for someone just buying and reselling the sps after the 30 days, but our cost is like we provide nearly 120%.

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Thank you for your witness vote!
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(Edited)

Do you understand that you vote is considered “dust”? Upvote or Downvote? On the contrary I can nuke your account? So that you know :)

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Thank you for your witness vote!
Have a !BEER on me!
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how does it make it more sustainable if we have to continue paying a 5% discount every 30 days? Now I'm really confused.

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This sounds like a great opportunity for the long term growth of Splinterlands, I wish this was done on day 1! I'm all for the DAO owning its own liquidity, I believe it is an important step towards an ultra sound SPS (deflationary).

This may potentially be a great marketing opportunity for the Splinterlands community as well if we do it right, so let's make the most of it!

With that being said, I do have some concerns as well. In the long term after we get the marketing from Sushiswap, would it not be better for the DAO to simply periodically sell small amounts of SPS on market for ETH, pair it with ETH and add it to LP? This is essentially what we are doing with these "bonds" but with extra steps (and extra fees!!)

Furthermore, if this passes and we vote yes on further proposals for the Splinterlands DAO to own liquidity, I would be careful about the next steps of reshuffling LP incentives too much. I would suggest reshuffling LP rewards gradually instead, for example, start reducing LP rewards by 1% per week instead of 1% per month.

Lastly, please ensure you include both pros and cons for a proposal in the actual proposal itself. I am a serial proposer, and I love including lots of information for both sides of the argument so users can make a clear and informed decision. I believe education is paramount in ensuring the DAO functions efficiently.

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I that's a solid outlook. We're going to for sure be having some proposals for LP inflation in the future regardless of this one. I also agree that we don't need to do a paid bond for this going forward, I look at this as a great marketing opportunity. Technically we already have more idle liquidity in the DAO than all of our pools combined, so we could theoretically just not print that inflation at all if we didn't want to. I do think phasing out instead of abrupt changes is the smart play.

All of that said, there's a lot of questions and considerations and many more discussions to be had. Tournaments are currently eating up the majority of my time, but LP reform proposals are coming. I appreciate your insight thus far (and other big LPs that I've spoken to). I really want us to get our DAO to a place where it's comfortably self sufficient for years to come and I think we can do it!

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Thanks as usual for a super detailed explanation. I just have a question/suggestion:
Why SPS/ETH? Will not be way better to make a SPS/OP or SPS/Arb ? I mean, a SPS/L2, so to speak.
As a DeFi user myself, I think I don't use an ETH Pool since DeFi Summer...
Ty in advance

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Sushiswap is one of the big ETH defi platforms. We have ETH pools that are costing us a fortune with little use. It's a good target to eventually take over the ETH pools with future proposals. If we're going for new pairs, we should probably be looking for ways to incentivize creating new pools on other chains I'd think.

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I know, I was complaining the other day in a convo with you as well, I don't see the benefit on those pools either 😅
We should approach guys at Unlockd Finance or Kuji to have better exposure at way less cost, imho. Still, will vote yes as I'm cool with you shaking the coop

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Everything about this is complete nonsense. I've invested hundreds of dollars into this game just to watch it constantly fall and offer lesser and lesser rewards as the whales take control of the game. These proposals have ruined the game. This needs to stop!

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