[Discussion] How should the Hop DAO address liquidity concerns for the HOP Token?

Simple Summary
As a follow-up to the [Temperature Check] - Revised HOP Liquidity Incentives this discussion is intended to gather community feedback for how we should approach increasing liquidity for the HOP Token.

Motivation
As the Hop DAO evolves along with its products, it has become increasingly important for the DAO to adopt a stance on how we plan to increase liquidity for the Hop Token; by working together to come up with ideas and criticizing these ideas, the DAO will reach consensus on a liquidity strategy for the HOP token.

Specification
Community members are encouraged to make a case for how they believe the Hop DAO can boost liquidity for the Hop Token; other members are also free to criticize these ideas while proffering possible alternatives.

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Hey @Kene_StableLab, I do vibe with you that HOP token needs more liquidity and volume, but we might be trying to treat the symptom if we are going to take strategies to boost liquidity.
This problem should be addressed through a different lens, i.e. why is there a lack of liquidity

  1. potential lack of Utility of the Token
  2. Lack of strategy for the management of the token-economics by the DAO
  3. lack of uniformity in the implementation and treasury management for HOP DAO
1 Like

I am adding some more info to the discussion!

HOP Tokenomics Strategy Selection

Previous Discussions [1] [2], [3]

Simple Summary:

This discussion aims to select a strategy for the HOP token that aligns with long-term value and ongoing protocol development. The results will be the basis for an upcoming strategy to choose a base Layer/Chain for the HOP token, prioritising implementation.

Motivation:

Currently, the HOP tokens suffer from fragmentation and lack liquidity across multiple chains and DEXes such as Uniswap, Quickswap, and Velodrome. Even advanced aggregators like 1inch struggle to execute trades without causing price impact. A clear token economics strategy is needed from the DAO to address this liquidity fragmentation.

Specification:

This proposal aims to answer the following questions:

  1. Which Chain/Layer should the HOP token prioritise?
  • Arbitrum

  • Optimism

  • Polygon

  • Ethereum

  • Any other chain

  1. Which DEX should be chosen?
  • Uniswap V3 (available on all chains)

  • Quickswap (available on selected chains)

  • Balancer

  • Other new and decentralised exchanges (Dexes)

  1. What strategies should be considered?
  • Liquidity boosting through incentives

  • Protocol-owned liquidity strategies

  • Other innovative approaches

Considerations:

To address these questions, please consider the following points:

Chain/Layer Selection:

  • Evaluate the security and priorities of each chain.

  • Consider the specific focuses of different chains, such as Arbitrum’s focus on gaming and DeFi or other chains offering an all-in-one approach.

  • Take into account whether a chain is a side chain or has a more centralised sequencer.

Distribution of HOP:

  • Analyze the current distribution of HOP tokens and the associated cost of bridging them to a different chain.

DEX Selection:

  • Examine the current liquidity distribution of HOP tokens, using the resource CoinGecko as a reference.

  • Note that Velodrome currently boasts the highest volume, followed by Uni V3 on Ethereum and Arbitrum One.

  • Evaluate the technical limitations and advantages of different DEXes.

  • Consider whether certain DEXes concentrate liquidity from supporters or enable single-sided liquidity.

Liquidity Boosting Strategies:

  • Consider the advantages and disadvantages of token farming strategies, considering their specific benefits and drawbacks.

  • Evaluate the potential risks associated with single-sided liquidity.

  • Consider the impact on attracting liquidity providers and incentivising long-term token holders.

2 Likes
Which Chain/layer should HOP choose as a base chain
  • Ethereum
  • Arbitrum one
  • Optimism
  • Polygon
  • Other

0 voters

Could someone demonstrate that slippage isn’t mainly caused by HOP being low cap?

I am waiting for an empirical demonstration to this effect, too, and I think that was a large part of the discussion we all had a few weeks ago. Need more data and reasoned arguments for and against.

The price slippage is not due to the low market cap but to low volume!

Consider a bowl of red paint and a bowl of water. If you add red to the water bowl, the water’s colour changes depending on the amount of colour added. It doesn’t matter if you have more than one bowl of paint sitting beside each other.

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Don’t remember learning that in econ

You could have! If you consider this from the supply and demand lens! If you have more people to buy and sell at a particular price, the price will stabilise! We need market makers who can stabilise the price, i.e get and manage capital and the delta of token demand changes

I think you dismissing the idea that the market cap could play an important role shows you either haven’t fully thought through the problem or have ulterior motives.

I don’t question we could spend a lot of money artificially manipulating the price by creating a glut of supply at around 5-6¢. That would benefit some specific, very early, users in July 2023 and far more likely be a boon to any anonymous whale looking to offload who happens to be deeply involved in this conversation and can jump on the opportunity as soon as it arises. If there is some massive untapped demand, the market should reward any enterprising investor for creating pools on the right apps to meet that demand. Maybe the whale could investigate that possibility.

A better way to get more people to buy and sell is to spend our HOP wisely on improving the protocol rather than artificially and temporarily manipulating the price. In both cases we get the HOP out which will increase volume, but investing in the protocol ends up with a better protocol and the HOP in the hands of people we want holding it.

I’m a holder as well. Sometimes it’s annoying that the prices slips more than I want when I’m buying on Uniswap, but paying for temporary price manipulation is at best short term thinking. The early price of BTC was volatile as well but it managed.