A proposal to kickstart the Flux Finance markets by supporting USDC, DAI, and OUSG (Ondo United States Government Bond Fund) will be voted soon. If the proposal is approved, users will be able to supply DAI, USDC and OUSG and will be able to borrow DAI and USDC.
For OUSG investors, it enables more capital efficiency, allowing them to borrow against a yield-bearing asset, and potentially allowing them to build a leveraged OUSG position to maximize their yield.
For USDC and DAI holders, it should lead to higher supply APY rates versus Compound or Aave, as there should be higher demand from OUSG investors in order to build a leveraged position.
I propose to allocate $ONDO tokens (amount to be defined) from the DAO treasury to incentivise the provision of liquidity for USDC and DAI markets (supply-sided and borrow-sided liquidity mining).
Supply-sided liquidity mining will help to bootstrap liquidity at launch for USDC and DAI markets.
Meanwhile borrow-sided liquidity mining will heavily subsidise borrowing costs for OUSG investors, allowing them to build a profitable leveraged position and ultimately attracting more TVL into Flux Finance and Ondo CASH protocol.
Feel free to add any suggestions you may think of, and if you guys think this proposal makes sense, it would be great to discuss more about details in this topic (allocation of tokens, duration…).
As one of the top ONDO governance delegates within a few days, we are in support of using rewards during an initial period. We think this is a beneficial incentive for users to migrate liquidity to Flux.
What we would like to add is:
1,000,000 ONDO (at CoinList sale price of .055 $55,000 USD) tokens to be used during the first 60 days to bootstrap the USDC and DAI markets, with 1/2 going to each pool. The rewards will be divided evenly pro-rata to TVL and will help bring more stakeholders for ONDO.
Thanks for your answer!
1,000,000 ONDO tokens over the first 60 days seems very anecdotical though (0.01% of total supply). It means $458/day for each market, don’t think it would make any difference to incentivise liquidity mining.
If we look at Compound v2 USDC and DAI markets, they are currently emitting about $25,000/day of COMP rewards for each market, with a similar current FDV of $530M. Also it’s important to highlight that Compound V2 is not in an early stage.
Early stage is crucial. In order to bootstrap deep liquidity at launch, the goal is to have competitive rates. And if we are able to do so, it will benefit to $ONDO tokens as there will be much more TVL into OUSG.
IMO, if we really want to attract deep liquidity at launch, we should allocate 1% of total supply for the first 3 months. It seems to be a manageable inflation and can make Flux Finance competitive versus other lending dApps. It would mean $7,500/day for each pool. From this, we could reach 9 digits TVL.
I think that Liquidity incentives are excessive in this case.
By the very nature of flux @ the profit-maximizing pool utilization (For Borrowing USDC against OUSG) flux will have a higher supply APY than comparable offerings on lending markets wrt USDC.
Given that market participants are rational actors Liquidity will naturally flow into the flux lending market irrespective of Liquidity mining incentives.
We agree with tom2o17. The rates are better for Flux versus Compound. Our stance is to add a smaller amount of tokens to genesis Flux users to increase ONDO distribution and offset some of the user gas costs.
I disagree with your points. You don’t take into account all parameters.
For USDC market on Compound V2:
Current supply APR is 2.03% (1.24% + 0.74% from COMP rewards).
Current borrow APR on Compound V2 is 2.93%.
So for 1.24% supply APR, borrowing cost is 2.93% APR.
OUSG APY is currently 4.62%. It means that leverage using Flux Finance would make sense if borrowing APR is strictly under 4.62% (at the very least, as leverage position adds some risk, it should be lower than 3.62% IMHO to be attractive).
If we consider a max borrowing APR of 3.6%, max supply APR for USDC should be 2.4%, versus 2.04% on Compound V2.
If you consider that USDC and DAI suppliers won’t have any possible use cases on Flux Finance (they can’t borrow ETH, they can’t borrow WBTC, etc.) and also the fact that Flux Finance won’t be a battle tested lending protocol at launch such as Aave or Compound, I think investors will consider that supplying USDC and DAI has a very poor R:R if there are not significant rewards allocated to them.
Maybe you guys should clarify what will be the supply APY for USDC and DAI markets considering participants as rational actors, so I can understand better.
I personally think it won’t be possible to reach more than 2.4% APY, from my previous message but maybe you can correct me regarding this.
I like the enthusiasm you have here GatCash! Would love to chat more on the topic - feel free to dm me here so we could chat on telegram : )
But I do think this proposal is 1) Slightly hasty 2) Slightly misguided.
Why the rush? We don’t need to get something going right now. We can easily just wait and see on what happens when the first Flux market is live and seeded. Then we can look if we need to create incentives. As we see from above there are multiple possibilities were we don’t need any incentivization. The base case even seems to be that the yield is higher than on AAVE or COMP. (Of course that might not be enough).
Even if we notice that there is some incentivization needed, pure LM might not be the best way to do so. Past 2 years of defi has shown multiple other ways of creating more sustainable liquidity. Would we really want ONDO to go into the hands of mercenary capital that just immediately sells it?
There are ways to go around this, for example:
- Creating a vesting feature for the rewards
- Creating creating a vesting token from ONDO (veONDO) and giving that as rewards
- PoL bonds - Letting users trade in bonds with supplied USDC (Flux cUSDC) and get ONDO in return.
Footnote: Few other things to note here too are: A) there is still a global token lock and thus ONDO can’t be transferred, B) We still don’t have clear tokenomics (What allocaiton would these ONDO tokens come from?) C) We definitely need to keep in mind the idea of distributing governance more - this is definitely important as well. LM does help in this, but is it the best solution?
I think that you are over-estimating the spread between the Borrow <> Supply APR.
It will be smaller than the spread on Compound.
Flux supply APR will not be 1.24% if the cost to borrow is 2.93%.
Can anyone enlighten me on when and where the governance votes will take place?
I seem not to be able to find this info specifically.
Governance Proposal is currently underway and taking place on the Tally page
Link: Tally | Ondo DAO
thanks a lot for the info.