Problem Statement
The HOP token is extremely illiquid in its current state, with liquidity fragmented across Optimism, Arbitrum, Polygon and Ethereum mainnet. To make matters worse, this liquidity is scattered across several different DEXâs, including Uniswap V3, Camelot, Velodrome, Quickswap and Sushi. Even whilst using a DEX aggregator, liquidity is still too thin to buy or sell without experiencing dangerously high slippage, significant price impact, and has even resulted in users commonly becoming sandwich attack victims.
Crypto protocols use several different tools to increase liquidity depth for their token holders, including: utilizing their own token emissions to reward on-chain liquidity providers, working with external HFT firms and centralized exchanges to ensure a listing of the asset, or âbribingâ governance token holders of prominent DEXs to vote their own emissions in the favor of the stated protocolâs token. It would be fairly easy to deepen liquidity if the HOP community were to choose a single chain in which the token was traded.
Proposal Summary
This proposal is aimed at allowing the HOP community to choose a single chain within its current ecosystem to focus on building liquidity for HOP. HOP voters should select a specific chain and DEX that are best aligned with the community and incentivize LPs to aggregate to the selected location. Liquidity incentives could be in the form of OP, ARB or HOP emissions and should be discussed within this post.
Deepening liquidity for the HOP token will provide a better and safer experience for HOP ecosystem participants, while also attracting new community members. Fixing liquidity should be a fairly simple step that is taken before any large changes are made to HOPâs tokenomics, which will likely come in the near future.
Potential Risks
The largest risks associated with incentivizing liquidity will be related to fragmenting the core development teams time and efforts. Further, selecting a single chain or DEX may seem as if the protocol is picking favorites, especially after the Hop community received OP and ARB allocations.
This is a fantastic proposal. This shouldnât be a massive technical lift, and I think there is a very easy solution for incentivizing liquidity with ARB emissions.
That being said, I also think the majority of the liquidity should aggregate on Arbitrum One. Not only should this act as a hat tip to the Arbitrum foundation for allocating ARB tokens to the HOP treasury, but there is a clear trend of L2 usage over mainnet ethereum. For onboarding HOPâs next 1m users, the community should focus on aggregating use to a chain like Arbitrum One.
The liquidity would solve a plethora of issues, and I look forward to seeing what the other community members think of this fantastic proposal as well.
I agree with this proposal. HOPâs liquidity fragmentation prevents the token from being an investable asset which discourages new users from acquiring the token to participate in protocol governance. If we want more diversity of thought, experienced/intelligent community members, and higher-quality discussions around improving the protocol, purchasers need to be able to acquire HOP without incurring significant direct and indirect trading costs.
In the short term, the easiest way to solve this issue would be to redirect a portion of monthly HOP emissions and/or ARB emissions to DEX LPs or by enabling HOP single-sided staking for token holders to improve HOPâs value proposition. This could be accomplished by allowing LPs to stake their LP tokens directly on the HOP platform to earn these incremental rewards, reducing and reallocating HOP emissions to certain HOP pools on chains with less usage (i.e. Gnosis), and/or introducing a bribing mechanism as described above. However, only HOP tokens on Ethereum are eligible to participate in governance voting at this time. Therefore, HOP tokens held on other networks do not realize any utility unless bridged back to Ethereum. Expanding governance rights to HOP tokens held on other networks would need to be considered in conjunction with liquidity consolidation.
In full support of this. Hop governance is going to be increasingly important as various L2âs begin to rollout to mainnet and larger actors may want to play a role in Hopâs development. Hop v2 will bring about tons of important decisions to be made and $HOP liquidity should bootstrapped to make participation in that possible for all. Incentivized LP token staking should be an effective, simple way of improving liquidity.
infinityX does make a good point about $HOP not having any utility on L2âs. I assume Hop is going to want to use itâs own cross-chain messenger, which is in development for v2, so we may need to wait. Perhaps Ethereum L1 liquidity should be addressed for now, and we can focus on L2 liquidity as governance solutions for those respective chains roll out.
Appreciate you all weighing in. Joon, I think that focusing on driving liquidity to mainnet could make sense. In this case, would you support redirecting HOP emissions from Gnosis LPs to HOP DEX LPs? If we select mainnet, then we would have to find additional HOP to incentivize liquidity providers, whereas on L2s we could either use ARB or OP, which may be beneficial.
Based on TVL to Reward ratio for its volume, it may make sense to redirect some emissions from Gnosis. However, depending on how deep the liquidity we would like to have for HOP, we may want to redirect some emissions from other networks as well. Currently L1 Uniswap has $460k TVL in the HOP-ETH pool. We would need to decide how much incentive/reward APR would be suffice to encourage enough people to LP their Hop for a desirable TVL.
I definitely do see the benefits of incentivizing LP on Arb/OP instead of L1. Gas savings for LPers, buyers/sellers, and OP/Arb incentives are all great. I suppose my only issue with it is the practicality of a to-be governance participant having to bridge Eth over to an L2 to purchase on a DEX with liquidity, and then bridging HOP back to L1 to vote. And if wanting to sell into liquidity, bridging HOP back into an L2. Seems a little convoluted and it may end up serving as a deterrent to getting more governance participants, if that is the main goal here. Whereas purchasing, voting, and LPing all on the same layer seems to be so much more straightforward.
Ultimately, when we do get cross chain governance, this headache of a UX for governance disappears. It is a matter of what users are willing to put up with until then.
Not saying this is wrong, but itâs bizarre to me how much activity itâs gotten from first time posters and people who just joined. Definitely more than happy to welcome new community members, but being price/token focused makes me a bit suspicious about ulterior motives or some undisclosed conflicts of interest.
Max-andrew, I assume 99.9% of the governance participants in any community at least own the token if that is the conflict of interest you are referring to, but given it is literally a requirement to propose or vote within the DAO I did not think that I would have to put forth that I am a HOP holder.
Further, I am a consistent user of the Hop bridge and a fan of the protocol which is why I wanted to join the governance process in the first place. I understand the importance of focusing on the long-term protocol vision over the token, but I think it is completely unfair that you would assume malicious intent when there are clear issues with the governance token that could be easily improved.
While I share your ideals for focusing on what really matters (the protocol), I also know that improving the liquidity of the token will help bring in new governance participants and community members, which in turn leads to increased adoption of the Hop protocol. I would appreciate if you added any relevant concerns or ideas to this thread.
I totally agree we could work on improving liquidity. My relevant concern is how weird the activity on this thread is and it seems like youâre acting a bit defensive about me pointing it out.
Hopefully this doesnât move into ad hominem territory and we can keep the post focused on the topic itself. Flag and move on if necessary. If the DAO believes there to be malicious intent involved with the proposal they will vote accordingly.
To be fair, a link to this post was posted in the governance channel on discord, likely driving in new users to respond.
If you believe there to be ulterior motives involved with this proposal max-andrew, it would be helpful to be specific about what those motives could be and what consequences they may entail.
From my perspective, I just think aligning/balancing the functionality and usage of the protocol with the ability to safely acquire the token is important for the user base to grow. HOPâs bridging volume in March was the highest monthly print since June 2022, so there is certainly a growing number of people using the protocol. Feels like a matter of time before those users ultimately look into the token itself.
Anyway, saw this post in the discord and felt like a good time to give my two cents, certainly no malicious intent on my end. Regular user of Hopâs bridge and have enjoyed watching the progress being made.
Dybsy, there is no malicious intent from my end. Been using Hop for months and decided to become actively involved in governance after learning more about the protocol. This RFC was based around some of my pain points as I bought the HOP token.
I know you are very active in the community, so it would be great to have some of your insight around the actual proposal. It seems to have some support & shouldnt have anything to do with the actual price of the token, just the liquidity.
Not trying to be defensive, I was just trying to respond to the allegations that the proposal was âsuspiciousâ or of ill intent. Really happy to chat about this further here or on Discord.