[RFC] Treasury Diversification & Protocol Owned Liquidity (multichain HOP/ETH LPs)

🐰Hop Ecosystem
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Goals and Motivation
In the interest of bolstering the financial health and autonomy of the Hop Protocol, this proposal presents an initiative to further diversify the Hop DAO treasury holdings while establishing the beginnings of significant protocol-owned liquidity (POL). This move aims to mitigate the current skew between HOP’s circulating market cap and its fully diluted value, which stands as an impediment to stable price discovery and large-scale, value-aligned investment in HOP from non-private parties.

HOP’s circulating to fully diluted supply is far too skewed (4M circulating mkt cap, 40M fully diluted value FDV). This skew makes it difficult for proper price discovery to occur and even more difficult for anyone to make a large, opinionated allocation to HOP at a stable valuation in the open market. Moreover, as the HOP token is playing an increasingly growing role in the protocol, POL increases accessibility for the token while generating fees for the DAO. This proposal brings idle HOP into the market, makes it productive, increases market liquidity, and retains DAO ownership.

Generally, the amounts are small and ensure a continued reserve of HOP in the treasury for future developmental use cases such as grants, incentives, and other value-creating opportunities.

Proposal Details
This proposal would seek to:

  1. Allocate 1,500,000 HOP ($57,000 @ $.038) and 57,000 USDC from the treasury for distribution to Mainnet, Optimism, and Arbitrum. The total value is ~$114,000 ($57,000 + $57,000).

  2. Sell 57,000 USDC for ETH

  3. Bridge HOP and ETH to each chain in the predetermined proportions (see calculations further down in proposal):

    • Mainnet: 49.33%
    • Optimism: 30.04%
    • Arbitrum: 20.75%

  4. Deposit HOP/ETH liquidity into DEXes

    • Mainnet: Uniswap v3 0.3% tier (full range?)
    • Optimism: Velodrome v2
    • Arbitrum: Camelot v2 (potentially v3?)

  5. Lastly, deposit veNFT into compounding Relay strategy created for us by Velodrome (including this in this proposal, because it’s DEX related and fairly low stakes)

Each chain/dex’s proportion of the 1,500,000 HOP is decided as a blended percentage of each DEX’s HOP liquidity & HOP 24 hr volume, and each chain’s percentage of Hop protocol’s bridging volumes (from volume.hop.exchange). Current HOP/ETH liquidity across chains is ~$350,000, so this proposal would increase the outstanding liquidity by ~33%. You can see the breakdown of current liquidity, volume, and bridge volume here in order to calculate the blended percentages:

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link to sheet

These 3 chains are lower hanging fruit because we already have multisig capabilities and they’re the top 3 by liquidity and bridging profiles by quite a large margin. In the future we can and should look into Base, Polygon, Gnosis and other chains that Hop Protocol supports.

Notably, this proposal requires zero expenditures or ongoing incentives from the DAO. It simply pairs idle HOP in the treasury with a small amount of idle USDC (to sell for ETH).

5 Likes
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Thanks for sharing this thoughtful proposal, fourpoops! I agree that slippage is an impediment for more people to join the DAO and some of the DAOs idle HOP should be activated for business experiments. It seems strategic to me because it will support greater volume while potentially making revenue for the DAO, depending on impermanent loss.

I also think your strategy of allocating more liquidity to the dexes with greater liquidity and volume is a good one. Depending on the results of this strategy things can be changed in the next iteration to optimize for yield.

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Openly admit, I don’t have much experience with providing DEX liquidity personally. But I think I understand the gist of the proposal… provide liquidity to DEXs that support HOP/ETH pairs. So we will get fees flowing into the DAO while maintaining control of the HOP.

If so, I think this is something worth exploring and would vote in favor of this. The value is low giving us essentially a trail run, and the logic behind which DEXes to support / how much to support makes sense. Getting some ETH helps with treasury diversification, and we can support the HOP token liquidity somewhat organically.

I’d say the only add would be, if passing, we should circle back to maybe 3 or 6 months down the road to see how successful it is. As it might be something worth expanding in the future.

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Yes, Hop DAO is simply providing its own HOP/ETH liquidity to the 3 chains and DEXs that already have the most liquidity and volume. At any time we can remove the liquidity, claim fees, add liquidity, etc. I agree that we should reassess about 6 months after initial liquidity is provided.

1 Like
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Thanks for proposing this @fourpoops - imo very exciting initiative and great to see you moving the DAO towards financial stability!

Agree on diversifying the Hop DAO treasury and improving POL being a smart move. This is particularly true considering the skew between HOP’s circulating market cap and its fully diluted value, which would play a big role once v2 is released.

Here are my 2 cents:

  1. Agree that it makes sense to use only Mainnet, Optimism, and Arbitrum. These choices are logical because they’re the most liquid and have extensive bridging profiles, which, as you said, represent low-hanging fruits.

  2. I would also suggest using the Uniswap v2 liquidity pool or providing full range on v3. Given the current liquidity, the complexity and potential efficiency gains of v3 active liquidity management (or even Gamma strategies or other POLs) might not justify their implementation at this stage. However, it’s definitely something to consider in the future as the protocol grows.

I just have one clarification question: Could you shed some light on the specific choice of 1.500.000 HOP allocation? Is this number based on a particular strategy or calculation? I assume the idea was to improve the liquidity by 33%, but I would love to hear your intuition behind it.

Looking forward to the snapshot vote!

2 Likes
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Thanks for the feedback.

Cool then I think I agree we should do the full range for uniswap v3 on mainnet. In the future, we can look into a concentrated range or more exotic autocompounding strategies.

It wasn’t an exact science, but a mix of a couple factors (one of which you name):

  • increasing the liquidity by 33% seems like a reasonable amount. it is enough that we can test what impact it has, without overdoing it
  • the overall dollar figure didn’t feel too aggressive and it is, I believe, fully covered from the surplus in sales price in the $ARB sale relative to its proposal price.

I’m hoping to put this up for vote soon. If there are any other comments that would be great to hear. One question is what should we do with the paired USDC relative to 1.5M HOP now that 1.5M HOP is worth slightly more than in the original proposal? Do we lower the HOP amount to match the dollar figure or increase the dollar figure to match the HOP amount?

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Just to chime in on this question:

If it is acknowledged that this initial proposal for implementing POL is experimental then maybe being risk-averse, and opting to lower the HOP amount, should be the right course of action.

Assuming some obvious risks are Impermanent Loss and smart contract risk.

1 Like
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I’ve now put this up for a temperature check on snapshot here: Snapshot

Following a snapshot vote, there will be an onchain vote to distribute the HOP to the multisig. The multisig will then need to coordinate all of the details for bridging and LP transactions.

The changes from the OP are:

  • amount of HOP down from 1.5M to 1.1M to reflect the HOP price increase (not as much HOP is needed for $57k). the total dollar amount of the proposal is still and always is intended to be $114,000 ($57k HOP + $57k ETH)
  • rounding proportions for cleaner/easier management:
    • Mainnet: 49.33% → 50%
    • Optimism: 30.04% → 30%
    • Arbitrum: 20.75% → 20%
  • specified using uniswap v3 full range on mainnet
2 Likes