MIP-1 Management of the Protocol Owned Liquidity of MENDI/USDC

Governance Proposals
1

Authors: Mendi Core Team

Title: Management of the Protocol Owned Liquidity of MENDI/USDC

Type: Mendi Improvement Proposal

Abstract

Mendi Finance has been staking the protocol owned MENDI/USDC LP since its launch on Velocore. The Protocol Owned Liquidity (POL) had an initial lock of 6 months, which has recently expired. As these assets represent a major revenue stream for the protocol the management of these assets is both important and fall under a DAO vote. Currently the community already started discussion whether the continued staking of the assets on Velocore would be more beneficial for the community or Mendi should migrate the LP to the Lynex Protocol.

Link to Snapshot vote: Snapshot

Proposal Summary

The Mendi Finance protocol and the DAO needs to be reactive to external market conditions and constantly evaluate the best way to maximize return on protocol owned assets. The MENDI/USDC pool represents the largest protocol owned group of assets currently utilized for protocol mechanisms, that generate revenue to the protocol and its stakers. Its markets are also important to deepen the liquidity behind the token to further stabilize the MENDI price. Due to recent market events the Mendi community have been interested in migrating the liquidity from Velocore to Lynex. The core team explored both options and presents these findings to the community to vote on the preferred option.

Motivation

As the MENDI/USDC protocol owned liquidity represents the full liquidity behind the MENDI token the DAO needs to consider the following aspects to decide the question considering the following criterias:

  • Revenue from the LP, which represents currently half of the protocol revenue distributed among stakers
  • The potential to deepen liquidity behind the MENDI token
  • Integrations with the underlying ve33 DEX that can benefit the community along the previously mentioned criteria

Currently the core team believes a migration to Lynex is still possible due to the protocol owning a majority of the liquidity on Velocore, and due to the fact that future bribes can be deposited to the Lynex protocol.

Lynex is also integrated with CoinMarketCap that can open up the possibility to gain further exposure to the MENDI token by showing the price behind it. Additionally Lynex already finished the DEX Screener integration which can also drive new investors to the Mendi protocol.

Velocore on the other hand is in the process of integrating with DEX Screener, but not yet finished.

Lynex would also enable new liquidity management opportunities by having both ICHI and Gamma being integrated with it, that can be the topic of a future DAO proposal to leverage the POL further.
Velocore is also in the process of developing concentrated liquidity pools.

The Lynex team has also committed to:

  • Delegate 250,000 max-locked veLYNX to the Mendi Protocol multisig to vote on Mendi LPs.
  • 50% matching of bribes for the first 12 weeks. After that Lynex will review their capabilities for matching the Mendi bribes to the best of their abilities.

The Velocore team currently delegates to Mendi Protocol Multisig 250,000 veLVC as voting power.

Technical considerations

The core team would handle the migration of the liquidity to Lynex in case of a successful DAO vote.

The LYNX rewards to stakers would be reconfigured to be fully in line with the Lynex epochs as Lynex still uses the epoch system for voting unlike Velocore which introduced new mechanisms to the ve33 model by the introduction of the Real-time Bribe Mechanism distributing rewards through a linear distribution.

Meanwhile, the independent LPs behind the MENDI/USDC pool have the opportunity to decide individually which DEX they prefer to stake their LPs on.

Expected Timeline

  • Governance Vote: 12th of March to 15th of March (3-day voting)
  • Deployment Target: Right after the governance vote passes the core team will start the migration process. The LP is locked behind a 24 hr time lock.

Deployment Considerations

The core team will withdraw the MENDI/USDC from the Velocore DEX and redeploy it to the Lynex DEX.

The core team will also start bribing the new pool deposited to Lynex.

Conflict of Interest

The Mendi core team has no existing conflict of interest.

Disclosure: The core team engaged the Lynex team to explore the support system that would be behind the MENDI/USDC LP on Lynex before the proposal.

Next Steps

If the governance proposal passes the core team will began the implementation of migrating the liquidity from Velocore to Lynex.

References and Links

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Great proposal, as you guys mentioned I only see advantages on migrating from Velocore to Lynex.
They have all things we need integrated(dexcreener and geckoterminal) and they give us a nice amount of voting power.
They’re the top dex on Linea because their tech is better and the team understand the ve(3,3) tech.
We’ll receive a lot of votes and incentives will be juice, so I think it will help to have more people interested on LP Mendi/USDC.
The only question is which token they’ll match our bribe?
I’m in favor to move the POL to Lynex.

3

Added a clarification that Velocore is also in the process of developing concentrated liquidity pools.

4

We definitely want to address certain topics of discussion that is going on with the DAO proposal currently.

First let me address some technical issues:

  • The governance forum has a bug, that we solved once during the setup. This currently prevents posts to be made and the issue seems to be with the Discourse setup and connection issues through the Goggle SMTP setup which we use for the Mendi domain. I am finally able to start taking a look at this, but at the moment I am unsure what time can this be fully solved. This is a technical barrier to the discussion that we have noted with the current voting process.
  • The not available abstain option - I set up a new vote which will enable everyone to vote for abstaining from the proposal in the current form. This was an important aspect missing from the original vote.
    Snapshot

Regarding the proposal there are certain points that need to be addressed.

  1. Possibility to split the liquidity between multiple ve33 DEXs.

Our position is the same as @.r1c4rd0 on this. If we split the liquidity between multiple DEXs we need to deepen it in each individual DEX much more to be able to provide buying opportunity for whales trying to buy up large amount of liquidity.
We saw that there was a heavy influx of investors since December and an increasing number of complaints in #:speech_balloon:⏐general about slippage and the depth of liquidity.
This has been a heavily discussed topic within the core team since January and we were increasingly looking for solutions to overcome this issue. For reference Sonne owns 25% of the LP behind the token, while our last research showed this to be 80% for the Mendi protocol. Steps are necessary to decrease the protocol’s weight behind the Mendi LP, this is our position and without the protocol increasing its leverage and selling Mendi tokens from protocol growth (driving down price) we can only influence the market.
We believe that the protocol is highly dependent in this regard on the underlying decentralized exchange on many many aspects and factors too.

  1. The proposal is an ultimatum

In the initial draft we considered creating multiple options but the argument against it, was that since we don’t see an option to split the POL between different protocols and the efficient solution deposits the liquidity to one, 2 choices are optimal. Again I fully agree we should have created an abstain option to generate votes from those who are of different opinion is valid and in my opinion it has been fixed as much as possible with the new additional vote. The new vote will end exactly at the same as the original MIP-1.

The vote is also not made to force a switch to Lynex. There is an opportunity to also vote no and now even abstain to further the discussion. We did not develop a quorum structure yet, so this vote will enable us to do that too.

  1. Velocore continueous bribe system vs Lynex structure.

I believe this is also one of the underlying aspects of the vote, to understand which one the community prefers.

  1. The whole thing comes out of the blue and it is rushed.

I see where this feedback is coming from, but some key aspects I want to highlight:

  • There was already governance discussion around this. The community was already planning a DAO proposal with this, as the core team we felt it is our job to research the topic too and provide an opportunity for voting on it.
  • There were multiple calls to deepen liquidity by users who were negatively affected by the slippage. The 1m TVL goal is something we can get behind as well.
  • Multiple people said the same thing in #:speech_balloon:⏐general
  • There was also a period where we were already sure that the community should decide but Snapshot was not available. Once Snapshot become eligible it was a matter of who brings it up and when, not whether this would be a governance topic.

It is possible to argue that we misread community mood on any topic, but I would disagree with that. That the topic is needed to be discussed is clearly shown by the discussion and the number of votes incoming.

  1. We are hunting for the next new APR opportunity.

Of course the emissions are big atm for Lynex, which is why in our opinion the time to discuss and decide whether to move there is now.

But deepening liquidity was a much larger motivation behind this. In terms of TVL the Lynex team after token launch was able to attract more liquidity as of today. We are on the side that this would be true for the MENDI/USDC pool too. We don’t know for sure.
Will this also generate more protocol revenue on the LVC/LYNX side? As the market can change and shift, I don’t think sharing the core teams estimate is not relevant and everyone should calculate it themselves. We don’t know for sure how much it will exactly be and the voters should also understand that they are voting on without knowing the answer for the future. I think this is good enough reason not to tie the vote to some current snapshot of market conditions estimations.

  1. Regarding the Velocore community, team and the protocol.

We have a huge respect for all of them, and that was the reason we also locked the tokens for 6 months into the Velocore protocol. This expired on February 17th, but the bribes also locked it in further until March 14th. In total the LP was locked for 7 months. Right now with the vote going on we are depositing bribes until Monday 13pm GMT.

About the vote:
We are very heavily following the discussion and the reasons that the community is providing to see what is the best for the protocol to happen next.

We see the two technical issues and we can only understand how much this affected the vote after it ends.

The core team will not exercise its voting power through the core team rewards on this vote. I think this is also a very important disclosure as we hold a large amount of voting power that would already decide the vote around everything.

I am also very glad to see that the Velocore team also shared their perspective on the proposal. This enables a healthy conversation for the community with more opinions and perspectives.

Note to LP providers behind the MENDI/USDC LP.
If you want to indicate your position on the proposal to the core team without doxxing yourself publicly, you can open a ticket and share it directly with us. LP providers are a very important part of the whole proposal, and we will keep all info shared fully private as we have done before with everyone who shared their wallet address with us due to technical issues or difficulties before.

I will post this on the forum and on DC, because of the length and pin the link to the forum so everyone can easily access and read this.

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MIP-1 Response

The debate around MIP-1 and the activity of voting has shown that the Mendi DAO has a very active community with a great potential. This community and the proper debate that was happening around this proposal makes us very optimistic that the Mendi DAO will be able to secure the Mendi lending protocol as it grows. The DAO will also lead decentralization of protocols on Linea by a shining example.

Since the initial setup of the vote lacked an abstain option, here you can see the actual results taking into account the separate abstain vote, which we cross-checked with the actual vote to prevent double voting from people.

The core team reward voting power was not exercised on this vote.

Option Number of votes Percentage
Yes 6086499.08 54.79%
No 4384301.406 39.47%
Abstain 638154.1188 5.74%

We can see that even if we calculate the difference between yes and no+abstain votes, the migration was voted with a difference of 9.58%. The yes votes also reached a clear majority overall with 54.79%.

Abstain votes are also NOT equal to no votes when evaluating the results.

When an account voted on the proposal with Yes and/or No, and also on the abstain vote we calculated it in the Abstain section. We observed some people voting 100% Lynex and 100% abstain for example.

We also had a heavy discussion internally within the core team, but we also came to the same conclusion as the DAO that the move to Lynex will overally benefit Mendi, by enabling deeper liquidity behind the token long-term, better exposure due to CMC and Dexscreener, and also a higher protocol revenue for stakers.

Reviewing the vote and consulting with some of our external advisors we came to the conclusion that not executing MIP-1 would threaten the governance process, as the clear majority have voted for the migration. If we are to decentralize Mendi governance we cannot ignore the first proposal, when it formulated a clear decision. The core team allocation did not influence the vote, as we held off on voting with our voting power.

In conclusion the community and the core team both articulated that they are in favor of the migration to Lynex and believe this will benefit the protocol. Execution of the proposal would hurt the governance process and threaten one of the main utilities of the Mendi token, which is the ability to participate in governance through the staking process.

Learnings from the first DAO vote on the DAO process:

  • Need for RFC process: Each proposal needs a mandatory RFC period, during which an opinion vote should be live on Snapshot. Exact details will be developed next week, and will be confirmed by the DAO through an RFC and then a formal voting.
  • Need to quantify quorum and differentials. Even without this set for this vote, the difference is large enough to justify the execution, and the differential cannot be too high, otherwise the DAO and the protocol by extension would not be able to function. Once again this will be formulated next week and confirmed through the governance.
  • As the technical details of the governance process is less interesting for many members, the quorum will likely not be reached and this proposal can still pass without a quorum. (Of course since we set the quorum with it, its logical to be able to confirm it without it)

Some other points of discussion that was considered

  • Some people brought up the possibility to split the LP. As the main goal is to enable large investors to join the DAO without experiencing slippage this was still not feasible. Doing additional research would not change this factor as it is very clear on AMM mechanisms, why the protocol benefits from putting the LP in one place.
  • We also considered whether a repeated vote with a better articulated proposal would benefit the DAO. We decided against it for these reasons:
    • Would threaten governance process to artificially change the rules due to healthy debate.
    • While we might achieve a larger majority, the result would be the same and it would be unfair with both the Lynex community and the Velocore community to drag this process out.

Next steps

  • The core team has started the migration process, crucial part is developing the contract that will distribute the POL revenue to the stakers.
  • Our current goal is to finish the migration by the 18th of March 13pm GMT. We will continuously update the community in Discord
  • If you have any comment on this, welcome to join the Discord channel to share your perspective and opinion.
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