Deposit additional PHA into HydraDX Omnipool

6mos ago

5 Comments

Content
AI Summary

I propose that the Phala treasury make an additional PHA deposit into the HydraDX Omnipool to further increase on-chain liquidity. I propose adding 4.08M PHA ($806k) which is 6.4% of the treasury. This would bring the PHA treasury deposit in the Omnipool up to $1M or 0.5% of FDV.

The Phala treasury in December 2023 deposited 1M PHA into the Omnipool, currently valued at $193,759. https://phala.subsquare.io/democracy/referenda/55

Real-time value of the Phala treasury PHA deposit in the Omnipool at:
https://app.hydradx.io/wallet/assets?account=7LCt6dFt6z8V3Gg41U4EPCKEHZQAzEFepirNiKqXbWCwHECN
The 24-hour trading volume of PHA in the Omnipool is $8k and can be seen at: https://app.hydradx.io/stats/overview

As you can see, the Phala treasury deposit into the Omnipool has maintained its value over time. However, with that liquidity you can only trade 19.1k PHA ($3,755) per trade before hitting 2% slippage. Recently in twitter discussions an investment firm mentioned they tried to buy 600k ASTR ($76k) but slippage was too high and they had to use a CEX instead.
https://twitter.com/Portela_Capital/status/1770811859525923256
DCA helps you break up large trades, but this reinforces the fact that we should continue to deepen our liquidity across the Polkadot ecosystem. Let’s bring those fees on-chain to Polkadot!

Another reason to increase PHA liquidity on-chain is to support larger money markets for PHA. Interlay is moving towards adding PHA to their money market (https://app.interlay.io/lending), Bifrost has launched Loop Stake, and HydraDX is launching a lending platform soon. Since large liquidation trades would likely be serviced by the Omnipool, increasing Omnipool liquidity would support a larger max cap for lending markets. This enables another use case for PHA hodlers. Again with my thesis of using treasury-controlled funds to increase liquidity across the entire Polkadot ecosystem I would separately encourage the PHA treasury to deposit PHA liquidity ($200k?) into Interlay and HydraDX lending markets to enable larger borrowing positions. (but that would be a separate future Phala proposal)

The great thing about all of the proposals above is that they put to use “Treasury Owned Liquidity”.

earn fees
add token use cases
deepen liquidity. Enable on-chain purchase sizes 5x larger.
no “listing fee” or reoccurring costs for market making or LM
tokens aren’t “spent” and are still controlled by the Phala community.

Q: But how much in fees?
A: Omnipool stats show PHA deposits earning 4.0% from swap fees. Deposits into lending would likely earn 3-8% once they are borrowed.

Q: Why is the PHA Omnipool deposit worth less now in terms of PHA equivalent value?
A: PHA has gone up in price, but the Omnipool basket of currencies include stables like USDT/USDC so LRNA doesn't increase in value as quickly.

Q: But $806k from the treasury is a lot!!
A: Interlay treasury already deposited $750k of INTR and we’re discussing boosting it to $1.2M. Astar governance already voted to add another $718k of ASTR to the Omnipool. (https://forum.astar.network/t/deposit-additional-astr-into-hydradx-omnipool/6507)
I’m certainly open to discussing deposit amounts other than 4.08M PHA, but as I outline in this thread, I’m encouraging multiple teams to deposit $1M of liquidity to send a strong “we’re open for business” signal from a cohesive Polkadot community, with minimal risk for each treasury and demonstrating the power of XCM to control funds on other chains.
https://twitter.com/spazvt/status/1770665393352225142

Specific implementation:

Move 4.08M PHA from Khala treasury to Phala treasury.
XCM transfer the 4.08M PHA from Phala treasury to Phala sibling account on HydraDX chain (7LCt6dFt6z8V3Gg41U4EPCKEHZQAzEFepirNiKqXbWCwHECN).
Use scheduler pallet on Phala to repeatedly send XCM calls to Hydra chain to addLiquidity of the PHA into the Omnipool. Calls are limited to adding 5% more to existing PHA liquidity, so only 48k PHA can be added at a time. Therefore the scheduler call will loop 85 times to deposit 4.08M PHA in 48k chunks.

Final notes:

This will have a side-effect of increasing the market capitalization of PHA by $806k because tokens in the treasury acct aren’t counted towards MC but tokens in a DEX are.
Disclosure: I am a $HDX token holder. I am not a HydraDX team member.

Up 1

Comments

44ZN...V67H

Incentivising liquidity on DEX is also a practice accepted by the Polkadot community with referendums 560, 561 and 580, which provided for the distribution of 2 million DOT to HydraDX and 1 million DOT to StellaSwap. Although PHA is already available on major centralised exchanges I think this initiative should be considered but my biggest concern, due to my lack of experience, is the systemic risks of rebuilding traditional finance systems in a decentralised environment. DeFi has been hit hard with the return of the bear market and many protocols have suffered liquidity crises, what are the most negative aspects that could happen to HydraDX and how would it impact PHA tokens? thanks

45t8...a3hK

Update: I’ve been delaying moving forward with this Omnipool deposit proposal because I’ve been trying to do this “the right way” by crafting a preimage of extrinsics that could be approved by Phala governance and entirely control the transfer of assets and deposit of the tokens into the Omnipool from the Phala sibling account on the Hydra chain. I wanted to demonstrate that XCM could allow the Phala chain complete control over operations on another chain without assistance. However, even using Chopsticks to test transactions, I’ve found the XCM documentation lacking and debug nearly impossible. From some Polkadot forum posts I see that perhaps this use case isn’t fully supported yet.

Therefore I’m going to fall back to pressing the “easy button” so we can move forward. I’ll propose an on-chain PHA governance proposal to transfer the funds to the Phala sibling acct on HydraDX. If approved and transferred, I’ll propose a HydraDX governance proposal to deposit those tokens into the Omnipool on behalf of the Phala sibling acct.

Technical details:

call to xtransfer.transfer the PHA to sibling acct: (this works)
0x030300016d6f646c70792f74727372790000000000000000000000000000000000000000520000000000130000981b62129f38010200c91f01007369626cf307000000000000000000000000000000000000000000000000000000
similar draft CFG XCM call to omnipool.addLiquidity(13, 46875 CFG): (doesn't work)
0x790003010100c91f0314000400010200bd1f060200010000000000000000000000000000000000000000000000000000000000000013000064a7b3b6e00d1300010200bd1f060200010000000000000000000000000000000000000000000000000000000000000013000064a7b3b6e00d00060013000064a7b3b6e00d6566583b020d00000000008c239bb14d19ed09000000000000140d0100010200c91f01007369626cef070000000000000000000000000000000000000000000000000000
Astar and Bifrost both transferred more tokens into their sibling accts. Here’s the Hydra governance proposal to deposit ASTR tokens into the Omnipool: https://hydradx.subsquare.io/council/motions/176
There’s one example of successful parachain-to-parachain funds control - Hydra’s DOT->vDOT minting on Bifrost: Send 1M DOT to Bifrost and mint vDOT

Two recent Polkadot forums discussions about improving XCM implementation and documentation:

https://forum.polkadot.network/t/xcm-user-and-developer-experience-improvements/4511/21
https://forum.polkadot.network/t/asset-hub-brainstorming-session-call-notes-and-discussion-continuation/7260/5
If any Phala/substrate devs knows how to correctly craft and execute the XCM calls, I’m all ears. Otherwise, I’d ask the Phala community to trust that this XCM implementation is being improved and in the future governance calls alone should be able to be used to remove liquidity and transfer it back to the Phala treasury if needed.

424w...vHAw

The proposal is to move 4.08M PHA to Omnipool. So first step would be to move funds from Khala -> Phala treasury acct. There's currently 60.3M PHA on Khala and 4.4M PHA on Phala. I'm not sure how you want to keep those balanced, but if keeping them ~equal afterwards we could move 30M PHA from Khala to Phala using balances.setBalance like https://phala.subsquare.io/democracy/referenda/10. After transferring 4.08M PHA to Omnipool there would be 30.3M PHA left on Khala and 30.4M PHA on Phala.

45t8...a3hK

Since the Phala chain part of the treasury currently holds 4.7M PHA, we can proceed with this Omnipool deposit proposal and funds can be moved from KHA -> PHA as a separate set of referenda.

I also received help from Chopsticks and Centrifuge devs to figure out the right XCM calls to make and have now tested a single call that can achieve everything that I've proposed above. It will:

Transfer 4.08M PHA to the Phala sibling acct on HydraDX (plus 20 PHA for fees buffer)
schedule once every 1 block repeating 85 times to deposit 48k PHA into the Omnipool.
0x030208030300016d6f646c70792f747273727900000000000000000000000000000000000000005200000000001300407db892249f38010200c91f01007369626cf30700000000000000000000000000000000000000000000000000000007040100000001010000005500000001210003010100c91f0314000400010100cd1f00070010a5d4e81300010100cd1f00070010a5d4e80006010700f2052a0102000400583b0208000000000038e5be87aa000000000000000000140d0100000101007369626cf3070000000000000000000000000000000000000000000000000000
Results: Execution costs about 7 PHA and results in 13.1 PHA and 85 LP NFTs left in the Phala sibling acct on Hydra (for future XCM calls).

This has been submitted for official review (and governance voting) as preimage
0x5b6c86a58be24a3efbf701359f79dfb0fe92aa7f3e8a0082f306dfb495375308