oHNYo - a DAO-run liquidity token that supports 1Hive

Quick Overview

Let’s create a dynamic issuance Garden with the Common Pool token oHNYo, a liquidity token funded by Honey that provides sustainable and scalable liquidity for 1Hive (for visual learners see the PDF).

What is a liquidity token?

A token with 100% of its circulating supply released into liquidity pools, like the Water token. The token acts as a liquidity proxy, facilitating swaps between its paired tokens.

What are the benefits?

  1. Auto-balancing index of paired tokens
    When all of a token’s circulating supply is in LPs, its price is solely a function of the tokens it’s paired with. As paired tokens respond to price changes, the size of each LP grows or shrinks based on their relative value, changing each token’s portion of the total liquidity. In this way a liquidity token works like an auto-balancing index of the tokens it’s paired with.

  2. Grow healthy DAO-owned liquidity
    A liquidity token also facilitates trades between the paired tokens, a valuable service that’s hard for communities to get for their tokens affordably, sustainably, and scalably. Liquidity tokens can be compared with direct shared liquidity and Bonding Curves in their ability to provide such healthy liquidity.

  3. Value brought in by private buyers can be matched by 1Hive.
    While a liquidity token is released only into liquidity pools, nothing prevents someone from swapping for these tokens and holding them privately after they’re in an LP. This creates speculative upside, with no corresponding downside at launch since there are no privately owned tokens to sell. Private buyers grow the value of the LPs and paired tokens through price correlation, but introduce speculative downside since those tokens can later be sold. This can be mitigated by 1Hive providing more tokens to the LPs, effectively matching some of the value brought in by private buyers by increasing the portion of liquidity tokens in LPs.

Proposed Structure

  • 1Hive provides the initial HNY and xDAI to a multisig that manages the launch of oHNYo.
  • A Garden is created with the dynamic issuance Common Pool token oHNYo, paired by the multisig into 2 LPs: HNY<>oHNYo and xDAI<>oHNYo. An arbitrary token price of $0.01 is set.
  • The governance token for the Garden is the HNY<>oHNYo LP token, and the initial HNY<>oHNYo LP tokens created at launch will be used to support the Abstain Proposal to ensure slow start for governance. To participate in oHNYo governance, you’ll need to buy oHNYo and pair it with HNY.
  • Governance of the oHNYo Garden involves:
    • Diversification of LPs - target percentages for oHNYo’s LP portfolio
    • Target max private ownership % - above this the DAO works to add tokens to LPs
    • Acquiring and converting Honey - proving oHNYo’s value to the 1Hive community so that 1Hive continues to provide funding. This will likely need to include strategies for converting Honey to other tokens with minimal sell pressure on Honey (i.e. Hedgey)
  • Clear benchmarks for success & failure - If oHNYo doesn’t reach an agreed level of private ownership (say 50% within 1 month), the DAO agrees to disband and send its tokens back to 1Hive. To further incentivize success, the DAO can set aside a portion of the tokens initially provided by 1Hive, and only add those tokens to LPs when that private ownership % is reached.

Proposed Parameters

  • Conviction Voting
    • Minimum Conviction: 10%
    • Conviction Growth: 4 days
    • Spending Limit: 50%
    • Rationale: allows for large funding proposals but requires more support and longer staked conviction compared to 1Hive. The DAO should need fewer funding proposals than 1Hive, but likely will need large sums when it is requesting funding.
  • Dynamic Issuance
    • (match the existing 1hive parameters)
  • Tao Voting
    • (match the existing 1hive parameters)

Modeling this 2-token ecosystem

The specifics of the price correlation between oHNYo and the paired assets and the arbitrage opportunities after each trade are important to the economics of the HNY token. The linked spreadsheet below simulates a DEX with 3 liquidity pools:

  • xDAI<>oHNYo
  • oHNYo<>HNY
  • xDAI<>HNY

In the spreadsheet you can make swaps or add liquidity, and an arbitrage calculator will then show you the most profitable swaps you can make in that configuration. The model shows how any trade will affect the token prices and liquidity amounts of each LP when arbitrage is taken into consideration.

Make a copy of this spreadsheet to try it for yourself:

5 Likes

This looks like a very interesting idea, adding more DAO owned liquidity should be always beneficial in the long run.
Unlike yield farming/liquidity mining that is dependent on liquidity providers and incentives for them, this model rather incentivizes the DAO and it’s contributors to build long term liquidity… We can start using some stablecoins from the diversification we’ve done with Hedgey and then we might as well use some to purchase Weth or Wbtc to have more pairs , but the stablecoin should be the first preference cause we already have more than 15000 xdai and also we can talk with Flora swarm to see if they can help with more stablecoins from the Gnosis validator.

I also like that the governance will be with HNY/oHNYo lp token cause we can use that to diversify the pairs with adding support to conviction voting and making a snapshot.

Thank you for making the model in Excel, I will experiment with that.

One thing I want to ask, why we don’t use HNY like that and add liquidity directly to HNY instead of adding one more token. The reason I am asking this is that oHNYo might complicate the Honeyswap routing which already wasn’t working correctly with some new tokens like GIV,TEC,WATER etc. When you want to get the protocol fee some of the pairs doesn’t work and we can’t collect some fees to apply buy pressure on HNY and XComb. I guess somebody can look on the Honeyswap routing better to see what is the problem.

2 Likes

Although I’m happy with the creation of new experimental gardens, I would be very careful with the introduction of new tokens that add complexity to the 1hive ecosystem.

My concert is more related with announcing yet-another-token, and then fail noisily as we did with xCOMB and pCOMB. I’m glad to experiment, but I would not brand it within 1hive.

That’s why I would also change the name of the token to something else. Tokens with the symbol HNY in it should be reserved to tokens that hold honey, such as xHNY which wrap HNY to be used in Superfluid, or wETH which wraps ETH. The token you propose can be issued independently, so it’s a separate token.

That looks a cool project to do, although I didn’t understand the details. Tell us more if you continue working on it.

1 Like

Thanks for your feedback sem. Yes, removing HNY from the token name might help clarify this as an experiment and not an “official” 1Hive token.

It might help to tie the name of the token to WATER instead since it’s using the same economic foundation - you can think of the token like a 1Hive-specific WATER token, helping 1Hive get liquidity for tokens it wouldn’t be able to get through shared liquidity with other DAOs.

Putting a few ideas for a different name in this poll, but feel free to respond with more if you have other ideas:

  • WAX
  • hiveWATER
  • honeyWATER
  • beeWATER
  • other - reply in comments
  • leave token name the same - oHNYo

0 voters

My concert is more related with announcing yet-another-token, and then fail noisily as we did with xCOMB and pCOMB. I’m glad to experiment, but I would not brand it within 1hive.

To defend Tulip’s decision here, I think it was a really good decision to use new tokens for xCOMB/pCOMB and not HNY for liquidity rewards, which many other degen liquidity mining offerings have done. It sucks the experiment didn’t work, but was very nice that HNY wasn’t directly tied into it that way.

why we don’t use HNY like that and add liquidity directly to HNY instead of adding one more token.

Using a separate token that can only be added to these liquidity pools gives it scalability that we can’t get by providing the liquidity to HNY directly.

The scalability comes from the fact that oHNYo (using that name for clarity, see the poll responding to sem’s post on a potential name change) can accrue value on its own, and that 1Hive and the oHNYo DAO can match the value brought in by each other. The 2 have a symbiotic relationship.

To give a more clear example using numbers that would be realistic for launch (reference Model spreadsheet):

  • 1Hive provides $8k in xDAI and $12k in HNY for oHNYo (adding more HNY than xDAI benefits HNY by making xDAI > HNY > oHNYo the most efficient way to get oHNYo)
  • oHNYo adds LPs in 2 installments, half initially, and half only when a threshold of 20% private ownership of oHNYo is reached.
  • Here are the relevant LPs at launch (with HNY @ $23):

  • Here are the LPs after 20% of oHNYo is bought using xDAI (buyers could also swap HNY for oHNYo, which negatively affects price of HNY at the benefit of oHNYo and oHNYo<>xDAI liquidity) and has been arb’ed:

  • Then, the 2nd installment of $4k xDAI<>oHNYo and $6k oHNYo<>HNY liquidity is added:

  • Now, the % of private ownership for oHNY once again reaches 20% through xDAI > oHNYo swaps, and gets arb’ed:


Several glorious things happened here:

  • 1Hive spent $8k in xDAI, but has $9,857 in DAO-owned xDAI liquidity thanks to the value brought in by private buyers and arbitrage
  • HNY appreciated 5.6% from price correlation to oHNYo, thanks to arbitrage
  • oHNYo appreciated 97%
  • Value brought in by private buyers for oHNYo was split between the price of oHNYo, the price of HNY, and arbitragers, with the majority of value accruing for oHNYo holders.

Honeyswap routing was an issue with the WATER launch - I think @kamikazebr made the update that was needed to fix it.

1 Like

Thanks for the explanation I really think that we can name this token simply as “WAX” .

The logic behind this is that Bees are consuming Honey and then they produce wax causing the special wax-producing glands to convert the sugar into wax which is extruded through small pores.

The analogy on 1Hive is that the contributors are like bees and we are producing economical value which is then transformed into wax and then that wax keeps the Hive healthy.

Great simulation on the swaps, thank you so much for taking the time to initiate and explain this, i love the idea btw.

The problem is somewhere else when you try to initiate collecting of the protocol fees from Honeyswap when interacting with Honeyswap contract those fees are making buy pressure for HNY and XCOMB by selling the collected fees to buy more HNY and XCOMB, but some pairs are giving errors and then those fees can’t be collected.
Somebody that knows how Uniswap v2 works needs to investigate this but my gut is telling me that some whitelisting of pairs or simply the routing tokens that @kamikazebr was adding are not completely done, not sure might be even something random or not enough fees to collect.

2 Likes