A Proposal for Supercharging the Expansion of IOTA EVM Growth

Proposal Title

A Proposal for Supercharging the Expansion of IOTA EVM Growth

  • Yes - I support this Proposal
  • No - I dont support this Proposal
0 voters

Simple Summary

This proposal aims to boost the IOTA EVM ecosystem by leveraging the so-called unclaimed IOTA tokens, assets that were never migrated to the Chrysalis network, to provide necessary on-chain liquidity to boost the EVM ecosystem growth. Having deep liquidity in key trading pools makes our ecosystem much more attractive, enables seamless onboarding to IOTA, and fosters growth and stability in the IOTA EVM network.

Abstract

Effective liquidity management is crucial for the success of any decentralized finance (DeFi) ecosystem. This proposal addresses the initial lack of liquidity within the IOTA EVM network by utilizing unclaimed IOTA tokens—assets that were not migrated to the Crysalis network and have been mostly untouched since 2018.
We propose to transfer these tokens to a multi-signature wallet controlled by trusted members of the IOTA Ecosystem to allocate the funds to various DeFi initiatives to boost liquidity. This strategy aims to reduce high volatility and slippage in our DeFi ecosystem, improve trading efficiency, and enhance overall network performance and user adoption. Ultimately, this is a great way to boost IOTA EVM and its ecosystem and position it as one of the leading DeFi ecosystems in this space.

Motivation

IOTA EVM is the first big opportunity for IOTA to get its feet back on the ground in the Web3 space. We need to attract new users early in the EVM life cycle, and we need to attract developers who will build innovative and successful applications on our technology for a DeFi-hungry user base.

:arrow_right: Historically, our waiting for the emergence of “real-world use cases” outside of Web 3 has caused us to miss numerous opportunities within the Web3 space, specifically DeFi and its early beginnings. We cannot afford to continue this approach. Instead, we must prioritize the present realities by capturing user acquisition and retention opportunities, which are essential for a sustainable long-term strategy.

:arrow_right: Liquidity is the most sought-after resource in this environment when paving the road to a successful DeFi ecosystem. Enough liquidity in an ecosystem is one of the main drivers for growth, as without it, nothing is achievable for teams building and investors seeking opportunities.

:ocean: Why liquidity matters, you may ask. :ocean:

:arrow_right: On-chain liquidity is vital for the success of decentralized finance (DeFi) ecosystems and the overall health of any blockchain network. It refers to the ease with which assets can be traded on the blockchain without causing significant price fluctuations. High liquidity ensures that transactions are executed swiftly, maintaining stable prices and reducing slippage, which is the difference between the expected price of a trade and the actual price.

:arrow_right: Liquidity is the cornerstone and heartbeat of a DeFi ecosystem’s success. It allows users to have a better trading experience, unlock the potential of lending markets, and allows for on-chain leverage. The network effects of this would immensely impact our scalability and adoption rate. DeFi users prefer to operate on networks without worrying about high price impacts, slippage, or cascading liquidations. Sufficient liquidity helps with all of that.

Overall, liquidity ensures:

  1. :green_circle: Market Stability: On-chain liquidity helps maintain stable market prices. When liquidity is high, assets can be bought or sold without causing large price swings, which is crucial for market stability.
  2. :green_circle: Efficient Trading: High liquidity allows for quick and efficient trading. It ensures that buy and sell orders are filled promptly, making the market more attractive to traders and investors. This efficiency is particularly important in DeFi’s fast-paced world.
  3. :green_circle: Reduced Slippage: In liquid markets, the risk of slippage is minimized. Slippage occurs when the price of an asset changes between the time a trade is initiated and when it is executed. Lower slippage means traders can execute large orders without significantly impacting the asset’s price.
  4. :green_circle: DeFi dApp Functionality: Liquidity is the backbone of DeFi dApps, enabling, for example, decentralized exchanges (DEXs) and lending protocols to function effectively. Without sufficient liquidity, these platforms can’t secure smooth basic operations.

IOTA EVM presents a significant opportunity for IOTA to re-establish itself in the market. However, the success of this endeavor critically depends on effective liquidity management. Without sufficient liquidity, decentralized finance (DeFi) ecosystems can face severe challenges, including high volatility, slippage, and inefficiencies, ultimately deterring users and hindering network growth.

:arrow_right: The past has shown that failures in managing liquidity effectively have led to significant challenges for several other chains. Here are a few examples that highlight the importance of robust liquidity strategies:

Binance Smart Chain (BSC):
While BSC has seen significant growth overall, it faced initial liquidity challenges that led to high volatility and slippage issues. The network’s reliance on a smaller number of liquidity providers initially created bottlenecks, resulting in sharp price fluctuations during high trading volumes. BSC’s adoption of the Proof of Staked Authority (PoSA) consensus mechanism helped mitigate some of these issues by reducing transaction costs and improving throughput, but the initial struggles underscored the critical need for adequate liquidity management.

Polygon (MATIC): Polygon’s rapid expansion attracted numerous projects, but it encountered liquidity fragmentation across different pools and decentralized exchanges (DEXs). This fragmentation led to inefficiencies and higher transaction costs, which deterred users. Polygon has since worked on improving liquidity aggregation and incentivizing liquidity providers to stabilize the ecosystem. However, these initial challenges highlighted how poor liquidity strategies can hinder network performance and user adoption.

The Conclusion

:arrow_right: To successfully kickstart the IOTA EVM ecosystem and establish a robust foundation of circulating assets, we must focus on creating a highly attractive DeFi environment. This entails actively providing liquidity to ensure the IOTA EVM becomes a highly competitive network in our industry.

:arrow_right: To achieve this, sourcing liquidity is critical. One potential source of liquidity is the long-dormant and unused “unclaimed IOTA tokens.” These tokens can provide the necessary liquidity to support and grow our DeFi ecosystem on the IOTA EVM.

The assets we aim to use:
The “unclaimed tokens” originate from the IOTA Legacy network, the first ever version of IOTA started in 2016.
With the Chrysalis network upgrade in April 2021 the original IOTA Legacy network was shut down, and token holders needed to migrate their private keys to a new ledger with much-improved functionality. This was an easy step in IOTA’s Firefly wallet, available for all IOTA Token holders from 29 April 2021 to 3 October 2023.
Shortly after the protocol upgrade on 29 April 2021, the “unclaimed Token Pool” consisted of 2.055 Billion IOTA (2,055,411,475,016,380i in the old denomination).

From this point until 3 October 2023, when the migration ability via Firefly ended, the unmigrated token pool was reduced to 175,89 million IOTA (175,893,692,656,111i in the old denomination). This means that only 8,55% of the initial unclaimed tokens were left over and remained unclaimed.

Following the “Stardust” network upgrade on October 3rd, 2023, we enabled token holders who had not yet migrated their tokens after the Chrysalis upgrade in April 2021 to continue claiming their assets in the new Stardust ledger via the “legacy migration claim tool” starting on 13 February 2024.
This legacy migration claim tool is a smart contract chain connected to the IOTA L1 that automatically distributes IOTA tokens to users that can prove ownership over a certain “unclaimed address” via the respective private key.

The Claim Tool has been initially funded with 5 million IOTA from the remaining 175,89 million unclaimed Tokens, and, since its existence, we see only very little activity (a couple of small addresses every few days), as can be seen here: Explorer Link Claim tool address.
This claim tool procedure has, since its introduction, further reduced the unclaimed token pool from 175,89 million IOTA to 172,96 million IOTA (172,959,958,839,825i in the old denomination). Now, as of last weeks data, 8,41% of the initial unclaimed Tokens, representing 3.82 % of the total IOTA supply, still remain unclaimed.


Balance “unclaimed tokens” from April 2021 to May 2024 (in the old denomination)

Furthermore, we investigated if we could identify a pattern or certain characteristics of the addresses contained in these 8,41% still unclaimed tokens. We have specifically looked for the largest holdings addresses in this pool and identified when they last became active in the IOTA legacy network.

Results - Top 15 “unclaimed addresses”: (Address, holdings in i (old denomination), last activity date)

  • FMSOHMNE9DIDEEZNZSYXKVFAMCKWDBIWGQOJCTGOCXVSEBRREDPDBKWONXPFZZVD9NTAFKYZWQJTDZXTZ, 35244137849434, Tuesday, February 27, 2018
  • VUFYQGAYDZBKOSADHQQCWQCGNSITEMVKGBKHSUILSWYNNUURBFPZFISXDFOOWTFIACEYAHVSOJHPINZ99, 13430688960000, Tuesday, February 27, 2018
  • AMDQRWG99YBYJWBCZOJCVTJBEBT9UVABRJGBNIHQNG9WHAFQ9NAWAXOQXOXCNMMYYVYYMQOKICZQYOQOZ, 10105500800000, Thursday, March 29, 2018
  • SRPIKKWNGQFTWDNBUAZUIYGELPTHLBCSFXCIRYQJVH9PZEJGRUL9ALMGBCIHDNDMIEWHHWJZXNXEVZEPD, 8338593000000, Tuesday, February 27, 2018
  • MMPYMAYGTUZKTADLNZCWJWLOKCSFBNWDFWRKTLSIJSGAUTUC9APHEXNLONYXDSJHKECU9YIYISELOHAEZ, 7500000000000, Tuesday, February 27, 2018
  • JOLBNTUMUQPTQGUPLQRWUCU9HULTSTQXHNJJKAIMMDWSKRNVKCXP9ZBLVSIMOCKFXQXRZWLTCJWTAVZZD, 6392919651539, Thursday, March 29, 2018
  • DVGFJXOUFAX9NZZK9RRBIUEOHEGMRXHUDWXUIYESTDZSZPSISLHLXC9TEOLYFFALX9FHLZXWCGFNSVHHD, 3107232145838, Thursday, March 29, 2018
  • GLSRYDYFDBJURWKODNZPNSGX9CAUYUEJFAVOQRYNBSWJKHSTHSMZYYHBMDPA9WQJYTUNBYEAFG9MGPNJC, 2844000000000, Thursday, January 25, 2018
  • IUADRHTHPBZGEGQCVGFQFAUCPOZXAQCSTZZOQMOVC99PEMMWXEOVAJOSUFPQLRJKEQPOOOMREUXBLECUC, 2779531000000, Tuesday, February 27, 2018
  • JIYBQXFZSWALKBIFAROMTEOOFKGEJXNDMQEJONNVZTOLOF9EPLPC9UWVPZIATWUKOEYGYCGOZOVFNUSWC, 2779530000000, Tuesday, February 27, 2018
  • KF9DEI9PQQZLQYMRHTYZXBATZUFAKVVYIRFTFTQFRVOOVAEHZPAUFSZBNRKPSHKEDRBYUOKHUNWNDPEWX, 1943961538000, Wednesday, January 24, 2018
  • NQJXQLLPWOMNZLM9H9KKVMFRDPPDWHNMXMZANEGNGMCBVQWRPYVNCNLSNALRZNKURHCLDNVTJFERUPEOX, 1600000000000, Wednesday, December 20, 2017
  • YGXXZCBLTMRATKF9C9WHULZKDZQJGVKAYVQJPSNBMHJRGVPRSJVYBHMWARYLTGECZJRMVWYJPCDMQHQTD, 1526598857574, Friday, September 20, 2019
  • CZXWFVBPEXEMMDKQEO9QHYJMHWEIFZUCJAVQVNJQAPPJWLLYOEMBSBSTJEQPMNHGRUJMAXLYIJ9MEVOSC, 1389765500000, Thursday, June 14, 2018
  • UDINWGPANHJ9NPR9EJZO9THOT99HCPKUUTAQ9QCERWDACTPREMCDJJJWAIJOELKX9XQADTFFSWBJAJXCY, 1385246789011, Tuesday, August 14, 2018

These 15 Addresses alone contain 100,36 million IOTA or 58% of the remaining unclaimed tokens.

We have identified that 14 of these 15 Addresses were part of the “IOTA Kerl / Curl” incident and the reclaim users needed. Owners of these addresses had to go through a reclaim process to receive the tokens using a new private key created with the new “Curl” signature scheme. The 14 addresses above have never been touched by the private keys after this claim process.

Give dormant tokens a new life.
:arrow_right: The above data strongly indicates the unlikeliness of these tokens being claimed in the future. Therefore, it is in the network’s and the ecosystem’s interest to use these tokens more effectively by growing IOTA and its ecosystem. By bringing these tokens back to life and using them in yield-generating and ecosystem-supporting activities, we can create the favorable conditions this market seeks to attract sustainable new capital and user activity. Most importantly, by using them for bootstrapping liquidity on IOTA EVM, we can repurpose these tokens to benefit IOTA and the entire ecosystem.

:arrow_right: All funds will be dedicated to providing on-chain liquidity, ensuring continuous accessibility, and not constituting final spending. In the rare event that claims are made for these tokens, they will still be honored once the right to claim has been verified. This guarantees that while the tokens enhance liquidity, they remain accessible and can be reclaimed when rightful ownership is confirmed.
Additionally, around 2 million IOTA tokens remain in the claim tool, which we believe will be sufficient to honor future claims. If these tokens are fully utilized, we are committed to replenishing the claim tool.

Specification

Through this governance vote, we propose that the IOTA token holders grant permission to the BVI entity “Rising Phoenix 2” to take ownership of the unclaimed tokens and transfer them into a multi-signature wallet controlled by trusted members of the IOTA Ecosystem. Approval is granted to allocate them to the initiatives described below (“IOTA EVM Liquidity Bootstrapping Program”) in a way that benefits the network and ecosystem the most.

:arrow_right: IOTA EVM Liquidity Bootstrapping Program

IOTA EVM Liquidity Management - 172 Million IOTA

  • These tokens will be used to bootstrap the IOTA EVM. They will be deployed across several protocols across core verticals, predominantly but not limited to
    DEXs (decentralized exchanges), Lending Markets, and CDPs (Collateralized Debt Positions).
    • The funds will not be used to farm ecosystem projects; we want to facilitate project growth by giving them boosted liquidity, and they can use those farming incentives to increase market penetration.
    • The yield generated will come from swap fees and interest, which will be organic based on network activity. We propose using these proceeds to further ecosystem development through incentive campaigns or supporting grants. The exact approach will be determined at a later date, as it depends on the market circumstances. We are, however, committing to keeping any yield generated either on-chain, through incentives, or through grants.

:arrow_right: Transparency:
All assets used in the program will be held and distributed from a MultiSig Wallet in the IOTA EVM and fully traceable on the chain. The community will receive monthly reports on distribution and the purpose of spending.
A bot will automatically post every transaction into the IOTA Discord server.
No activities or spending other than the purposes described here are permitted.

:arrow_right: MultiSig Setup:
The multi-signature Wallet controlling these tokens will be set as a 3-of-5 signers MultiSig consisting of 3 Signers from the Tangle Ecosystem Association or the IOTA Ecosystem DLT Foundation and 2 Signers from the Ecosystem / Community.

The IOTA Ecosystem team members on the multisig will regularly inform the entire multisig committee about the strategy and rationale for specific actions.

:arrow_right: Decision-making Process on activities of the program:
Without assuming any liability, the IOTA Ecosystem team will lead and oversee this entire initiative and will be the proposer of new transactions and prepare the transactions in the multi-sig wallet for the other signers to approve.
The IOTA Ecosystem team and its representatives will perform due diligence and continuous risk assessment on the positions managed by this Liquidity Program.

Rationale

The proposed changes are motivated by the need to address the initial lack of liquidity within the IOTA EVM network. We can provide the necessary liquidity to support and grow our DeFi ecosystem by utilizing unclaimed IOTA tokens. This approach has been chosen because it leverages existing assets which are unlikely to be claimed in the future, thereby maximizing their utility for the benefit of the entire IOTA community.

Implementation

In case this proposal passes the requirements of the community-governance process (reaches 50 supportive votes in the governance forum phase 1 discussion, reaches 100 supportive votes in the governance forum phase 2 poll, reaches 5% quorum participation and simple majority of Yes votes in a network-wide token based vote on IOTA L1 facilitated in the IOTA Firefly and Bloom Wallet) and is therefore officially accepted by the IOTA token holders, the following will happen:

  • The MultiSig setup on the IOTA EVM will be initiated. MultiSig signers will agree to a MultiSig agreement defining their tasks and responsibilities.
  • The respective tokens will be transferred from the IOTA L1 address to this new MultiSig wallet on IOTA EVM.
  • The IOTA Ecosystem Team and its representatives will provide liquidity amongst selected dApps and trading pairs.
  • We will set up a reporting structure on the IOTA Discord server to ensure transparency around the initiatives, with regular reports and automated transaction posts.

By following these steps, we will ensure the successful implementation and management of the IOTA EVM Liquidity Bootstrapping Program

10 Likes
  1. A major problem will be to ensure a fair distribution of liquidity between the ecosystem participants (Dexes, Lending/borrowing dapps, etc). This will have a big impact of the value of these dApps and their respective token prices (eg. Lum, Deepr, Void, +++).
  2. It is important that this liquidity is added in a two-sided way (both buy and sell side). This can be done by putting Iota in a lending provider or CDP as collateral and borrow stable coins against it. These borrowed stables can then be used as buy-side of the liquidity pools, and in this way the added liquidity will not suppress the Iota price.
4 Likes

I don’t agree. There are good ways in order drive price up with single sided liquidity.

Harry should be able to provide a good answer for that during the AMA.

This way we could reduce protocol risk and fees, while still having liquidity on chain and a possibility to create positive price performance.

Nevertheless good input!

2 Likes

What you are doing is logically equivalent to Bitcoin-core forking off Satoshi’s BTC and reminting it at addresses under their control, for their own profit. Will you compensate future claimants for any AMM IL or other losses incurred by how you are using their money? This is defi, one crappy oracle exploit and it’s all gone. You are gambling with other people’s money. Do you intend to underwrite the risks you are taking? Have you costed that?

9 Likes

no further dilution please. we had a 65% dilution with the majority of it going to TEA and UAE whose purpose is to do exactly what was suggested in this proposal.

If liquidity is an issue, these entities are free to support the ecosystem by providing it, there is absolutely no reason to touch any tokens that are not our property.

14 Likes

Use coins from the increased supply instead and show the community how much you care. Do you realize what a negative impact this would have? This is a big no-no in the crypto space, unless you are coming from traditional finance.

6 Likes

This unfortunately is exactly what the growth funds did and removed them from the community as they were dedicated.

As we can see in this blog post these tokens were to be allocated to a community Treasury DAO, and thus, the IF with a 3 of 5 signature scheme would be taking control of these funds.

This is really disappointing because just as the only some months ago the tokens were intended to go to a community Treasury DAO, the intention now is being changed to give control to the IF. As history always proves as well, the original intention is to be transparent, but this quickly changes to being non-transparent.

6 Likes

You inflated the token supply by ~65% or so, and now the conclusion is you need to inflate it even more? Can you explain why you need to take these tokens, instead of using the tokens you already generated by the huge inflation, why won’t they be sufficient?
And I am sure some will say this is not an inflation. It is of course.

Next part is: They are not your tokens. After Coordicide (okay maybe easiest during Coordicide) you can scratch all these tokens and start your next inflation. But right now they are not your tokens. Everyone was promised that at LEAST until Coordicide you would have to handle all migrations. Since Coordicide hasn’t happened yet, you shouldn’t touch those tokens. No also not temporary when the users can get them when they beg you nicely, they are not your tokens to touch.

And of course it is true that crypto isn’t as much that you are guaranteed that your stuff is yours, no one can take it. Since the majority (scaled by weights) can definitely take it. But there are not many chains where now multiple times funds have simply been taken whenever the dominant power feels like it.

6 Likes

ppl confusing what a dlt is for and the ppl building it and the people investing in it. yeah its intended to make interactions transparent, decentralised, trustless, etc but you dont need to believe in those concepts to invest in something or to build it. ppl involved now before the tech is useful or adopted see mostly a financial value for its necessity in the future or others get paid to finish it. this is capitalism. Hopefully this tech works as intended, it gets adopted in scale, and some bright minds in the future figure out ways to use it to make things better. Probably limiting our actions to some idealized conduct of behavior in this clownshow of a market no one else is following wont get us there. I would refrain from judging others on what it will take to get it done or adopted. So when the hands are shown, cards revealed, we will see who cashes what in.

3 Likes

The problem here is no one is simply using logic, experience, and datasets.

For example, $IOTA was once in the top 5 and slowly after the past eight, yes, eight years! it has dropped to below #150 sometimes in market cap. In any standard experienced business manager, product manager, CEO, etc.; they would look at what happened and what can change to avoid the “trend” of failing in market cap.

At the end of the day, the product isn’t the token or even the DLT, the product is the ecosystem and the community. IOTA is not doing anything unique anymore, so why would it beat Hedera, why would it beat Aptos? Aptos a DAG that has higher tx output? It won’t unless it focuses on the market which the product (the ecosystem and the community) is based in. So what is that market?

The market right now is retail investors and the community. It’s attracting leading builders in the space. All of those sections of the market value trustlessness, or at the most… trust. There is no trust right now in our ecosystem and this proposal will only hurt trust more.

7 Likes

Tbh I personally totally forgot about the above mentioned Blog post and that we mentioned any specifics on what should happen to these funs in the future. Imo I would just change the proposal to pick up on that statement in the blog post and if the vote succeeds in its goals, there would be another vote in 2 years to figure out if the funds are burned or whatever.
If the vote doesn’t succeed nothing changes anyway.

1 Like

So after todays AMA and some debates and clarifications, here is a short summary for a better overview and evaluation of the proposal.

Pros:

  • higher TVL potentially attracting more users
  • more liquidity resulting in better UX for ppl that want to purchase or borrow IOTA potentially attracting more users
  • offering outsider projects liquidity potentially attracts them to join our ecosystem
  • not having to provide liquidity from TEA and UAE wallets means more funds on those entities to support builders
  • overall potentially kickstarting ecosystem growth

Neutral-ish:

  • probably no impact on claims (besides risks listed below)
  • more IOTA supply means lower APY for our users providing their IOTA as liquidity (unless demand scales at least linearly with the additional liquidity)
  • tokens were meant to be burnt or supplied to the community treasury
  • unclear actual impact on (non-artificial) growth
  • potential legal backlash (as status of tokens is determined differently for each jurisdiction)
  • promised transparency on those tokens through a discord bot cough

Cons:

  • we do not own those tokens, therefor questionable moral implications and potential backlash counteracting attractiveness to outside users and dApps
  • dilution of “circulating” supply (indirectly covered below)
  • providing one sided liquidity equates a sell order, sucking up demand and lowering price increases, only once half of tokens have been sold will supply and demand be impacted equally
  • active management (which is the reason for multisig being 3 out of 5 IF) does cost
  • multiple risk factors, including:
    • DeFi risks (e.g. impermanent loss, yes that’s also a thing for limit orders / order book)
    • Pool SC risks
    • Oracle risks
    • L2 risks (as our EVM L2 state is not validated on our L1), in particular censorship attacks on orders/oracles/bridges (especially once our PoA committee is handed over to the community)
  • requires trust and misses out on accountability with IF multisig majority (that includes choices on which projects to boost for how much and which to ignore)

Please add missing points :slight_smile:

3 Likes

I’d like to add some clarifications to one of the points here so there is a better context:

providing one sided liquidity equates a sell order, sucking up demand and lowering price increases, only once half of tokens have been sold will supply and demand be impacted equally

While this sounds like “sell pressure” or the “lowering of price increase”, it is not the case as it may perceived.
I think that lies in the large misunderstanding of Liquidity’s role in DeFi trading and how more professional traders with large capital at hand perceive a trading pair and make “buy decisions”.

You want to attract Traders who are willing to allocate large sums of capital (mostly in the form of stablecoins or ETH) to trade the IOTA token.
Thats the whole point of trading activity in a Defi ecosystem. It is not meant to primarily satisfy the needs of “single-time buyers” who plan to hold and forget their token purchases for the next years. Focussing only on such buyers does not create the necessary demand and activity you want in a healthy system and does not provide an income stream for Dexes and Liquidity providers. A DeFi ecosystem without traders is not attractive.

Besides usual “retail” traders like you and me, who come in with a few thousand dollars maybe to trade and try to make some profits in this trading activity, we also want “Whales” to be able to buy and trade IOTA tokens in the Dexes of IOTA EVM.

Unlike many other inexperienced Traders, these people usually only enter into trades if they are sure that they can execute their “Trade Plan.”
Such a plan normally consists of several price Points:

  • simply put, you want to define an entry price, exit price, and invalidation point (stop loss) at minimum.
  • Whatever method traders use to determine their personal trade strategy, it is of utmost importance for traders who aim to come in with large volumes to enter and exit their positions at the price points they determined in their strategy without large slippage.
  • So, they usually analyze the available Liquidity in the pair they aim to trade to ensure this can happen.
  • In a traditional centralized exchange, this is tricky. You would only have the order book that the CEX is providing to you and that you have to trust to be correct and display all real orders in the market (hint: many Cexes fake those order books, or bots spoof orders to simulate liquidity that is not existing).
  • So, what is the advantage for such a whale trader to use a Dex on IOTA EVM instead of a centralized exchange to make these larger-volume trades?
  • In the newer CLMM Dexes (Concentrated Liquidity) like UNI V3 or Liquidity book, a trader sees the real existing liquidity through the complete available trading range.
  • This means that instead of trusting what Binance “shows” you in the order book, you can be sure and verify that the liquidity you are shown in a Dex is there. It has been deposited into the “ranges” “on-chain,” and you can verify these deposits.

So, coming back to us now, who aim to provide this liquidity in these CLMM Dexes and explain why it is not “net negative” for the price performance of the IOTA tokens, as implied in the comment?

A trader who follows a plan and strategy will only enter into such a large volume trade if he can be sure that he can:

  • enter the trade at his determined favored price point - meaning if he wants to buy at the current displayed price, he needs to be sure that he actually can buy the number of IOTA tokens he plans to purchase at this specific price and that his trading activity of starting to buy does not create so much slippage and therefore upward price movement, that he is unable to purchase at his determined price (ends up paying more / getting less IOTA for his stablecoin due to slippage)
  • exit the trade (sell the IOTA Tokens) at his determined exit point for a profit - again, the trader needs to be sure that at his determined exit price, enough Liquidity is present to exchange his purchased IOTA tokens back to Stablecoin
  • Exit the trade in case the price does not follow his prediction at his determined invalidation point so the trader would “cut his losses” and sell his previously purchased IOTA tokens at a lower price to avoid larger losses.

Example: Current Liquidity in all available price ranges for IOTA/USDC on MagicSea Dex:

To execute such a trade plan, you need to ensure that enough “counterparty” liquidity exists on all of your three (or more) trading points so that these trades can actually occur at the price point the trader wishes without slippage.

A (rough) Example:

  • Trader has 1 million USDC and want to buy IOTA at 0,20$
  • Trader wants to sell his position at 0,25$ for a profit of 25%
  • Trader has an invalidation Risk Ratio of 2R, which means he is willing to risk 12,5% of his capital to make a 25% profit. This puts his invalidation price at 0,175$

Needed Liquidity to facilitate this trade plan:

  • more than 5 million IOTA at 0,20$ price range
  • more than 1,25 million USDC at 0,25$ price range
  • more than 875.000 USDC at 0,175$ price range

If the trader does not see these minimum requirements fulfilled, he will (very likely) not enter into this trade to buy IOTA for 1 million USD.

So - what does Liquidity provision from our side enable here?
If enough liquidity is provided on all these price ranges so that large traders can be sure they can enter and exit these trades, they will likely be much more tempted to make these trades.
If it is ensured that large volumes of IOTA can be bought at certain price ranges and, therefore, these trades happen, this may be perceived as positive (high volume through buying activity of large quantities is perceived as increased demand for the token). Other traders often recognize large buy volumes and follow such a demand.

We can provide the necessary liquidity in the ranges these traders need (which can be done in Uni V3 and Liquidity book dexes), which is crucial to increasing trading volume and demand in the IOTA EVM for the IOTA Tokens.
These larger trades will never happen without the necessary “deep” liquidity. If bigger traders do not buy the IOTA token (because they can’t without liquidity), there is only low demand for the asset. In reality, even if they want to trade IOTA, they cannot do so in low-liquidity environments.

Now, let’s put Lending markets into the picture:
Many tokens of projects in the ecosystem are traded against the major asset of an Ecosystem, which in our case would be IOTA (in ETH, it is mostly WETH, etc) - so if traders want to purchase these tokens to participate in the potential upside and success of these projects they need IOTA Tokens. They can buy them on Dexes (which will open them up to the price performance risk of the IOTA token) or get them out of the lending market by depositing collateral in Stablecoin (which is perceived as the “lower Risk” option.
Again, providing large sums of IOTA Tokens in the lending markets will enable traders to borrow these IOTA to purchase project tokens on dexes. This, again, benefits the projects of the tokens that are bought and, therefore, the whole ecosystem.

So TL:DR, to become a successful WEB3 ecosystem, you need to ensure that everyone can trade the assets they wish to trade in the amounts they wish for without the risk of drastic price slippage during their trades. Price slippage is a huge risk, so larger traders will not even start to buy tokens and enter into a trade if they don’t see good liquidity available at their trade entry and exit points. Without a larger trading volume, a token is perceived to be in “low demand,” which is unattractive for the space.

I just hope this helps those community members who do not have much experience and knowledge of how trading works in DeFi to understand a bit better what the purpose of this whole endeavor is.

Some reading:

3 Likes

Thanks for that elaboration. I see 2 fallacies in your logic tho.

  1. As you mentioned, professional traders need liquidity on all sides, this proposal aims to only supply the IOTA side tho which is of no use for the trader if he wants to exit his trading strategy with a profit (in USDT).
    Having sufficient and/or equal liquidity on all sides of his trading strategy is - again - achieved once half of IOTA tokens have been sold, at which point it truly is an overall benefit for traders.
  2. If a professional trader is able to execute his strategy with profit, this means he sucked out value (as you said mostly USDT or ETH) which means fundamentally he lowered the value/price of the counter side (IOTA). This is a very fundamental mathematical truth - every single cent of profit for a trader (or anyone else) is a loss for the counter side (the rest, us), it is a zero sum game. There is no “everyone wins” in a zero sum game and stating a strategy is profitabel for traders equates it being loss-making for the rest of us.

Thinking you can somehow increase the value of an asset by throwing more of that asset onto the supply side of the market really is a fairy tale, what you wanna do for that is exactly the opposite - to throw more on the counter side (USDT/ETH/BTC).

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Thanks for these points, but i think that what you have said here is only a half-truth.

  1. Part of that is your view that everyone who buys IOTA in the next few things will only look for an exit in the short term. It in no way factors in that some may stick around.

  2. Your underlying theory appears to indicate that this will be the only liquidity in the pool, and that dexs don’t aggregate liquidity bands.
    What I mean is that you can enter a liquidity range at three different periods: 1. When the price is below the range, 2. When the price is in the range, and 3. When the price is above the range. How you enter is dependent on where the price is relative to the range.
    What you have explained is essentially Uniswap’s v2 logic, we are not entering any uni v2 positions.
    So the trader’s experience is not about having equal measures of both, a trader’s experience is about what the depth here is relative to the volume purchased. Like an order book on an exchange

  3. It also comes across that you reason that the price will be up only and not go through various cycles of movement. I say this as you referred to it as limit sell orders, but not buy orders. While it facilitates on the way up it does the same for other stages of a trading cycle.

  4. There are also more factors than just the LP vs the trader. Yes as you previously correctly indicated there is impermanent loss, the second point you have explained here is not that. Your second point seems to imply that a trader always extracts value from the LP and not from other market participants.

  • A trader buys by putting tokens in and taking IOTA out, other people trade and then the trader puts IOTA back and takes the token out again. This only impacts the pricing in that there is less slippage and price impact for each trade.
  • Another thing reason why your reasoning doesn’t hold the full truth is if the other side of the LP is ETH. Under your framing, if the price of ETH increases more than the price of IOTA, the trader has “lost”, even though his portfolio value has gone up.
  • So yes, while there are various value flows, it is not as binary as the number goes up trader won vs the LP.

We never said we were creating value for the asset by only adding it on the supply side out of range. How could it? you can’t access that liquidity for anything as it is out of range.
It fits into the broader strategy to be activated once the demand is created.

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i think we are mostly on the same page here.

  1. agreed, i was responding to Phylos argument about “traders”. Attracting more “holders” was covered in the very first 2 points in the above overview :slight_smile:

  2. my underlying model is an (if you want: continuous, so non-discrete) orderbook, you can basically map everything to that model. we agree on traders experience being about depth, but again - depth on both sides of the price within the orderbook. Each side of liquidity only impacts half of the entire (given buy + sell) slippage.

  3. agreed, i could have made that more clear. it was implied by the statement about liquidity being equal on both sides once half of the tokens has been sold. But let’s be clear here: we are starting with 170m IOTA tokens. Relative to this starting point, there is no buy orders, at no point.

  4. yes sorry for not being precise, i try to look more at the overall market instead of individual LPs and whatnot
    4.1.
    Agreed, adding one sided liquidity means less price impact for buys (“lowering of price increase”) while remaining “normal” price impact for sells :stuck_out_tongue:
    4.2.
    I think other pairings (such as ETH/USDT) are irrelevant for this. A trader coming with ETH and “making profit” on an ETH/IOTA pool for me is defined as having more ETH than he began with. If meanwhile ETH USD-valuation halved and his portfolio in $ went down, that’s unfortunate but that still makes his trade profitable in the sense that his portfolio is bigger (no matter in which token you measure) compared to not having done the trade. That ETH balance difference in his portfolio is taken out of the LP (or entire IOTA market if you prefer).
    Of course a trader can also make a loss having the opposite effect…
    4.3.
    depending on what you mean by “number goes up” (see 4.2 :slight_smile: ).

This entire talk about traders and where profits are coming from etc is kinda distracting from this proposal tho… hopefully i did not create the impression that adding liquidity attracts traders that suck out value from our markets, this is obviously nonsense and we should neither assume traders making profit (sucking out) nor making a loss (bringing in).

Well i wasn’t talking about “out of range” - obviously if that liquidity is not reachable then it has no effect (including trader slippage and all the other points above), that’s kinda pointless tho. I’m only talking about liquidity, that can be reached and therefor has an impact and i felt Phylos statement could create the impression that (limit) selling tokens does not impact the price (“negatively”) because of this statement:

Again - i think we are mostly on the same page.
Imo it is important to point out that this proposal with all its potential effects could have a negative impact on the IOTA token value for many reasons, one of them being that you effectively (limit) sell those tokens which sucks up demand.

Of course all effects in their totality could also have a positive impact on IOTAs value - i would assume this would be a desired side effect of this proposal.

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To be honest I’m almost fine with the proposal, I just don’t like the idea they may be forgotten into the IF like someone mentioned in the AMA, so I’ll support this proposal with my vote only if there is a deadline date for those funds to be used or even better a yearly community vote to decide if they still have to be used as liquidity or elsewhere

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This is something we have been thinking about.

What if we do the round for 2 years and then vote every year after that?
It would be helpful if it could be done based on only having to exit the positions after a vote has passed to stop the initiative, then there is a period of say within 30 or 60 days to close all positions.

Would something like that work?

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Yes it seems good to me, first vote after 2 years and after that yearly reviewing with holding position till has been voted as you mentioned
Only the community has the right to vote on this tho, IF has to abstain or we still have the same problem over and over

A few things to consider here.

  1. This is exactly what the growth committee was. Have a yearly vote as to what to do with the funds at the end of the year. Was also supposed to be used for market makers which was “returned” back to the community.

So how did that go? Was there a vote proposed? Did the funds return? Both seem to be no as of now.

  1. This is the exact sentiment and statments used for the growth funds. For example, We will vote yearly or bi-yearly, and we will use the funds for a specific purpose.

I for one look at history and would propose, why not have the community manage it and support equity? It doesn’t have to be the Treasury, it can be a trusted group from the community. One thing is for sure at least when the Treasury supported liquidity we did it fairly and justly, as well as, 100% transparent.

TEA often says it is too difficult to make things transparent, so if it was me, why not let they community who has shown they indeed can do it transparently. Well, I would assume the answer is… they don’t think the community can handle transparency nor can they manage providing liquidity… regardless that we have already shown we can do both. (:Should Shrug:)

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