Proposal: Listing of LIDO and Wrapped stETH on DeversiFi (L2 Exchange)

Proposals
#1

Overview:

DeversiFi is a Layer 2 DEX built using the StarkWare Validium / zk-rollup technology. DeversiFi allows customers to trade without paying prohibitive gas fees and is opening up DeFi to a wider audience. See app.deversifi.com to explore.

DeversiFi is requesting 500,000 LDO to be used in two stages:

  1. For a period of 2 months to be used to seed the DeversiFi LDO market. DeversiFi will use the LDO to run a market making service on the LDO/ETH market. This will give DeFi traders a way to gain exposure and hold LDO tokens without paying gas, growing the LDO community.
  2. Afterwards to be distributed to stakers of ETH and stETH gradually in a L2 stETH/ETH AMM pool on DeversiFi

If the DAO can provide a grant of LDO tokens to DeversiFi then DeversiFi can seed an LDO market, giving DeFi traders a way to gain exposure and hold LDO tokens without paying gas.

Proposal:

The DAO will provide 500,000 LDO to DeversiFi to seed an LDO/ETH market

500,000 LDO tokens will ensure a deeply liquid market, which will be rebalanced by DeversiFi’s own market making services from time to time and be priced initially from the Uniswap LDO/ETH market

DeversiFi will list the LDO/ETH pair the same day that it receives the LDO tokens and will spread awareness of the listing to the DeversiFi community, including a 35k Twitter following, a 15k email list and assortment of community groups from Telegram to Discord with three thousand members.

DeversiFi also plans to list a wrapped stETH vs ETH market. Initially this will be in the form of an order-book based market, however this will be replaced later in the year by an AMM pool (using a custom curve similar to Curve) on L2 with very low transaction cost. We will provide a simple UI to stake ETH, instead of only being able to trade on the market.

Points of interest:

If the LDO/ETH market is successful then DeversiFi can also explore listing an LDO/DAI or LDO/USDT market.

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#2

500000 $LDO for order book trading rewards. How to forbid wash trading? Glad to konw more details, or other use cases.

500,000 LDO tokens will ensure a deeply liquid market, which will be rebalanced by DeversiFi’s own market making services from time to time and be priced initially from the Uniswap LDO/ETH market

BTW: LDO/ETH pool on Sushiswap has better liquitdity then that on Uniswap.

#3

I’m against this proposal for two reasons:

  • First, a StarkWare Validium is not trustless. It could be censored or hijacked by hackers. In this case it is very probable that all deposited coins get either lost or stolen. A real zk-rollup does not have these disadvantages. We should better incentivize a move to such a rollup.
  • This DEX is proprietary technology. It can’t be used as a module in other smart contracts. We should better wait till an EVM compatible zk-rollup (or optimistic rollup) comes up. Everything there could be build on existing smart contract technology. This guarantees composability and easy use in different 2nd layers.
#5

Thanks for your reply. I’m going to address each point below:

  1. This isn’t true. The difference between a Validum compared with Roll-up is very small, and is only concerned with the way that data-availability is handled. In the future Deversifi will give users a choice over whether to have their data on-chain or off-chain. See this post for more: Volition and the Emerging Data Availability spectrum | by StarkWare | StarkWare | Medium
    It is not possible for a Validium to be ‘easily hijacked by hackers’, and there is already significant TVL held on DeversiFi. The DeversiFi team has no ability to control user assets, and in the case where there was an issue with the proposed state, or if DeversiFi tried to act maliciously (e.g. if the exchange was taken offline), users can trigger a freeze on the exchange and withdraw their funds on-chain via an emergency escape mechanism, based on their balances at the last state transition.

  2. It isn’t entirely clear to us what your point is here. DeversiFi can interact with other Layer 2 solutions using L2-L2 bridges and it can also be composable with L1 using L2-L1 bridges (something that is close to mainnet release now). All L2 solutions, whether EVM compatible or not, will not be directly composable with L1 smart-contracts. DeversiFi is written using Cairo, a STARK optimised language, and in the near future there will be transpilers from Solidity into Cairo.

#6

  1. We might not agree here. Read this for clarification: zkRollup vs. Validium. StarkEx is a major security enhancement… | by Alex Gluchowski | Matter Labs | Medium. I’m not aware that the issues mentioned there have been solved.

  2. My point is that Ethereum ensures composability first of all by using the EVM, Solidity and standardized smart contracts. These should be available within L2 solutions because they will aggregate big parts of the (existing) smart contract eco system. You don’t have that with a Cairo implementation even if Solidity will become available later on. Of course there is a need for additional means to bridge between layers. Here additional standards have to be established.

Of course you can go on and integrate LIDO and stEth anyway. It is your choice. Probably it will be quite easy as soon as you have support for other ERC20 contracts. I just don’t see why LIDO should fund this undertaking.

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#7

Let me show you some data.

Now there are about 2000 LDO holders and 100-150 unique trader on Dexs.

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How many new holders do you think will be on board during this event? How many stETH will be mint by this incentive plan. I do think we should have a basic goal for this kind of campaign.

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#8

The matter of fact is DeversiFi is
a) Ethereum L2 (though with different tradeoffs than an ORU or full on ZKRU)
b) Happy to have us (Loopring’s not accepting new coins at the moment)
c) Having functionality beyond simple transfers (zkSync doesn’t have anything beyond that)
d) Having a user base (Fuel sadly doesn’t, as much as I like the project)

It will enable better price discovery and more effective trading for LDO and stETH, and it’s got enough security guarantees to be a good source of liquidity for LDO among others.

So in general I’m in favor, though not necessarily in details.

I’m not sure about the amount of LDO - 500000 is a lot - and I think that more use for stETH would also be welcome.

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#9

Agree with disagree.

I know that DeversiFi is an honourable and leading L2 project. If this proposal is for strategic collaboration, I prefer to start with a lower amount of LDO. We gave 250000 LDO to the LDO/stETH liquidity providers with a specific goal and action plan. They also distributed 1inch as rewards.

500000 LDO is really not a big deal compared to 260MM LDO community treasure remaining. But keeping stETH/ETH curve pool liquidity in a high performance is still our most important incentive goal. Since the price of LDO has dropped significantly in the past month, we may need to increase the LP rewards to keep APY at a higher level.

#10

@Ben_Wilson can you break down the usage of LDO more concretely?

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#11

Thanks @Chuck and @vsh for your replies. I think both of your concerns and comments are reasonable and I am, of course, happy to a) dive into the details of our plans more and b) explore options to get this perfect for Lido DAO, and ultimately across the line.

A) How specifically do we plan to use the 500,000 LDO?

  • The full amount will be used as collateral for deep market-making activities on DeversiFi ensuring our LDO/ETH market is one of the most liquid on the platform next to ETH/USD, BTC/USD etc. It is paramount that the market is liquid and therefore seen to be (and actually) offering some of the best market rates for LDO available. This will mean traders of DeversiFi will have every reason to trade LDO easily within the platform and not move their funds elsewhere, giving them an incentive to get involved with LDO. It will also enfranchise other users in the wider ecosystem who don’t want to engage with high-gas on-chain platform, a high-speed, gas-free way to participate in LDO, and stETH staking etc.
  • Ultimately we agree that a strong stETH/ETH market is the ultimate goal, and we would like to see this available on L2 with low gas. Currently however we see it as unlikely that an order-book on L2 (or a generalised AMM which isn’t designed like Curve for low price deviation pairings) can compete with the depth offered by the existing Curve market. We therefore don’t think it is worth immediately using the LDO to incentivise a stETH/ETH market on DeversiFi. Instead we are building a specific ETH staking UI for DeversiFi (reflecting a logical staking process instead of a simple market), and will launch a highly tailored stETH/ETH market, which can be more capital efficient for market makers. Once this is achieved, we would then re-use the LDO provided by distributing it to those providing liquidity to the stETH/ETH market.

B) Why we believe 500,000 LDO is the correct amount and alternative options

  • In the bigger picture, we believe 500,000 is the best amount to cover all plans across both LDO/ETH markets and the aforementioned plans for stETH/ETH. It will ensure the most attractive markets while allowing us to meaningfully stimulate stETH/ETH liquidity once we launch an optimised UI for stETH.
  • That said, it seems there is an opportunity to break this plan into 2 parts as a way to overcome any concerns about the amount being requested. If 500,000 is still deemed to be too much, we could instead have: stage one: we request less LDO for the LDO/ETH market while still being enough to offer deep markets for traders (50% - 250,000 LDO). And stage two: we request the remaining amount of LDO once we have released an optimised UI and market for stETH/ETH allowing us to distribute LP rewards in the form of LDO to those liquidity providers.

I hope I’ve more or less addressed your points and please let me know if you have any more questions or counter suggestions.

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#12

@Ben_Wilson Thanks for your decent reply. Glad to know that you have a full plan on this proposal. It sounds reasonable to have a two-stage path to our goal. Now it’s about 15MM LDO in circulation, so I hope the diluted ratio will be somehow under content marketing expectation.

After all these discussions, I think this proposal will bring true value to both our communities. Hopes we can collaborate more closely with each other.

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#13

Great, I’m glad to hear it. And I agree, looking forward to collaborating more closely with Lido as we power through the year. Let me know if you get any more questions :slight_smile:

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#14

Great discussion.

Thank you to @Ben_Wilson for his responsiveness here.

I agree with vsh on being generally in favor for the reasons he mentioned (better price discovery etc).

500,000 LDO does seem like a lot. I would probably be inclined to favor the 2-stage funding approach Ben mentioned, if given a choice.

@Ben_Wilson what do you estimate the time frame will be between stage 1 & the release of the optimized UI that would lead into stage 2?

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#15

Hi @Soze! Thanks for comments and feedback. And apologies for my slower response time on this one.

Regarding you question: I think, considering our dev resources and current roadmap items, it is safe to say between 1-2 months would be the range of time between stage 1 to completion of the items needed for stage 2.

Cheers,

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