Water💧 Shared Liquidity Proposal

2 final proposal edits before this proposal goes up :slightly_smiling_face:

  • Agave will not be participating because of token price uncertainty from the re-entrancy hack. Thanks @griffgreen for bringing Giveth’s perspective on that.
  • Number of signers for adding and removing liquidity lowered from 7 to 5. In total there are 12 signers representing 7 projects in the multisig.
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Proposal is up in the Honey Pot! Gardens

Gnosis Safe address: 0xb5F50e42aD28fB4BFc25b6B4c5a34AaD30649FC0

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I don’t think this proposal should pass, and here is why:

  • The proposal is asking for $100k which represent a 8.4% of 1hive’s treasury to be managed by an external multisig not controlled by 1hive.
  • The token created is not backed by anything, so pairing HNY with it means giving something backed by the 1hive community for something that does not have any value, which means that HNY an the 1hive community lose value.
  • Passing this proposal encourages other communities to do the same, giving huge amounts of their funds to a multisig that is not controlled by themselves, and pairing their token with this new token not backed by anything, creating a systemic risk, in which one hacked community affects the others disproportionately more because all of them share liquidity directly with WATER.

The points I’d like to make are:

  • We should not fake liquidity with tokens that do not have any intrinsic value. Liquidity and value must be earned, or we take the risk of destabilizating the economies we created with a lot of effort.
  • No proposal should be requesting for a 8.4% of the common pool, but even if it does, it should have a very detailed plan of what will happen and assess correctly the risks. I think we should have at least a simulation of how the economies will work when there is this new token connecting them; how a token such as GIV that is unlocking new tokens everyday will affect TEC that can only be issued using the bonding curve (although it will also unlock the hatcher tokens in the future), for example.

I kinkly ask @paul to cancel the proposal until there are more opinions of blockchain engineers on the table. A change like this to the tokenomics of gardens should be made with a lot of care, and what I’m afraid of is that when something wrong is done, it’s difficult to undo it when it is in the blockchain.


I am definitely in support of a common initiative by all the value-aligned communities to try an experiment with this proposal. However, I removed my support as I think the arguments @sem expressed are significant. Until further analysis and more transparent discussions or statements from the parties involved, I think we should stall it for the long-term benefit.

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Yes but it is also less than 1% of our mcap. So from that perspective it isn’t nearly as significant comparing it that way.

It’s backed by the other communities. The purpose for water was because communities can not pair liquidity with $Hny due to the difficulty.

This goes back to the very problem we are trying to solve. Our ability to perform D2D swaps, bootstrap garden DAOs, and add to honeyswap liquidity is being completely restricted by this model which has its benefits and thus the proposal for $water rather than support for making $200k+ Hny proposals easier to pass

The multisig I think is a real concern. I don’t know that it is enough to pull my support but it’s enough to at least slow the passing of this proposal. I would encourage any development help we can get to implement a better solution for this gap


I strongly disagree with most of these points.

The points I believe have merit are governance with a multisig and the risk of a hacked project minting infinite tokens. And while this proposal isn’t perfect, it significantly improves on the status quo for these concerns!

  • Governance with a multisig. Yes, we need to build a better governance system for shared liquidity, but Water is still a big improvement on current multisigs, which are the status quo. Water is a 5 of 12 multisig with members from 7 different projects. Our shared liquidity with Shapeshift and BrightID, and BrightID’s shared liquidity with Giveth, are all 4 of 6 multisigs with members from 2 projects. Honeyswap’s liquidity incentives are also managed by a multisig, which still hasn’t been able to switch STAKE<>xDAI rewards to GNO<>xDAI, 4 months after the merge. Our current liquidity governance is not in good shape.

  • Hacked project minting infinite tokens. The risk here is that a project with significant liquidity outside of their $WATER LP could be hacked and infinite tokens minted, which would disproportionately affect $WATER’s price beyond just that project’s share of the LPs. For this to happen, the malicious tokens would be minted and sold for other tokens with $WATER LP, and an unsuspecting arbitration bot would then buy those tokens in the $WATER LP and sell them through the token’s other LPs with more liquidity, until either those LPs were also drained or the arb bot was drained. A few important notes about this risk:

  1. This type of hack isn’t possible on a Gardens DAO with dynamic issuance.
  2. For this hack to be effective you need both rich, lazily built arb bots and a vulnerable project with a lot of liquidity outside of $WATER, which are generally the more mature projects. In this unlikely combination of exploits, the maximum price effect for HNY is still the same as our current shared liquidity proposals, where our paired LP token could $0. (OK, slightly more because we share liquidity directly with other tokens that will also have $WATER LPs, but this is more reason to move from direct shared liquidity to a shared liquidity token to reduce this risk).
  3. In this type of hack, a multisig is actually better equipped to prevent damage than conviction voting or another form of on-chain governance. On-chain voting is slower and would take more time to remove a harmful LP. For a governance comparison, it took Giveth 20 days to turn off liquidity rewards that were being abused on Uni v3.

To address the other points:

  • Liquidity is a critically valuable part of token economies - they are the highways that allow value to move around. A token that facilitates that movement of value is inherently valuable.
  • The dynamics that correlate token prices of Uni v2 style LPs are relatively simple to understand. I still support blockchain engineers modeling this price correlation if they haven’t already.
  • Adding to @Monstrosity’s points on the proposal as a % of the Common Pool, building sustainable liquidity is a productive use of Common Pool funds, and since $WATER will function similar to an index fund of paired tokens, it’s likely to have a positive effect on $HNY’s token price as well.

I’ve been championing the practice of DAO’s owning their own liquidity - Spinning up a new multisig for every tokenswap deal has proven to be cumbersome and ineffective when change inevitably needs to happen. It would be great if somewhere in this system a DAO can hold it’s own liquidity - in the form of an index token or something liquiditable.

In terms of backing the value of $WATER - What about lowering the entry price (100k in tokens) and instead putting in a percentage of stables that is paired with $WATER then $WATER is subsequently paired with protocol tokens. Would there be a threshold where if a DAO had to sell it’s tokens to acquire xDai that it would make up for it by having a huge amount of liquidity created for it?

Have we considered other governance tools like an AragonOS, DAOhaus/Moloch?

  • AragonOS could be cool because we could leverage EVMcrispr in case we ever need to do anything complicated relatively quickly.
  • Moloch/DAOhaus - Having Shares that can be ragequitted proportionate to the value of the funds put in, this gives participating DAOs a bit more direct control over funds, social reputation and coordination being the glue that holds the funds in place.

The current proposal for Water is a very innovative, yet simple and elegant. It is multi-party token swap where you also get an index token out of the deal… and unlike most index tokens that require some sort of liquidity mining to bootstrap, Water has liquidity by virtue of it’s creation.

I don’t see the benefit in changing anything to make it more complicated. What is great here is the simplicity. I fully expect this model to be copied and I am bullish on Water.

If 1hive did token swaps with everyone in water it would have the same risk as Water has currently, with less upside (no index token), and more coordination.

As far as modeling… I don’t really see a need for it. It is a simple thing… if the prices of the other tokens go up, it positively effects the price of WATER and HNY, if they go down, then the price of Water and HNY go down. But now, not only do you get more liquidity for your token, there is also a reason to buy WATER. What really is there to model?

Multisigs have pro’s and con’s but this is a nice friendly multisig… I don’t see much risk in this multisig, as Paul said, i see more risk in multisigs that have fewer groups, this is a very diverse group.

It is a large amount of the Common Pool, but it is also a great use of the funds. It will not be sold to produce labor, which would lower the price, it will be directly utilized to provide liquidity, while also creating the utility of an index token, both of which help the economy.

If you don’t see the value in token swaps to add liquidity or Index Tokens… then this is not the proposal for you. But I see value in token swaps for liquidity and I love index tokens as a simple way to get exposure to a basket of assets.

This in no way would be fake liquidity. It is pass-thru liquidity… well hopefully… if Honeyswap works right.

The only thing I worry about is if Honeyswap will be able to route thru the liquidity… because with the GIV/TEC token swap the Honeswap front end doesn’t seem to recognize the liquidity well… Routing seems to be ignoring the GIV/TEC pool? · Issue #71 · 1Hive/honeyswap-interface · GitHub


The routing through liquidity can be easily solved with a simple PR as far as I know. It also happened with COLD/HNY before, and we were able to solve it.

By the way, the main point that I might be against the proposal is the multisig as I believe we can also leverage our own governance tools. That is why I thought a more comprehensive and transparent discussion would be better for the long term. Also, at this point, I can say that transparent info from other parties to be involved in the multisig is missing. We can improve that.

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Great point… We should say exactly who is in the multisig… I will work on that… We do that for all Giveth Multisigs, and this one is no exception.

For now here is a link: Gnosis Safe

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There are fans of the idea of sharing liquidity among communities, and I’m also one of them as you can see in my first reply in this thread.

What I’m not fan of is about it’s implementation. I don’t trust the way it’s implemented and I don’t like the idea that DAOs can’t undo giving liquidity. Why should they support the impermanent loss, and on top of that lose 15% if they ragequit? Is it really ragequit if you must ask the WATER board to leave and they must accept it?

Also, as I was saying WATER is not backed up by anything. Monstruosity says that one community backs the other. This is similar to be the unpopular kid in the class, and invite everyone to your party telling them the most popular kids will come. It may be true if you succeed with your lie, but this does not make you popular, just the appearance of popularity.

I think WATER is doing something similar with the rest of communities. It is taking the cool communities to a party to share liquidity, which is great. The problem is that it wants to be as cool as the rest without deserving it, and what is worst, make the others pay for the drinks.

WATER is requesting at least $100k to each community in order to join the party, but it doesn’t put anything from its part (except for some seats in the board in which there is people who nobody voted and the community can not revoke).

Furthermore, normally when you have an index token, it can be redeemed by the underlying tokens, something that has been successful in Moloch DAOs or in Dandelion DAOs such as PieDAO. It is not the case for WATER, another way to see why it does not have any intrinsic value.

My question is clear: didn’t we lean anything as a community from the agave launch, the agave hack and the alvin hack? Do we really want to put more than the 8% of our treasury on an untested token without the supervision of the blockchain engineers of the community, and without receiving any guarantee that we will be able to get our tokens back?

I request @paul and the rest of the WATER supporters to cancel the proposal to take some time to demonstrate that my claims are wrong and more importantly that the proposed WATER model is safe and fair for the communities that join it, and then present the proposal again. If you continue with the same proposal without providing more details on how it will work, I will defend my points in front of Celeste.


I am not sure I see it this way. The analogy would be better to say each community wants a pool to swim in but by themselves they don’t have the pool nor enough water. $WATER is an empty pool and each community brings an equal amount of ‘water’ to pour into that pool so they all can swim in the pool. $WATER doesn’t need to contribute anything because it doesn’t gain anything it just acts as the holding for the communities. What is swimming in this analogy? It is deeper liquidity for their token. Does $WATER gain anything having deeper liquidity, no the benefit is to the communities. Rather than use $WATER would you be opposed to using $HNY for this experiment instead of $WATER? That approach didn’t seem to get much traction

… I won’t cover multisig concern which has already been brought up

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There are three two elements that do not fit in the swimming pool analogy:

  • Communities are not only bringing their tokens, they are mixing them with WATER, a token that does not bring any value per se, and extracts value from the communities it is mixed with. If at least WATER was redeemable for the underlying tokens in a trust-less manner, the incentives of the WATER holders and the other community token holders would be more aligned. As it is right now, the more community tokens sold for WATER, the better for WATER and worst for communities. In other words, WATER tokenholders are not aligned with communities, and what can be good for the price of WATER may be bad for the price of the rest of the tokens.
  • The swimming pool is not an open space shared by the communities, but a private farmhouse that has a certain rules for communities to enter and swim in the pool. I am totally OK with that, but if it is the case it should be treated as a DAO2DAO deal between WATER and each community. The current proposal treats it as communities giving a lot of money that will no longer control. In other words, WATER is an independent DAO, and it should be treated like that, not giving it away tokens for free.
  • Not all tokens are the same or hold the same value (they are not all the same kind of water). When people hold two tokens in an LP position, they deal with the risk of impermanent loss and take measures to reduce it, because they have skin in the game. It is different in the case of the WATER board which are managing huge amounts of tokens from the communities without having a direct negative impact in their lives if they do not remove an LP on time when a community fails badly. It also provides pernicious incentives to communities to externalize their own problems on others, creating a vicious cycle. In other words, WATER will centralize the management of the shared liquidity without having enough skin in the game.

Sem… working on a more comprehensive launch doc which I’ll share here. I agree that there are important aspects of this launch that aren’t fully addressed yet.

Right now I want to cover the economic model of Water in more detail, because I think your comments come from a misunderstanding of either the proposal or of how uni v2 style decentralized exchanges work.

In the example below all 7 of the interested communities have joined Water. Here’s the spreadsheet which you can copy and play around with yourself. At equilibrium, the xDai values of each of the LPs are equal, and look like this:

But the individual token values for each community are different, so when looking at the unit values in each LP, it’ll reflect that. To make the model simpler I set all token prices to either $0.50, $1, or $2 to start, and included the HNY<>xDAI pair which is important in this economy as the top xDAI pair:

^ in this screenshot:

  • the only fixed token price is xDai @$1
  • the xDai value of HNY determines the Token Value of WATER, which then determines the Token Value of all other tokens
  • Total Liquidity = # of units in pool * Token Value

So what happens if the value of one of the tokens goes down? i.e. the token can be bought for a lower price somewhere else, but really this encompasses every imaginable reason a token goes down in value, which you can boil down to “people like owning that token less.”

Here is what the xDAI value LP chart looks like if the value of FOX has gone down:

Someone can now presumably buy FOX at a lower price somewhere else and sell it for $2 in the WATER ecosystem.

Assuming they want to cash it out for xDAI, the trade they’ll make is FOX > WATER > HNY > xDAI

This model assumes that price slippage will return the ecosystem to equilibrium when 0.1 $FOX is sold. Here’s what the unit value model looks like after that trade:

Damn! That was pretty cool. What happened?

  • All token prices have gone down
  • FOX’s price has gone down the most
  • HNY’s token price has gone down the least. Being the top xDAI pair dampens the price effect on HNY since it’s being bought in the HNY<>WATER pair
  • The price effect on WATER is the same as for all other tokens in the ecosystem
  • We’re back in equilibrium!

Now let’s look at the opposite, more pleasant event where FOX has gone up in value:

The arbitrage opportunity in this event is to buy FOX at $2 in the WATER ecosystem, since it can presumably be sold for more somewhere else. If the arbitrageur starts with xDAI, their trade will be xDAI > HNY > WATER > FOX. Again we’ll say equilibrium returns when 0.1 $FOX is bought:

Damn! That was even more cool! People are way happier now:

  • All token prices have gone up
  • FOX’s price has gone up the most
  • HNY’s price has gone up the least, since it’s being sold in the HNY<>WATER pair
  • The price effect on WATER is the same as for all other tokens in the ecosystem
  • We’re back in equilibrium!

With this I want to clear up some misunderstandings in your posts:

Because of arbitrage and price slippage, the price of WATER is a function of the prices of tokens it’s paired with.

There are no WATER tokenholders. 100% of circulating WATER at launch lives in liquidity pools. Unless you mean the arbitrageurs buying and selling WATER for their work, but they’re being compensated for the service of keeping the greater Honeyswap exchange in price equilibrium.

Anyone may choose to buy and hold WATER after launch if they like it as an index token, and that would benefit all the token communities in WATER. But investors and arbitrageurs aren’t able to sink WATER below its index token value because its entire initial supply lives in LPs.

The WATER board does not actively manage LPs, arbitrageurs play the role of active managers for WATER, and their incentives are well-aligned. The WATER board is only needed to remove liquidity when a community asks them to, or when a token is compromised. In the case of a hacked/failing token, WATER board members are personally motivated to remove that LP since it’ll negatively affect the price of the token’s they represent.

Communities are not providing tokens to WATER as an investment. They are paying for the valuable service of sustainable liquidity for their token.

This is the reasoning behind the 15% fee for RageQuitting. Participating communities should have the option to leave, but since WATER’s price could grow quite a bit, it might become tempting for those communities to treat it like an investment and try to add or remove WATER liquidity to maximize profit. This goes against the purpose of WATER which is to provide affordable, long-term liquidity.


I have to retract of one of the arguments I did before and I edited and stroked out. The reality is that…


  • The WATER token supply do not ever increase (which means that the WATER board do not ever mint new WATER).
  • The WATER tokens removed from liquidity pools with excommunicated or rage quitted tokens are never ever used (aka it is burned o sent to zero address).
  • The LPs are keep safe (aka the WATER board does not perform what is popularly known as “rug pull”, which would be unlikely).


  • The WATER token is still an empty-of-value token that acts as a value conducting vessel for the rest of the tokens paired with it.
  • It DO NOT extract value from the communities in any case. The incentives are well aligned in this particular case because all the WATER tokens created should be inside the initial LPs, so there is no way they WATER token price can go up and most of the rest of the tokens paired do not.

Although I still do not like the method in which WATER wants to be implemented, I apologize for the bad argument, and I hope this post serves as a good correction.


Thanks for the examples @paul, I think they they help understand WATER much more.

I still think there are lots of concerns that are not amended in the proposal and I’d like to propose two WATER alternatives that give more control to the communities:

Alternative 1

The WATER board could receive the funds from the different communities, put all of them in a Symmetric Finance pool (Balancer friendly fork on Gnosis Chain), and send them back to the communities.

We all obtain an index token and a huge amount of liquidity in Symmetric in just one step, and without most of the concerns we have been discussing about, because in this case the communities would have control their liquidity with the rest of the communities.

If a token had to be removed, the WATER board could suggest a new distribution, and a contract could be written that would automatically withdraw the liquidity form the old pool and add it to the new pool without the removed token, all in one transaction, without the rest of the tokens even noticing a scratch in their liquidity.

Alternative 2

WATER board could serve as an OTC market used when a community wants to exchange tokens with others in order to add liquidity to their token. Instead of buying the tokens in honeyswap, they could have a better deal doing an order such as 50% HNY, 30% AGVE, and 20% BRIGHT in exchange of any amount of their native token.

The WATER board would try to fill all the orders (maybe taking a small fee for the work it is doing), and sending the tokens to the communities.

Each community, who had already chosen which tokens are more convenient for them, would be able to hold them in their treasury or pair them in an LP. As in alternative 1, they would have entire control over the tokens they bought with their tokens and could decide when to stop providing liquidity with communities they suddenly trust less than before.


Both Alternative 1 and Alternative 2 send the tokens back to their communities, so we do not have the concern of a multisig holding the funds from multiple communities anymore. This also allow communities to decide what to do with their treasury.

The difference between them is that in Alternative 1 there is a recommendation made from the WATER board who chooses which token distribution should have the Symmetric LP based on the amounts provided by each community, whereas in Alternative 2 each community chooses which tokens to buy in order to build it’s liquidity treasury.


Hi @paul, I really like the concept you are working on with $WATER. Last week I was brainstorming a similar concept on the ShapeShift discord and a couple members referred me here. The ability for DAO’s to contribute to a multi-asset pool, as a method of diversifying DAO treasuries and creating a vested interest in other DAO projects, is vital to the DAO ecosystem. The solution you are proposing seems solid, but I think there are opportunities to simplify it so that it can scale and reduce friction for completing the pools more efficiently. I think Alternative 1 by @sem is even closer to a concept I was drawing up. I put together a summary write-up that might have some relevance to what you are working on with WATER. I’ve linked it here, and would appreciate any thoughts on it: D2D Multi-Asset Pool

I realize this might distract from your specific proposal here, so if there is better place to continue the discussion, let me know.


Here are the details of who is in the Gnosis Safe:

I think the plan is to also create a second safe that will be able to mint water, an 8/12 safe with the same people.


Remember that one of the conditions to effectively not extract value from the communities is precisely do not mint new WATER and to burn all the WATER that is obtained from retiring liquidity (in ragequits or excommunications).

I understand that in order to refill WATER for project that want to add more liquidity you need a reserve of water, but having some reserve of WATER for that purpose and have the ability to create as much WATER as you want are very different things.

WATER board is already trusted on holding the liquidity pool tokens, but granting powers to mint new WATER becomes problematic if the token becomes popular among the rest of the people and it’s used outside the LPs. Is there any reason why WATER total supply is not capped?

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Thanks for sharing Gunnar - lots of overlap, but I think a D2D Multi-Asset Pool is solving different problems than Water. The main goal of Water is to provide sustainable, affordable liquidity for the projects that join, and exposure to a diversified pool of assets is sort of just a nice byproduct (although critical to its utility).

It’s an improvement on founder-provided liquidity, liquidity rewards, and 1-to-1 DAO shared liquidity which are the most common ways tokens in our ecosystem have built their LPs.

I really like the interface in your proposal for creating a pool framework with terms that other DAOs can fill. Maybe the 2 ideas could be integrated where DAOs creating a pool could have the option to add shared liquidity between the projects as well?