Moonwell Ecosystem Grant Draft Proposal

majin_moonwell · July 14, 2023, 9:12pm

Hey @Jim_CertHum! Thanks for taking the time to share this thorough and valuable feedback with the Moonwell community. I’ve done my best to answer all of your questions, but please advise if anything remains unclear or if you have any further thoughts or questions. Cheers!

It is noted that the grant seeks to improve TVL and help build connected contracts use cases. We specifically would like teams to pick one (and only one) of the following two options as the main goal for their application: Maintain and Grow Activity (active users, transactions, TVL) OR
Building Connected Contracts Use Cases (using XCM and other message passing protocols). Will you please pick which one you feel most closely fits your proposal?

The primary goal of this proposal is “Maintaining and Growing Activity”. While the grant funds will be used entirely for this purpose, we wanted the Moonbeam community to know that contributors to Moonwell are building a connected contracts use case as well, which will not be funded by the grant.

In is stated in this section that: “Engaging with other grant recipients, the Moonwell community will collaboratively promote these incentives,” Will you please provide details on the specifics of these engagements, which teams, what types of promotions, and the level of collaborative discussions had to date?

The Moonwell community plans to engage with other grant recipients to both create and promote a liquidity incentives campaign, similar to Moonbeam Ignite. While we don’t have specific collaborations confirmed yet (as we don’t know who the grant recipients will ultimately be), we are excited to partner with other projects to co-promote liquidity incentives, similar to the collaborative success seen with previous campaigns (Moonbeam Ignite, Harvest Moonbeam).

Potential promotions could include:

Co-hosting AMAs and educational sessions to increase awareness
Weekly meetings with participating projects to ensure alignment
Organizing collaborative NFT campaigns that require onchain ecosystem activity
Cross-community Discord events such as game nights, raffles, trivia, and giveaways
Creating joint social media campaigns and update threads to spread awareness
Contests to incentivize the creation of art, videos, infographics, and other promotional materials that showcase the campaign and ecosystem

Like with Moonbeam Ignite, the Moonwell community is committed to spearheading creative and engaging promotions alongside other grant recipients with the collective goal of growing awareness, activity, and liquidity for Moonbeam. We are confident this community-driven, collaborative approach can successfully increase adoption of and usage in the ecosystem.

Is it proposed that any of the grant will be used for these purposes (even if in the form of special incentives to partners that Moonwell collaborates with?

To be completely clear, none of the requested grant funds would be used for promotional purposes or special incentives to partners. 100% of any received grant will go directly to liquidity providers on Moonwell as outlined in our proposal. This has been the case with all ecosystem grant funds Moonwell has received to date.

As part of a collaborative incentives campaign with other projects, the Moonwell community is prepared to separately fund promotional activities, as was the case during Moonbeam Ignite. This could potentially include:

Commissioning artists and designers to create campaign graphics, videos, logos, and NFT artwork
Funding giveaways like swag, token prizes, gift cards
Compensating Moonwell contributors and community members to create and share content like articles, threads, and videos highlighting the incentive program

All of these activities would be resourced independently by the Moonwell community without utilizing any of the Moonbeam ecosystem grant. The grant itself will solely be distributed to Moonwell liquidity providers to increase TVL and activity. We are committed to full transparency on grant usage.

By endorsing this grant, the Moonbeam community is not only backing a proven model of success” Will you please provide some examples of the success directly attributed to the use of grant funds?

Certainly. The previous Moonbeam grant was a crucial component in various recent successes:

It allowed Moonwell to bootstrap initial liquidity for Wormhole-wrapped assets like WBTC, ETH, and USDC, helping the ecosystem to recover post-Nomad and establishing Wormhole as a major player in the Moonbeam ecosystem.
It enabled the launch of a new xcUSDT market which brought activity and value from the wider Polkadot ecosystem into Moonbeam.
The incentives helped to maintain Moonwell’s position as the top DeFi protocol on Polkadot, in terms of total value locked
Moonwell’s leadership in the Ignite incentives campaign brought ecosystem-wide benefits in terms of new users, TVL, and activity between projects. We didn’t see a similar campaign for Tranche 1, largely due to Moonwell not being a grant recipient and other projects not utilizing grant funds.
- In April 2023, during the Moonbeam Ignite GALXE NFT campaign which the Moonwell community spearheaded, we saw significant growth in Moonwell usage metrics:
- Unique address count nearly tripled, rising from 4,899 in March to 12,131 in April.
- Total transaction count rose significantly month-over-month, increasing from 27,127 transactions in March to 44,706 in April.
Grant-incentivized liquidity enabled new Moonwell integrations like ZooDAO and Qoda, providing new DeFi opportunities in the Moonbeam ecosystem.

In summary, the previous grant was crucial for building initial liquidity in new markets, maintaining substantial TVL, facilitating ecosystem collaborations, supporting borrowing activity, and strengthening Moonwell’s position as the top DeFi hub on Polkadot - all of which are critical to advancing adoption and maturity.

Every GLMR that the community ends up voting for Moonwell to receive, is a GLMR less that another project might receive, so it would be useful to understand how this proposal will provide the most value to the community — outside of the info provided in the KPIs. Why is it important that grant funds be put to rewarding liquidity providers over other uses?

The Moonwell community understands that GLMR is a limited resource, is extremely thankful for previous grant funding, and wants to ensure that our proposal provides maximum benefit to Moonbeam, especially as more projects than ever apply for grants. As a community, we’ve intentionally stretched the Moonbeam Ignite grant to last for 9 months, instead of the original 6 that was planned, so that other, smaller ecosystem projects could take full advantage of tranche 1 grants. We recognize that Moonwell cannot succeed long-term without a robust ecosystem around it.

To answer your question, liquidity providers now have a wide variety of opportunities to put their DOT, GLMR, and other Dotsama ecosystem tokens to productive use, across many parachains. As an ecosystem, Moonbeam will become more attractive to DOT holders in particular, by offering lower borrowing interest rates, as many DOT holders would like to use leverage. More liquidity of xcDOT on Moonwell translates directly into lower borrowing interest rates, which makes the Moonbeam ecosystem look more attractive for DOT holders, and gives them a viable alternative to simply staking DOT or borrowing against it on another parachain. In addition, enabling the Moonwell community to support new liquid staking markets will also attract more DOT and GLMR holders, as now they can earn a staking reward while simply lending, or for more advanced traders, using leverage.

Moreover, a vibrant lending ecosystem enables the development of new composable services as we’ve already seen with projects like ZooDAO, Qoda, and Superhedge building on top of Moonwell. These integrations expand the capabilities of the ecosystem.

TLDR: Robust lending liquidity strengthens a key DeFi primitive (borrowing/lending) that facilitates greater DOT and ecosystem liquidity, more cross-parachain activity, compounds network effects, attracts new users, and enables future innovation through composability. It essentially “oils the gears” of a blossoming DeFi ecosystem like Moonbeam. We believe this multiplier effect is the most efficient way to provide value relative to other uses of the grant.

Thank you for including your code audits in the submission. It’s also notable that Moonwell also has Immunifi bug bounties. However, in the last tranche one of the teams that submitted a proposal had a bug that was exploited leading to loss of funds, due to an issue with a code upgrade. Will you please detail the steps and process which Moonwell uses to decrease the risk of such an event on Moonwell DeFi services?

Moonwell has a rigorous process to minimize risk and ensure the highest level of security:

Much of Moonwell’s codebase is derived from Compound v2, allowing the protocol to benefit from its time-tested and battle-hardened architecture that has defended billions in value.
Every deployed contract or change is meticulously audited by Halborn before being pushed to production. Halborn also provides ongoing monitoring of contracts through their SaaS service.
We run an Immunefi bug bounty program with significant rewards for researchers who responsibly disclose issues. This provides an additional layer of defense.
Chainlink price feeds give reliable market data to reduce oracle manipulation risks.
Contributors like Gauntlet and Warden conduct extensive simulations and risk modeling tailored to Moonwell.
We utilize staged testnet deployments to allow comprehensive testing and review before going live.
Emergency pause functionality (Moonwell Pause Gaurdians) can quickly pause markets if and when issues are detected, minimizing damage.
The protocol is upgraded through a decentralized governance process to ensure community alignment.

With diligent smart contract auditing, staged deployments, vigilant monitoring, and emergency controls, we aim to uphold the highest standards of security and reliability. Our practices are designed to maximize protection against exploits while empowering the community to guide upgrades safely.

How does Moonwell incentivize liquidity providers outside of grant funds? Is there a long term strategy to develop self-sustaining liquidity pools that don’t rely on the use of grant funds?

The WELL token provides a core incentive to Moonwell liquidity providers. Additionally, fees generated from borrowing activity compensate liquidity providers, so as borrowing volume grows, so do fee-based rewards. Building long-term demand for borrowing requires education, partnerships, ecosystem development/adoption, and collaboration with other protocols building on Moonwell. Grant funds help to foster liquidity growth, but they sit alongside a variety of other mechanisms used to cultivate organic, sustainable liquidity and a thriving ecosystem around Moonwell long-term. We aim to see consistent lending activity with or without grants.

In the historic KPI graphs provided, it’s appears that there is a cliff when the liquidity incentives run dry. Is it possible that grant funds entirely consumed by liquidity providers does not support long-term growth and the long-term trendline would remain the same without liquidity incentives, or do you have any KPIs or analysis to indicate otherwise?

I would encourage interested people in the community to read Gauntlet’s analysis of liquidity mining, which was recently published in June, 2023. To quote a key part of the analysis that is also relevant for the Moonbeam ecosystem:

“Focusing on the decreasing volume or TVL after the incentives period finished, it may appear the incentives program had been ineffective in creating sticky liquidity or any long-term effect. From this analysis, it would be natural for Uniswap Foundation to conclude that a liquidity mining rewards program is ineffective at generating a long-term “flywheel” of sustained lift in liquidity and volume for their protocol.

Gauntlet has re-examined the data from the Optimism liquidity mining experiments and has arrived at a different conclusion. For some pools, the liquidity mining program does appear to have a long term effect. Our analysis identified and attempted to correct two primary flaws in the existing research:

The existing research does not normalize for overall market trends in similar pools not involved in the experiment (i.e. a control group)
The existing research did not analyze trading volume enabled by improvements of liquidity

Based on Gauntlet’s analysis, we disagree with the conclusion that the liquidity mining program on Optimism was ineffective at driving sustained improvements to liquidity and volume for all pools. We also expanded upon Zelos’s research through a discussion of the sustained lift that was generated as a result of this program.”

An important thing to note here is that many aspects of past liquidity mining campaigns are confounded by market events, such as the collapse of Terra/LUNA in early 2022 and the collapse of FTX in late 2022. It is inaccurate to look at overall DeFi liquidity that decreased after November 2022, and attribute it to the expiration of liquidity incentives, and not the collapse of FTX. In fact, the Moonwell community has had consistent liquidity emissions from November, 2022 when Moonbeam Ignite began, which will continue until August 2023, however, market forces outside our control have had a negative impact on TVL.

We believe ecosystem incentives have a compounding effect over time, rather than short-lived benefits. Each incentivized period brings in new users, activity, and liquidity into the ecosystem. A portion of these stay engaged beyond that specific incentive window, typically leading to a higher baseline level before the next incentive round.

While growth rates may fluctuate, we are committed to working toward an upward trajectory in adoption by continually innovating, expanding utility, and fostering partnerships. Our ultimate goal is to minimize reliance on external incentives over time as organic activity takes its place. We are confident that well-structured incentives have lasting positive impacts that compound, rather than only temporary gains that fully evaporate.

Please provide full details and background on all key team members as per the template “include names of team members and relevant experience” It’s understood that this information may have been included in previous grant requests, however, the community may not be aware of team changes, and there may be new community members who are new to Moonwell.

Moonwell is supported by a diverse set of contributing teams including:

Lunar Labs - Founding contributors consisting of Luke Youngblood (former Coinbase Sr. Staff Engineer & AWS Principal Engineer, built Coinbase staking rewards infrastructure), Eli Clendenin (“Majin”, community and communications lead), Octavius (fullstack developer), x0s0l (fullstack developer and Solarbeam co-founder), DevPupo and KidLiberty (frontend developers)
Gauntlet Network - Onchain risk modeling, risk management, and protocol optimization
Halborn Security - End-to-end auditing and real-time monitoring services
Warden Finance - Risk modeling and risk management
Rome Blockchain Labs - Technical implementation assistance
VectorDAO - Collective of application designers and developers

Advisors such as 0xMaki, Brandon Kase, Adam Levine, Justin Lee, and Mason Borda provide guidance.

Additionally, Moonwell has a global and decentralized community of engaged builders, liquidity providers, developers, writers, designers, delegates, and community members who actively shape and power the protocol.

This diverse composition of dedicated teams, advisors, and community members collaborating through decentralized governance allows Moonwell to continuously evolve with the ecosystem’s needs.

The referenced Grant Transparency Report was last updated in Dec 2022, and the Grant Dashboard only provides high-level information on emissions. The Moonwell governance portal does provide information on emissions, but it is not user friendly (one must look through each proposal to determine each emissions during the emissions period). Is there aggregate information in an easy to read format that shows the changes of emissions of the last grant which Moonwell received, or is this something that could be provided in the future?

The Moonwell community can commit to providing monthly updates regarding emissions and grant usage on the Moonbeam Forum, as recommended in the Tranche 2 Update post: “Teams that receive the grant should update the community via the forums on progress on a regular basis; a minimum of 1 update per month is required.

Please advise under what conditions Moonwell might pause and restart emissions and how the final decision would be made?

The Moonwell community has the ability to pause emissions if necessary through governance, but this would only be used in exceptional circumstances. Some situations where this could occur:

Bridge exploit - Should an exploit drain significant liquidity from a bridge, as seen during the recent Multichain incident, emissions can be paused on affected markets, as seen with MIP-61.
Protocol exploit - If a security vulnerability is exploited, emissions may be paused while it is addressed to prevent further damage.
Technical instability - If there are severe issues with protocol performance or reliability, emissions could be paused while the problem is addressed.
Oracle failure - If price oracles for assets become inaccurate, pausing emissions would reduce risk until feeds are restored.

A reference has been provided in the vision of success, but no definition of success onward from that reference point, other than anticipated QoQ growth. Please provide a finer definition of Moonwell’s definition of success, using the SMART framework.

I’m going to quote @Trilemma’s previous answer to @GAMA in regard to providing specific KPIs for evaluation. I believe that his statement also applies here when requesting that we provide precise metrics for success under a rigid framework like SMART.

"From past experience, we’ve learned that grant funding and liquidity incentives are not sufficient to guarantee success or achieve specific KPIs or milestones. Market forces outside of our control often have more to do with the growth in TVL, liquidity, and new users in our community than the grant itself. That being said, we can think of liquidity incentives as a necessary catalyst for growth. An analogy to consider is growing a plant: it needs soil, fertilizer, light, and water to grow. The grant funding might be similar to adding fertilizer to the soil. If the sun, water, and other conditions are favorable, the plant will flourish, however, if there is no sunlight, the plant won’t grow no matter how much fertilizer you provide.

It would be dishonest to the community to predict specific KPIs that might be achieved with grant funding, because it will depend more on market conditions and other ecosystem infrastructure, such as exchange, custodian, on/off-ramp and wallet support, however, we can see that liquidity incentives have produced successful outcomes during the launch of Moonwell Apollo ($350M TVL) and Moonwell Artemis ($500M TVL) when market conditions were otherwise more favorable.

Further, our community is committed to collaboration with other ecosystem projects and education about the incentives that are available. Our past success in leadership during Harvest Moon and Moonbeam Ignite, and our proven track record of aligning other ecosystem projects with a shared message for the broader Dotsama community will be key to making the most of this grant."

Will you please provide any details of the impact to Moonwell if the community does not provide a grant in this tranche?

If Moonwell does not receive a grant in this tranche, it would hinder our ability to incentivize liquidity and activity in the short term. This could lead to multiple impacts:

Slower TVL growth - Less attractive incentives would likely slow the growth rate of TVL across Moonwell markets.
Higher interest rates - Less liquidity results in lower utilization and higher interest rates, making Moonwell less appealing to borrowers.
Missed opportunities - Moonwell will soon be deploying on Base, Coinbase’s new Ethereum L2. This is a fantastic opportunity to expose Coinbase’s 100m+ registered users to Moonbeam and native assets like GLMR for the first time. However, if rates on Moonbeam are not attractive, they may choose not to provide liquidity, borrow, or further explore the ecosystem.

It is understood that Moonwell governance is at the end of the decision making for where grant funds should be allocated if the proposal is successful, but it would be helpful to understand a previous circumstance where emissions were changed on target LPs by the Moonwell community based on where the community saw the need. In other words, it’s not clear why the allocations cannot be predetermined, and the reasons and occasions on why they would need to be changed. If there are certain criteria that establish the allocation at least at a baseline, then that should be provided. If there are criteria that would necessitate a governance proposal for a change, then those criteria should be provided.

Predetermining incentive allocations upfront would hinder the Moonwell community’s ability to respond and optimize distributions as circumstances evolve. There are a few reasons adjustable/dynamic emissions are necessary:

Predetermined, static emissions become suboptimal as relative TVL changes between assets based on shifting user behavior and market conditions. Governance enables realignment.
Sudden events like exploits necessitate quickly reshifting incentives away from affected assets, as seen with the recent Multichain incident and subsequent MIP-61 proposal to remove liquidity incentives from Mulitchain markets.
To support and incentivize new asset markets on Moonwell by rebalancing incentives across all markets.

By empowering an engaged community to continuously optimize incentive distribution as liquidity conditions and supported markets evolve, we can be responsive and capitalize on new opportunities for driving ecosystem growth. Preset allocations would hinder that flexibility.

Please provide an understanding to the community of WELL decentralization and governance / voting process since it forms such a key factor in determining where the end allocation of grant incentives are applied Moonwell markets.

One overarching goal of the Moonwell community has been to create financial infrastructure that will stand the test of time and outlive any contributing team or individual. Moonwell Governance has been designed to be fully open and decentralized, with the community in control of the protocol’s future. Some key points:

Voting power is proportional to held, staked, or delegated WELL. 1 WELL = 1 vote.
All governance proposals and votes happen transparently onchain via the Moonwell Governance Portal or Snapshot Portal. There is full visibility into governance activity.
To date, ~60 onchain Moonwell Improvement Proposals have been successfully passed through governance, demonstrating one of the most active and productive governance processes in the Dotsama ecosystem.
Moonwell Governance sees wide, diverse participation, with ~200-300 unique voters per proposal on average, along with engaged delegates and contributors.
Quorum thresholds ensure every proposal has broad community alignment before passing.
Anyone can get involved in governance and share ideas by creating posts on the Moonwell Governance Forum, regardless of WELL holdings.

To learn more about Moonwell Governance, please consult our Documentation along with these blog posts (Introducing Moonwell Governance, Moonwell Governance 101).