StellaSwap: Ecosystem Grant Draft Proposal

Hello ser,

Thank you for your support and we appreciate your feedback!

We hear you, and we propose another line of thinking. For any ecosystem to succeed, there must be sufficient market liquidity. The absence of a deep market to foster efficient markets will drive away projects, usecases and users. As the leading DEX, we want to continue to contribute to that singular cause. We believe that grants allocation should be bifurcated on 1) primitives deepening liquidity and 2) projects fostering flyover effects. The former category is focused on fostering market depth, which is essential in any ecosystem, while the latter is focused on generating usecases, utilities for ecosystem growth (which its success is also dependent on ecosystem liquidity depth established by the former).

It is clear that StellaSwap and any other DEX belongs to the former category. Then comes the next question; equal/near-equal distribution to all DEXes? We agree, that sounds fair, but is plausible in a perfect world where there’s no limitations on grants and we have a good depth of liquidity to begin with. But we don’t, and the existence of these limitations require a hard trade-off. This is a hard problem and we implore alternative suggestions by the community. In parallel, StellaSwap will continue to innovate to ensure that we have a robust trading infrastructure that will make every dollar of TVL count towards creating a conducive trading environment for efficient price discovery. To that very end is our motivation for the grants.

Context for Life Before Grants
Before getting any grants, we were the top DEX both in terms of TVL & volume. I hear your point about the dependency on grants, but the bigger picture is ensuring sufficient market depth to enable ecosystem growth. To be clear, StellaSwap is and should be arbitrary, in that the most important thing for the ecosystem is a robust trading environment that can only happen with sufficient liquidity. If you agree on this, then the natural question should be “How?”

StellaSwap has proven to be one of the top builders in the space, with several launches aimed to simplify DeFi and onboard new users. Pulsar, cross-chain swaps & universal router was shipped in the last 3 months. In order to transition liquidity from V2 to Pulsar, which is far more superior in terms of capital deployment efficiency and facilitating low-slippage trading, we need to have a fresh round of grants. That is why we’re highly supportive of the newly revised grants that has a cap of 2M for each tranche to ensure fairness.

Hello ser,

Thank you for your support and we appreciate your feedback!

We hear you, and we propose another line of thinking. For any ecosystem to succeed, there must be sufficient market liquidity. The absence of a deep market to foster efficient markets will drive away projects, usecases and users. As the leading DEX, we want to continue to contribute to that singular cause. We believe that grants allocation should be bifurcated on 1) primitives deepening liquidity and 2) projects fostering flyover effects. The former category is focused on fostering market depth, which is essential in any ecosystem, while the latter is focused on generating usecases, utilities for ecosystem growth (which its success is also dependent on ecosystem liquidity depth established by the former).

It is clear that StellaSwap and any other DEX belongs to the former category. Then comes the next question; equal/near-equal distribution to all DEXes? We agree, that sounds fair, but is plausible in a perfect world where there’s no limitations on grants and we have a good depth of liquidity to begin with. But we don’t, and the existence of these limitations require a hard trade-off. This is a hard problem and we implore alternative suggestions by the community. In parallel, StellaSwap will continue to innovate to ensure that we have a robust trading infrastructure that will make every dollar of TVL count towards creating a conducive trading environment for efficient price discovery. To that very end is our motivation for the grants.

Hi, thank you for your feedback.

  • TVL Targets

Our initial forecasted target for the first 4 weeks was $26M, which we promptly hit as we topped at around $28M. From then on, the market turned north as GLMR tanked approximately 40% in price from a high of $0.53 to a low of $0.32 in a span of two weeks. General market conditions were bleak, with the entire market bleeding along the same ranges. This impacted our TVL growth, as TVL is fuelled by 1) the USD price of GLMR & STELLA emissions as well as 2) USD price of all assets on our farm.

That is why we have explicated in the previous grants proposal that the TVL ranges are predicated on factors that include market conditions, of which I’m sure you’d agree that the last 6 months isn’t ideal.

On liquidations data, you can verify those on the blockchain. But holding the yardstick on the existence of liquidations does not invalidate the need for market depth, which is essential for any ecosystem. Thin depth = high slippage = poor price discovery = limited use cases = slow/no growth. Limiting market depth to liquidations would be a mischaracterization, since liquidity is essential for fostering flywheel effects for the ecosystem. For eg, protocols require liquidity for effective functioning.

  • Pulsar

The transition to Pulsar is definitely something we’re excited for to fuel significant efficiency via the maximization of market depths with a fixed TVL. As with any other product launches, there’ll always be issues and we’re glad to be able to respond swiftly, in which most of the issues you raised are solved.

Our main objective is to be the schelling point of Polkadot and therefore, the myriad of new farm launches are representative of that vision. We’re the only DEX on Polkadot that possess a variety of crosschain assets in a sustainable way, allowing greater traction and users from other parachains to trade on Moonbeam. Beyond the significant exposure of our farm launches with the community of other parachains, having different pairs beyond GLMR stands to create better routing. And you’ll be glad to know that we’ve recently launched a universal router to unify liquidity across our 3 AMMs, which would automate trade routing!

  • STELLA Value Maximization

You’d be interested to know that the grants we’re asking for - in respect of the cap - is much lower than the previous round of grants. Therefore, the net USD value of the upcoming grants would be lower, as GLMR prices is still sub-$0.50. The transition of Pulsar adds to the point of sustainability, where the objective is for the farm to be supported by trade fee APR going forward. Therefore, when both GLMR & STELLA emissions are (net) lower now and going forward, it is a boon to the ecosystem in the pursuit of sustainability. Thus, I’d argue that it is relevant, and the construct of this grants invalidates your skepticism due to the cap.

We appreciate your feedback, and we implore you to support us in creating deeper markets for the ecosystem in a sustainable way!

Hi Natalia, we truly appreciate your feedback!

  • Goal

We wanted to add context as to our goals, in lieu of what we’ve done. Although its clear that our main goal as a primitive DEX is maintain & grow the ecosystem, we’re an active player in furthering the connected contracts cause. In partnership with Axelar+Squid, we were the first to launch a corss-chain connected contracts application, and our marketing efforts + the reach enabled Moonbeam to be one of the top destination for capital inflow via crosschain swaps.

  • Team Experience

Duly noted, we’ll make the necessary amendments.

  • Contingency Plans

Duly noted, we’ll add a section addressing this.

Describing the performance of the previous grants cycle you mention that your “initial forecasted [TVL] target for the first 4 weeks was $26M” which you quickly hit as you “topped at around $28M". Why isn’t it visible on the following bar chart?

Apologies for the confusion. The attached image was the cumulative TVL of all farms that were incentivized by ecosystem rewards. The cumulative TVL of all farms reached a high of $28M, as per the data by DeFillama

What marketing activities are you currently conducting to raise the interest in Pulsar and attract more new users?

We’ve done a relatively good job in raising interest for Pulsar, thanks to support of the Moonbeam community. Our social media data shows a growth of more than 100% on our impressions in this quarter vs the last quarter, due to increased marketing efforts and presence. Our strategy of listing top parachain assets has onboarded new users to the ecosystem and expanded our reach beyond Moonbeam. Additionally, as the main channel for crosschain swaps, our continual marketing efforts has contributed to Moonbeam being one of the most popular destinations for CCS based on onchain data!

You describe that the newly launched Pulsar utilizes “the power of concentrated liquidity to provide a much more efficient way of trading and earning as before” and you want to use the grant “to incentivize strategic farms as part of the transition to Pulsar”. So if Pulsar has more advantages than the standard AMM, why is there a need to incentivize farmers to migrate to it?

In order to preserve the current liquidity depth, we need to incentivize the transition or we’ll run the risk of capital outflow, which means thinner liquidity. This would be detrimental to the ecosystem as explicated by my replies above on the importance of deep markets. We’re extremely confident in the efficiency gains of Pulsar, as seen in the past 2 months performance. Beyond that, we need to ensure there is a preservation of current capital levels to further extend market depth that is actualized via Pulsar.

How will you incentivize the farms? Can you describe the strategy? In what timeslots?

Farm rewards will be distributed once we get them, and the cadence of farms distribution will be sequential, a few days apart, to ensure optimal marketing and awareness for each farm launch. This will maximize reach.

In the proposal, you mention 4 metrics that will be tracked for the upcoming grants program: cost of trading, trading volume, TVL and unique users. However, your milestones are based only on TVL only. I would like you to explain why you have chosen only this metric; alternatively please add some more.

We’ll address this on our revised proposal.

In the table, there is only one pair DOT.xc-USDT.xc that is now on Pulsar. Where are the other 4 farms? Do you plan to create them and if so what is the timing for the launch of these farms?

Once ecosystem rewards (from previous grants) are finished, we’ll transit the farms to Pulsar. Here’s the announcement: Transition of Strategic Farms to Pulsar: The Plan | by StellaSwap | Mar, 2023 | Medium

How was the price 1 GLMR = 0,3521 UDS determined? If the GLMR price is higher, in the future, how will you use extra funds?

Where market conditions tend to be positive and GLMR prices pick back up, we will maintain status quo and facilitate the reflection of the increased APRs that will seek to deepen ecosystem liquidity. This will be highly beneficial to the ecosystem where the flywheel effects could be enhanced, given the limitations of a relatively small ecosystem grant cap.

What does the percentage column mean?

It means the allocation of ecosystem rewards in a % basis. A 20% allocation means 20% of the entire allocation of eco grants that we receive goes to that farm.

How did you calculate the estimated GLMR APR?

This is based on the current market price of GLMR, without factoring in STELLA emissions and trade fee APR< which will be one of the core drivers of yields.

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Update on Ecosystem Grants

Hey Moonbeam community! Here’s an update on the progress of our ecosystem grants that was entrusted unto us:

StellaSwap was the first project that launched the grants immediately. Here’s the sequence of events leading up to the grants and post disbursement;

March 20: Transition from V2 to V3 started
April 3: Snapshot voting ended
April 7: Receipt of Ecosystem grants
April 10: Disbursement of eco grants on Pulsar farmss](https://twitter.com/StellaSwap/status/1645454918847991811) (according to proposal)

For context, we began transitioning our farms from our standard AMM (V2) to Pulsar (V3) well ahead of time on starting on March 20, to ensure the optimal transition of funds by users and to prepare for the ecosystem grants. After 3 days of setting up post grants receipt, we launched eco rewards on Pulsar, ensuring that LPs had immediate access to rewards. Any delays to grants going live would result in capital outflow from Moonbeam, which is detrimental to the ecosystem as the cost of capital acquisition is far higher as compared to the cost of capital transition (V2 > V3). On that front, we’re proud to go live with eco grants as soon as possible.

Here’s key stats;

  • Total TVL: $10.6M TVL
  • Avg Trading Volume: > $1M Daily
  • Pulsar Efficiency 10X-20X
  • 50% less trading fees on Moonbeam (due to Pulsar’s dynamic pricing)

Peak TVL was above $12M, when GLMR was trading at around $0.37 during the time we initially received the grants. Even with GLMR price going down -25%, our TVL wasn’t affected by the same degree due to greater ecosystem stickiness, which we’re proud to foster.

Beyond that, a core achievement of this grants cycle - although it was significantly lower than the last cycle in terms of cumulative USD value - is that slippage is at the lowest levelss](https://twitter.com/StellaSwap/status/1646003024396161024) not only on Moonbeam but across Polkadot!. This means that the reliance on TVL as the main metric can now be reduced. In the last cycle of grants where we peaked at $28M in TVL, the slippage levels are much lower now with just a fraction of the TVL, alluding to the efficiency of Pulsar. This has strong repercussions to the ecosystem, as net trading costs are significantly lower due to the reduction of slippage (i.e. price impact) and the reduction of trading fees on average. Thanks to the efficiency gains on Pulsar, Moonbeam is now the most viable and robust trading venue in all of Polkadot!

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