Gauntlet Recommendations for Moonbeam Ecosystem Grant Allocation

TL;DR

For future Moonbeam grant allocations, Gauntlet recommends:

  • 30% of funds to Stellaswap (DEX)
  • 25% to Moonwell (lending protocols)
  • 25% to Prime Protocol (applications promoting cross-chain interactions)
  • 20% to Beamswap (innovative products)

Recommendations

General Recommendations for Future Grants

Gauntlet recommends the following allocations for future grant programs with corresponding rationale:

  1. 30% of funds to existing DEXes: Strengthening the foundation: DEXes are the backbone of any DeFi ecosystem, providing the essential infrastructure for token swaps, liquidity provision, and price discovery. Allocating a significant portion of the funds (30%) to existing DEXes underlines the importance of a robust and efficient decentralized exchange infrastructure for the overall health and attractiveness of the Moonbeam ecosystem.
  2. 25% of funds to lending protocols: Prioritizing Market Demands: With lending protocols comprising nearly ~75% of TVL on Moonbeam, lending is clearly a pivotal activity within the ecosystem. Allocating 25% of the funds to lending protocols acknowledges their significant role and popularity, ensuring continued support and incentivization for these essential services.
  3. 25% to applications promoting cross-chain interactions: Interoperability as a growth driver: In the Moonbeam ecosystem, interoperability is not just a feature but a necessity for growth. Allocating 25% of the funds to cross-chain applications acknowledges the critical role these applications play in enhancing the accessibility of assets across different DeFi ecosystems. This strategic investment supports projects that connect Moonbeam with other chains, thereby increasing the utility and reach of the Moonbeam ecosystem and attracting a wider user base.
  4. 20% to innovative products: Fostering innovation and diversity: The allocation of 20% of the funds to innovative products is designed to spark creativity and experimentation within the Moonbeam ecosystem. This segment targets new projects that bring fresh ideas and approaches, such as advanced AMM models that offer improved price execution and more attractive LP rewards, perpetuals protocols, novel technologies that enhance cross-chain capabilities, real-world asset (RWA) integration, gaming platforms, novel social protocols, and other innovative DeFi solutions.

Strategies for Allocating Funds Across DEXes: Trade-offs Between Allocating to One DEX vs. Multiple DEXes

When deciding whether to allocate funds to one DEX or multiple DEXes, there are several trade-offs to consider:

Allocating to a Single DEX

TL;DR:

  • Increased Liquidity Depth and Reduced Fragmentation
  • Simplified User Experience
  • Simplified Security Measures

Pros:

Rewarding the market leader can help establish a strong, central liquidity hub for the ecosystem. By concentrating liquidity, the DEX can offer better trading experiences with higher depth, tighter spreads, and increased trading volume. This, in turn, can attract more users and liquidity providers, creating a positive feedback loop for the ecosystem. Furthermore, with only one application to perform swaps, users benefit from a simpler trading experience, potentially encouraging new user adoption. Lastly, single DEX ecosystems have a reduced range of security issues with only one application to audit, monitor, and continuously keep safe.

Cons:

However, allocating funds to a single DEX also comes with centralization risks. The ecosystem could suffer if the DEX experiences technical issues, security breaches, or if the team behind it fails to deliver on its promises. Moreover, a lack of competition may lead to complacency and slower innovation, as the dominant DEX has less incentive to improve its services and adapt to changing market conditions.

Allocating to Multiple DEXs

TL;DR:

  • Reduced Congestion Risk
  • Increased Decentralization and Competition
  • Potential for Specialized Trading Experiences

Pros:

Distributing funds across multiple DEXes can help create a more diverse ecosystem and mitigate the risks of relying on a single platform. Multiple DEXes can reduce congestion risk and drive innovation through competition. Additionally, different DEXes may cater to specific market segments or offer specialized trading experiences, leading to a more diverse and inclusive DeFi landscape.

Cons:

Allocating funds to multiple DEXes may lead to fragmented liquidity, resulting in less optimal trading experiences with higher slippage and lower volume. It may also dilute the impact of the grant funds by spreading them across multiple platforms, potentially slowing down the growth of individual DEXes.

Gauntlet’s Recommendation for Upcoming Grant Program

Funding % Protocol Category
30 Stellaswap DEX
25 Moonwell Lending
25 Prime Cross-Chain
20 Beamswap Innovation
  • 30% of funds to DEXes
    • Allocate 100% to Stellaswap
    • Allocating all DEX funds to Stellaswap aligns with the strategy of concentrating liquidity to establish a strong, central liquidity hub for the ecosystem. As the market leader, Stellaswap can offer better trading experiences with higher depth, tighter spreads, and increased trading volume. This allocation will attract more users and liquidity providers, creating a positive feedback loop for the Moonbeam ecosystem. Additionally, users will benefit from a simpler trading experience with only one application to perform swaps, potentially encouraging new user adoption.
  • 25% of funds to lending protocols
    • Allocate to Moonwell, as they remain the market-favorite lending protocol on Moonbeam.
  • 25% to applications promoting cross-chain interactions
    • Allocate to Prime Protocol, the leading “natively cross-chain protocol” by TVL, recognizing its potential to enhance the interoperability and reach of the Moonbeam ecosystem.
  • 20% to innovative products
    • Allocate to Beamswap for perpetuals development, as it is well-positioned to capitalize on the dynamic and rapidly growing perpetuals market. As Beamswap has shown the potential to become the leading perpetuals protocol in the Moonbeam ecosystem, we believe it is worth continuing to invest in their development. Supporting this area could lead to the development of new financial instruments that can attract more professional traders and institutional participants, potentially increasing the platform’s user base and liquidity. Derivatives in TradFi surpass spot and retail trading by a wide margin, showing promise for the future of perpetual and derivative trading within DeFi.

Pros

  • Rewards market leaders in each category:
    • Stellaswap in DEXes (highest TVL among DEXes)
    • Moonwell in lending (highest TVL among lending protocols)
    • Prime Protocol in cross-chain interactions (highest TVL among natively cross-chain protocols)
    • Beamswap in innovative products (focusing on the rapidly growing perpetuals market)
  • Provides more support to protocols that have proven to be successful
  • Concentrates liquidity in a single DEX, offering better trading experiences and attracting more users and liquidity providers
  • Supports the development of new financial instruments in the perpetuals market, potentially attracting professional traders and institutional participants

Cons

  • Concentration risk: allocating funds to a limited number of protocols may expose the ecosystem to greater risk if any of these protocols face issues or hacks
  • Potential missed opportunities in supporting emerging projects that could contribute to the ecosystem’s growth and diversity

Community Feedback and Next Steps

The recommendations presented in this report represent Gauntlet’s informed opinion on what would most benefit the Moonbeam community. We defer to the community to determine the best path forward as their input is critical.

As a next step, we invite the Moonbeam community to share their thoughts, opinions, and insights on the proposed grant allocation scenario. Your feedback will be invaluable in refining and optimizing the grant program to better support the ecosystem’s growth and long-term success.

Conclusion

By strategically allocating funds across key DeFi sectors and considering each protocol’s unique strengths and challenges, the Moonbeam Foundation can foster a diverse, interconnected, and thriving ecosystem. We believe that the insights and suggestions provided herein will serve as a valuable resource for the Moonbeam community as they work together to refine and implement these recommendations, ultimately driving the ecosystem’s long-term growth and success.

Acknowledgments

Gauntlet expresses its gratitude to the Moonbeam Foundation for their collaboration and valuable insights throughout this analysis. We also acknowledge the potential limitations of the study, such as the influence of external factors on the metrics evaluated and the accuracy of the data provided by the protocols. Despite these limitations, we believe that the findings and recommendations presented in this report provide a solid foundation for enhancing Moonbeam’s grant programs and supporting the ecosystem’s long-term success.

5 Likes

hey Gauntlet team, thank you for your insightful recommendations!

I have a few questions regarding the focus on established protocols:

how are new and innovative projects that are preparing to launch on Moonbeam supported under these recommendations? Is there a specific allocation or support mechanism in place for these emerging initiatives?

I dont support any of this until the Moonbeam Foundation helps moonriver.

be sure to check this out:

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Hi Gauntlet team,

Thanks for sharing this analysis. Overall I think it is spot on. However, I would like to understand what the rational is for ecosystem grants to be entirely placed into established DeFi projects (unless there are more recommendations to be revealed).

Legacy DeFi in Moonbeam should absolutely be supported, but the winning projects in the next cycle are expected to be in DePIN/RWA. Historically, ecosystem grants have been the largest single grant allocation available to teams, and so is it possible that there may be ecosystem projects (or to-be ecosystem projects) that may need the backing of an ecosystem grant to gain traction (that aren’t in legacy DeFi) and the ecosystem will miss out on?

Appreciate the work put into this and response to the above question.

We wanted to clarify that one of the allocations we considered and discussed with Gauntlet was an allocation for Liquid Staking Tokens (LSTs). In the end, we decided not to pursue this for this grant cycle, but it’s important to explain why.

Potential Benefits of Liquid Staking Tokens (LSTs)

LST protocols have significant potential benefits, including:

  • Passive Yield Opportunities: LSTs offer users the ability to earn yields on their assets in a relatively low-risk manner, akin to traditional risk-free investments.
  • Leveraged Staking: By using LSTs as collateral, users can borrow against their staked assets to amplify their yields.
  • Enhanced Liquidity: LSTs provide liquidity to otherwise illiquid staked assets, making them more accessible for trading and lending activities.

Key Considerations for Allocation

However, for LSTs to have the maximum impact within the Moonbeam ecosystem, a robust lending market needs to exist. In our evaluation with Gauntlet, we identified several key conditions necessary for the success of LSTs:

  1. Reliable 3rd Party Price Oracle: Moonwell, the leading lending protocol in the ecosystem, requires a trustworthy price oracle to ensure accurate valuation of LSTs.
  2. Decentralized Governance: The underlying LST pool must have fully decentralized governance to meet Moonwell’s safety and security standards.

Current Developments and Challenges

There are ongoing efforts to meet these conditions:

  • API3 Oracle Deployment: API3 is planning to deploy an oracle for LSTs on Moonbeam. While this is a promising development, development and auditing is still underway and the timeline for deployment remains unclear.
  • StellaSwap and Moonwell Collaboration: StellaSwap is in discussions with Moonwell to implement additional safety measures as a step towards full decentralization. These measures include a time lock on smart contract upgrades, which would provide a safeguard against unauthorized changes and give Moonwell the ability to pause markets if necessary.

Timing and Readiness

Despite these efforts, it became clear that the necessary infrastructure and safety measures for LSTs would not be ready in time for the current ecosystem grant cycle. As a result, we decided not to allocate funds explicitly for LSTs at this stage.

Conclusion

We remain optimistic about the future potential of LSTs within the Moonbeam ecosystem. However, given the current state of necessary infrastructure and readiness, we believe it is prudent to wait until these foundational elements are in place. We will continue to monitor the progress of these initiatives and reassess their potential in future grant cycles.

We appreciate the community’s understanding and look forward to your continued engagement and feedback

3 Likes

At Beamswap, we’re pleased with the shift towards transparent analysis conducted by a third party. This should have been the objective from our Moonbeam Grants.

Should the Moonbeam Network Foundation approve this plan, our goal will be to drive adoption of the Beamex Perpetual exchange, aiming to establish it as a premier perpetual product within the Polkadot ecosystem. Securing this selection will also bolster our Polkadot OpenGov proposal.

We are happy with recommendations.

JT | Beamswap & Beamex

2 Likes

Hello Turrizt, thank you for your question. New and innovative projects are good opportunities and should always be welcome to apply for grants within Moonbeam. Our recommendations are designed to ensure the stability and growth of the Moonbeam ecosystem with a weighted focus on established protocols. However, we also recognize the importance of supporting new and innovative projects, which is exactly why we have allocated 20% of the funds to “innovative products.”

This 20% allocation specifically targets emerging initiatives and fresh ideas within the Moonbeam ecosystem. By including innovative products in our allocation strategy, we ensure that new projects preparing to launch on Moonbeam have a clear pathway to receive support. This approach strikes a balance between reinforcing the foundational elements of the ecosystem that should be supported while fostering innovation.

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Hello Jim and thank you for your follow up. Our analysis and recommendations are crafted to support the Moonbeam ecosystem’s core components, focusing on areas that have demonstrated significant impact and growth potential.

Similar to the response above, we recommend that this grant tranche is designed to reinforce the ecosystem’s foundational strengths rather than proactively incubate or venture into new sectors. Should the community demonstrate an interest in investing in protocol development within sectors like DePIN and RWA, we would recommend the projects to apply for funding through the innovation bucket of the routine grant tranche, or propose an off-cadence, separate grant.

2 Likes

Great, thanks for that extra clarity.

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