Bootstrap DOGE Liquidity on Osmosis

Description

The Osmosis community has always been at the forefront of innovation in the DEX space. The onchain, decentralized market for trading DOGE is underdeveloped. With the creation of int3face and its bridge to Dogecoin, Osmosis has been the first location to trade DOGE in this capacity!

While the market is in a bootstrapping phase, more awareness of DOGE being available is needed to attract traders. One issue is only having liquidity on the BTC/DOGE pairing with no active market making. To help bootstrap this market, this proposal asks for $150,000 USDC from the community pool to purchase and LP DOGE into a USDC pairing on Osmosis. This liquidity provision should be made at a .01% spread factor to help encourage more CEX<>DEX arb and better pricing to bootstrap the market.

Protocol fees should also be removed for the DOGE <> USDC pairing for a period of up to 90 days, or until DOGE/USDC liquidity doubles, to provide more incentive for liquidity providers to begin to add their own DOGE positions on Osmosis and establish a deeper market. This was previously performed in the ERC-20 Bootstrapping Proposal for several assets.

Why DOGE?

1. DOGE Dominates Volume On centralized exchanges (CEXs), DOGE consistently ranks among the top three assets by trading volume when discounting volume spikes. By bolstering DOGE liquidity on Osmosis, we can tap into this massive volume and attract active traders with DOGE.

2. Osmosis: The First Decentralized DOGE DEX Osmosis made history by being the first decentralized exchange to list DOGE. However, the market still needs to be developed. By bootstrapping liquidity, we can solidify Osmosis’ position as the go-to DEX for DOGE trading and showcase the power of decentralized markets.

3. Bridge Barriers Need Initial Incentivization Until recently, the bridge to bring DOGE onto Osmosis was cumbersome for users. Although the bridging interfaces are rapidly improving, we can help the market solve the initial DOGE liquidity onboarding. This proposal would help bring $100k USDC more on-chain.

These factors make DOGE an effective asset to target for bootstrapping onchain liquidity.

Requested Deployment

One learning point from the BTC liquidity deployment was that it fulfilled the purpose of acquiring volume but also spent excessive USDC, which was not utilized as part of the liquidity deployment. We don't know what the market will do, but for bootstrapping new markets, we should aim to get more of the new listing past the bridging hurdle as possible while having less unused USDC and exposure on the downside. This leaves more USDC available for other strategies (e.g., lending in Mars or more community pool LPing to bolster volumes)

Therefore, a new Margined vault will target initial settings of -6% to +12% for the range. Due to the automated repositioning strategy of these vaults, this position will remain valid beyond this volatility range. Margined vaults were previously used for protocol liquidity deployments of BTC/USDC in Proposal 882 and charge a 15% performance fee. This deployment has seen value maintenance once adjusting for BTC volatility while facilitating the most liquidity depth in the 0.01% spread factor BTC/USDC pool, generating taker fees.

The requested $150k USDC aims to utilize around 10% of the USDC in the community pool to establish a pool with sufficient depth to form a new market. This is similar in size to the previous ETH/BTC liquidity deployment, which was more narrowly deployed (+/- 2.5%) but on a more correlated market.

Execution Plan

• Upon governance approval of this proposal, place a limit order to purchase DOGE using $100k USDC at the CoinGecko price at creation by utilizing the Osmosis Liquidity subDAO as an intermediary, similarly to other proposals.
• Market makers are expected to clear this limit order through arbitrage when the DOGE price on CEXs drops below this limit order.
• After the acquisition, the DOGE will be added to a newly deployed Margined DOGE/USDC vault with a range of -6% to +12%.
• These positions will be transferred back to the community pool until governance approves further adjustments to these holdings.

Benefits

• Enhanced Market Activity: Higher DOGE liquidity will attract retail and institutional traders seeking decentralized trading options. While this doesn't get to the requisite liquidity for institutional trading, it forms a base liquidity layer to start the market.
• Increased volume: Increased volume on DOGE helps generate more revenue for the community pool in the form of taker fees after the promotional period and profit on the CL position.
• Increased Exposure to top 10 assets will increase the Osmosis community pool's exposure to DOGE, the sixth-largest (non-stablecoin) crypto asset by market cap.

Risks

If DOGE goes down, the community pool will lose funds due to its exposure to Dogecoin. If DOGE moons, the community doesn't fully experience its upside. Hence, we should not add too much exposure to this, as DOGE is a highly volatile cryptocurrency, and either situation could easily happen.

However, the community pool would gain .11% in fees (.1% taker fee + .01% spread factor) on each trade. So, if we assume that DOGE remains at this price or goes upward, it is a gain. The max downside is losing the $150k allocated. Unlike the BTC/USDC spend proposal, this is not a spend that intends to predict if DOGE will rise or fall but one based on the observation that DOGE commands massive volumes on CEXs and is worth this size of risk as a community spends to establish a decentralized market on Osmosis.

Performance Indicators

• DOGE Volume - has remained quite stagnant over the last 2 months with the solo BTC pool. With $150k of low-fee liquidity paired against USDC, the target should be to increase volume to at least $4m per week. This is half ETH's volume, which has $300k USDC paired liquidity.

• Spend Value - Will correlate to DOGE performance. Ideal performance would be to maintain or rise in value, including any taker fee generation once these are re-enabled.

Forum Post: https://forum.osmosis.zone/t/bootstrap-doge-liquidity-on-osmosis-with-150k-usdc/3444