Keeping in line with the hummingbird theme of the project, I want to propose Trill, an idea to fund and support a savings pool for the protocol. Trill is the jingling sound [male] hummingbirds make via their feathers and use it as a defensive/mating tactic.
Kolibri currently has a relatively conservative mechanism to fund a reserve for the protocol’s stability as well as Kolibri’s future development work. A percentage of liquidations currently supports a portion of the stability and the development funds.
KIP - 006 proposed the elevation of the Liquidity Pool as the primary liquidator for the protocol. This was to enhance the protocol further and promote the use of the platform. The Liquidity Pool serves as a backstop to the protocol, however, its incentives and structure need an upgrade.
The idea behind Trill is simple:
- It increases fees charged to liquidations to properly fund aspects of Kolibri which ensure long-term success.
- It enhances the Liquidity Pool’s ability to clear HUGE trades (ideally, through the protocol itself). Market liquidity and depth are two concerning aspects within the Tezos ecosystem currently, and potential liquidations of huge ovens may shock platforms like QuipuSwap. At the time of this writing, an oven liquidation of >$500k would potentially undermine the integrity of the XTZ-kUSD pool on Quipi.
Trill, as a savings pool, can fund two reserves:
- Pure kUSD pool (as it does now).
- An XTZ-kUSD pool just to help clear huge trades (think of this as adding depth and liquidity to not only Kolibri, but also the Tezos ecosystem).
Trill can be used for:
- Rewarding liquidators appropriately (this is needed to incentivize the use of the Liquidity Pool as well as the platform).
- Funding Kolibri’s own XTZ-kUSD savings pool to help clear large trades. This pool can also potentially assist with future expansion of the platform, perhaps for lending as a product/service.
- Rewards for submitting successful governance proposals (this is needed for the proper functioning and an ever-engaged DAO community).
- Rewards for voting, for obvious reasons.
There are potential concerns around #3 and #4 above, perhaps in the form of mal-voting and trying to game the platform. Would be great for members of the community to chime in.
For the purposes of this proposal, any numbers I use here are examples of what’s possible. The idea is that all the percentages mentioned below will be DAO-driver parameters.
There are three workflows to funding Trill:
- Current stability fee will be modified so it gets spread into two pots - 50% kUSD, 50% XTZ. 50% XTZ can be purchased (from a DEX like Quipu) at the same time the stability fee is assessed on ovens.
- When an oven is liquidated from the Liquidity Pool:
a. 80% of liquidation value is rewarded to Liquidity Pool funders on a pro-rata (weighted) basis.
b. 10% of liquidation value is rewarded to the liquidator.
c. 3.5% of liquidation value is used to purchase XTZ from Quipu (or wherever else). I am not sure whether the contract can simply “take” 3.5% of an oven’s XTZ during liquidation - if so, it may reduce a roundtrip to Quipu. This feature is quite useful in that, over time, the protocol is not trading against itself - it participates (at least 3.5% on a rolling basis) in the other side of the trade, relieving some of the price slippage pressure.
d. 1.5% of liquidation value is set aside to reward voters/governance participants. I call this the proposal savings pool.
e. 1.5% of liquidation value is set aside for rewarding submitters of successful governance proposals. I call this the voting savings pool.
- When an oven is liquidated from a private wallet:
a. 90% of liquidation value is rewarded to the liquidator.
b. 3.5% of liquidation value is used to purchase XTZ from Quipu (or wherever else). I am not sure whether the contract can simply “take” 3.5% of an oven’s XTZ during liquidation - if so, it may reduce a roundtrip to Quipu. This feature is quite useful in that, over time, the protocol is not trading against itself - it participates (at least 3.5% on a rolling basis) in the other side of the trade, relieving some of the price slippage pressure.
c. 1.5% of liquidation value is set aside in the proposal savings pool to reward voters/governance participants.
d. 1.5% of liquidation value is set aside in the voting savings pool for rewarding submitters of successful governance proposals.
As part of Trill, I am also proposing that every successful governance submission is awarded 10% of the balance of the proposal savings pool. 10% of the voting savings pool is also awarded to each voter on a pro-rata basis, regardless of the outcome of the proposal and/or how the participants voted (yay/nay). Those who abstain from voting, aren’t awarded anything.
Again, all the numbers above are “made-up” and the community can adjust depending on needs. For example, the 3.5% in 2-c/3-b above can be set really high (say 15-20%) if the Liquidity Pool is clearing >$500k trades on a regular basis.
I am imagining there’s some lead-up time to get Trill fully funded. What Trill ultimately gets us is ANOTHER, self-sustaining XTZ-kUSD pool of depth and liquidity besides a DEX like Quipu to help clear large liquidations. In times of duress (say Quipu is knocked offline), this backstop can really jump to action on its own.
Finally, I don’t know if there are plans for a Kolibri lending product. But if there are, I am making the educated leap that our own savings pool of XTZ-kUSD assets will be invaluable.