Spend Proposal: Levana SCRT perpetuals Lp pool liquidity deal

Hey everyone,

Summary

This proposal asks for 200k SCRT from the community pool to be deployed as community owned liquidity for the SCRT xlp pool on the Levana Osmosis perpetuals platform. The liquidity is to be managed by a multisig of 5 representatives of the Secret Network community.

About Levana Osmosis

Levana is a perpetual futures market on Osmosis following the GMX model where traders trade against a pool of assets supplied by LPs. Levana has done over 2.5b in volume since launch from over 20,000 users. Levana can offer a market for any IBC asset that is supported with price feeds by Pyth and will launch a leverage market for the same asset to function as the market for the perpetual contract. Users can go long and short with up to 10x leverage or supply assets to the LP to earn trading fees and share in the cumulative losses/winnings of the traders.

How it will work

We will propose the funds to go to a multisig owned by community contributors (Lisa Loud, Alex - saturn, Luigi, Mohammed- SecureSecrets, Ertemann - Lavender.Five) after which the SCRT is transferred to an Osmosis multisig of the same members. There it will be deployed in the SCRT LP for the SCRT/USD perpetual market as a base of liquidity for users of the platform to utilize. The LP shares will be locked to participate in the higher yield of the Levana xLP vaults. Any yield earned will be auto compounded every quarter.

The Secret community pool will lose any direct access to the funds after passing of the proposal but the multisig owners are expected to follow any follow-up instructions coming in from the on-chain proposals.

Additionally, if no additional proposal is passed to extend the period the multisig signers are expected to return the funds in full + potential profit to the community pool no later than 6 months after proposal execution.

The multisig signers will commit to changing ownership of the funds to a DaoDao contract on osmosis with Veto power (over IBC) by secret governance, within 2 months of mainnet launch of CosmosSDK 0.50. Please be aware that this proposal requires some participation from the Osmosis DaoDao deployment to enable Secret-4 gated DAOs and there might be delays due to multisig handover problems and withdrawal timelines set by the Levana xLP vaults…

Why is the liquidity needed

Currently SCRT has no market on Levana. As part of the Secret Network foundation business development strategy the Ecosystem team reached out to Levana to see if this can change. After a lengthy integration process with Pyth oracles for SCRT price feeds, this market can now be created.
To enable a bare-minimum of market liquidity (to start arbitrage and general perp trades) it is important that the pool has at least 50k USD of liquidity. This proposal seeks these required funds from the community pool so the market can be bootstrapped and the community can earn rewards on the idle SCRT in the community pool.

Enabling more Perpetual markets for SCRT allows people to perform cash and carry arbitrage with SCRT potentially increasing the net holder base. The LP pool is also an interesting opportunity for SCRT holders that want consistent yield for a longer time horizon, potentially increasing the net holder base for SCRT. More on-chain activities to perform with SCRT can also help reduce the existing supply on exchanges.

Benefit for Secret Network

  1. Export of SCRT: The export of SCRT throughout the cosmos is a good way to expose SCRT to more users and generate interest. Osmosis is a big liquidity hub for SCRT already and Levana has a large active userbase to tap into. Having additional utilities within that ecosystem for SCRT could be an attractive opportunity.

  2. Enhanced DeFi usecases: Enabling SCRT as LP option and trading option on Levana will allow the Secret community to perform more DeFi strategies that enhance their yield and bring in true fees. With both DemEx and Levana people can now go long/short Secret with various collateral. Levana xLP also brings a form of true yield to native SCRT which enables more liquid SCRT holders to be active in yield generation outside of staking. Over time we might see more Perp markets support SCRT which should allow for funding arbitrage, broadening the yield base for the SCRT coin and increasing interest.

  3. Yield for the community pool: Levana xLP pools often earn ~10-60% APR, seeing as the community pool doesn’t stake this will add funds to the community pool over time that they can leverage to outpace inflation.

Negatives of this proposal

  1. Not native: The liquidity would be deployed outside of Secret Network. There is a smart contract and chain risk involved with this liquidity provision.
  2. Decentralisation: With DaoDao not yet live the funds would be managed by a multisig, this puts the secret network community at risk of malicious behavior by those trusted parties.
  3. Risk of total Loss: Due to the exposure the community pool would gain to the xLPSCRT assets and the associated smart contract risk it could lose all the deployed funds.
  4. Risk of partial Loss: In the Levana system LPs are the counterparty to traders. If Levana sees many successful traders on the SCRT market then the xLP pool might be lossmaking for extended periods of time returning less SCRT than initially provided.

Curious to hear all your thoughts!

Note: We thank the SNF for creating this relation and getting the Pyth integration done, Lavender.Five and myself are just here to bring the proposal to the community.

Best,
Ertemann
Lavender.Five Nodes

3 Likes

Holy shit that’s 24% of the community pool which is currently at 830.5k SCRT

1 Like

I am totally against this considering that Levana geoblocks the entire US market.

2 Likes

Speaking in my capacity as community member, and staker in my own right. (I am not speaking as a representative of SNF)

I am in support. I am a trader (and if honest a degen), and I love the idea of expanding perps offerings. I also know very well that the perps pools tend to make a good sized return on average, I personally supply liquidity on various perps platforms, Levana included and altho it does fluctuate as noted in the proposal, net net i am well above my deposited amount. Balancing risk to reward ratio, I personally find it well worth it.

It is a large portion of the pool. But I dont see many better opportunities being presented on how to use the funds in the pool. This puts the funds to work in a way that will allow the community to regain the funds. We are not giving them away here, altho for a period of 6 months it will be inaccessible, and the xLP pools do have a 45 day withdrawal period to take into account. We would be using it in a way that can generate a return and actually grow the pool eventually without dilluting the SCRT supply, and it strengthens the ecosystem offerings.

Levana is a very solid platform, well known, and well used, it is on top of osmosis, the liquidity hub of cosmos. So this is solid exposure.

I do hope to see this relationship continue to grow as well, because I would absolutely love to see further integrations of levana and Secret ecosystem.

4 Likes

Speaking in my capacity as a validator in my own right. (I am not speaking as a representative of SNF).

Probably one of the best use cases for community pool funds. Supported.

2 Likes

I would tend to vote against this investment, especially relative to the size of the community pool. Many of the Levana xlp positions we hold are not showing consistent returns, but rather significant losses. Therefore as significant SCRT Holders, we would not risk this investment and we do not see many benefits for the SCRT ecosystem, especially considering the significance of the low liquidity markets on Levana.

I don’t agree with the proposal, even though I have a problem with geoblocking ( which can be solved simply by everyone using dVPN/Tor LOL ) I mostly disagree with the amount, sorry but for not being a native protocol 200K SCRT is too much, this way is pure NO for me, sorry.

2 Likes

the best part its its not giving away the funds. the idea here is to make a big bet on a platform that will

1, help SCRT grow by adding new functionality (leverage) new exposure (on osmosis)
2. earn a profit
3. get that profit back into the community pool in a relatively short period of time

all while using a battle tested dapp, with enough historical evidence that the risks of loss are low

1 Like

blocking the US market means less team risk and regulatory risk that the platform will be shut down, makes the proposal safer for SCRT

This proposal is only a part 1.

Part 2 is to launch Levana on Secret Network, making the first and only true onchain private perps.

Demonstrating that the Secret community is interested in trading perps kickstarted via the launch of this proposal, is the first step to building a new product offering, which will bring many new users to Secret Network

@GoodHope @Jiricepelka

2 Likes

As you probably know the best protection is decentralization, go ahead and deploy the Levana frontend on IPFS + ENS
At the same time, are you really trying to tell me that by stalking users you achieve security? ( maybe for you, but not for users, supporting this is agains Secret philosophy ) I wouldn’t want to use Levana without privacy tools that hide my IP address from your team, sorry but segregating users based on location is redflag.

As far as the amount is concerned I have hinted at it on the SCRT gov chat, an acceptable amount for me is maximum of 100K SCRT, once you deploy Levana on Secret I am willing to agree to an amount much more than 200K SCRT, but assuming we are putting the security of the resources in the hands of the Osmosis network and at the same time multisig of a few people then any amounts above 100K SCRT are simply unacceptable to me, no one is saying we won’t get the money back but there are other risks that are simply unacceptable.

I’m definitely not trying to discourage you from the proposal, let’s do it, but please think about removing some features ( like user stalking ) and think about lowering the amount, after all it’s not our native chain and it would seem unreasonable to me to put 1/4 of the treasury into someone else’s protocol ( for now ), let’s do things slowly and safely, let’s test your protocol and if the community is happy with it then we can talk about next steps.

2 Likes

Just some comments here to work through when you have a chance:

Incentivising the Community Pool:
There is no guarantee that the liquidity provision will be profitable as Levana’s markets are usually quite materially skewed. Therefore, if prices move in the direction of the dominant position, we will make a loss.

Would Levana Protocol consider structuring a deal that incentivises purely based on loss to Secret? We agree to maintain the liquidity for X months, and Levana would grant the Community Pool Secret when the liquidity is exited.

This is equal to Y% of the loss suffered by the Community Pool (nominal SCRT then * price now) - (nominal SCRT now * price now) meaning Levana doesn’t bear the full loss and the Community Pool does accept that they are entering an arrangement with risk. We can also create a cap of $Z on the maximum LVN that has to be paid (i.e., if losses exceed that) to offer some extra protection to Levana Protocol.

Deployment on Secret Network:
Would you be happy to adhere to the following:
a) It is codified within the proposal that Levana Protocol commits to launching on Secret Network within a reasonable timeframe; and
b) Levana Protocol announces on their social channels that they will launch on Secret Network within a reasonable timeframe.

3 Likes

This proposal is a test to see if the Secret community is interested in trading perps. It does not make sense to commit to launching a version of Levana (we estimate it will cost around $800K to launch Levana on Secret and maintain it for the foreseeable future) without first a test to see if the community is interested in the Levana product.

The current proposal is design to give a potential large upside to the SCRT community pool, without providing any clear significant benefit to Levana.

We are hopeful that the Secret community will engage in leverage trading of SCRT, but it does not make sense for Levana to commit to any insurance mechanism in the case of LP losses or to commit to any future development given the lack of information regarding community product market fit.

1 Like

While I appreciate some of the benefits, namely the extra visibility it might bring to SCRT, I do think it is somewhat irresponsible to basically gamble with the community fund. It is a substantial portion to be putting at risk, and I would much rather keep that available to fund projects or resources that operate on Secret Network. I also believe SCRT price action is extremely predictable at this point, and giving traders the opportunity to short it while LP’ing their perps sounds like a shit deal to me.

4 Likes

I agree with you, handing over 200k SCRT is a lot in somone else protocol plus, Levana has had some problems as well I would hate for this to backfire on the community. US can not participate on Levana protocol the US community. Would take the biggest hit because we are block from trading, without using VPNs which I never use a day of life.

1 Like

We hosted a Twitter Space with JB from the Levana team today, and spent a lot of it discussing this proposal. If anyone would like to hear more about how Levana views the pros and cons of this proposal, you can listen to it here:

https://x.com/i/spaces/1nAKEaYODwbKL/