Breaking the Social Contract of the DXdao in Pursuit of Decentralized Exchange Market Share

Well I think the dxDAO shouldn’t even release DXswap:

  • The promised of DXswap (decentralized governance and fees for platform development) has already been done by SushiSwap and Uniswap.
  • Forking other people with little innovation is not “nice” and will decrease dxDAO relationships with other projects and individuals. It would be seen as a “greedy fork”. We’ve also seen initial dxDAO people (Martin koppelman) distanciating themselves from the project.

It doesn’t mean there can’t be an AMM made by the dxDAO, but it would have to provide real innovation to be worth it.

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  • The promised of DXswap (decentralized governance and fees for platform development) has already been done by SushiSwap and Uniswap.

Comparing DXswap governance system with SushiSwap and Uniswap is a clear indicator for me that you don`t have a clue about the DXswap governance system.

Forking other people with little innovation is not “nice” and will decrease dxDAO relationships with other projects and individuals. It would be seen as a “greedy fork”. We’ve also seen initial dxDAO people (Martin koppelman) distanciating themselves from the project.

We are seeing with swerve.finance that you can provide an utility for people by just changing a few parameters of the curve.finance protocol. My point is, DXswap will focus on providing utility to the ethereum ecosystem others don`t want to/do not care or even more important just cannot especially because they want to play nice with crypto twitter/buddies. The true innovation is connecting the DXdao to DXswap.

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It’s not even going to be a “greedy fork” as I imagine, with the tepid liquidity it is going to be a monumental flop. There is nothing interesting about dxswap, there is no real liquidity being provided so price is also going to be terrible.

It’s a bad idea, you guys had a shot in May but everyone was able to execute much quicker and at this point it just seems like people working for the DAO with their hands out trying to get paid to “build a road to nowhere” rather than developing a product the market actually desires.

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It’s not even going to be a “greedy fork” as I imagine, with the tepid liquidity it is going to be a monumental flop.

I would consider a monumental flop was the introduction of the the amazing list feature on Uniswap where now the heavy work is done by the user and not by the product itself.

There is nothing interesting about dxswap, there is no real liquidity being provided so price is also going to be terrible.

Just the fact that the DXdao itself will provide liquidity on DXswap is a novelty which was never done before. Sure, there is no real liquidity because DXswap is not launched yet.

It’s a bad idea, you guys had a shot in May but everyone was able to execute much quicker and at this point it just seems like people working for the DAO with their hands out trying to get paid to “build a road to nowhere” rather than developing a product the market actually desires.

Everyone executed much quicker because they just redeployed everything. The DXswap codebase has been changed to add the DXdao connections to it. DXswap is not a normal fork. None of those forks can change the protocol fee, the individual pool fee and delegate ownership of those pools.

DXswap is a long term project and will see substantial change not only on the frontend but also on the protocol level. The real work is just beginning!

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Could you please elaborate what is so innovative about the DXswap governance system? As it is now, DXswap is governed by the few who yield farmed REP in May 2019 and some workers who have asked for REP in return for their labor. Meanwhile, all other stakeholders do not have governance voting rights.

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I understand it’s not always easy to follow along with developments, but I’m a little disappointed that community members are making negative statements about DXswap without first asking what DXswap offers. @clesaege Particularly disappointed here considering your role with Kleros which is an important partner for DXdao. Kudos to @pulpmachina for being reasonable and inquisitive.

Trust me, as the author of the post made in May about forking Uniswap, I understand the feeling that DXdao got beaten to the punch by Sushiswap. But look, Sushiswap and DXswap were always fundamentally different in their approach. The innovation of Sushiswap was applying liquidity mining for ownership and token distribution. This was so successful that Uniswap quickly followed with their own token distribution. Since Uniswap’s move though, Sushiswap has consistently been losing marketshare and as of this writing 24 hour volume on Sushiswap is 1/15th of Uniswap. The idea from the beginning with DXswap was never focused on yield farming or distributing a new token. DXdao already has a token. While it would have been great in the short term for DXD price, in my opinion, it would not have been a prudent move for DXdao to do a sushiswap style fork and flood the market with DXD. In fact, DXdao would not have been able to do this, as the majority of the DXD premint is still locked up!

So let me try to address a couple questions. What does DXswap offer? And why has it taken so long!?

From the original post to today, the efforts around DXswap have been focused on governance. DXdao has taken Uniswap and changed the core contracts (where the liquidity resides) to allow individual pair fees to be changed as well as the protocol fee to be changed. The ability to change these fees is controlled by DXdao (if you are discontent with current governance structure, you can direct your energies here) but can be assigned on a pair by pair basis to other parties. The idea now is to hand over control of the pair fee setting to the LP holders. As part of these governance efforts, DXdao is in the process of building integrations between DXdao and DXswap to allow it to set the fees, add and remove liquidity, and direct profits to DXtrust (aka the bonding curve). As @corkus points out, I believe a DAO adding liquidity to a protocol is a big step forward and what we are building for DXswap can be leveraged in the future. Besides the governance aspect of DXswap, take a step back. DXdao is building a product suite and having an AMM protocol in the arsenal will be very handy. Capturing post Mesa IDO liquidity and trading volume and integrating with Omen to allow seemless exchange between collateral tokens are ideas that could be applied today for the DXdao product suite. But I can imagine many more use cases for integrations and partnerships as I am sure you could too if you take a walk and contemplate it. Besides all of this, DXswap also represents the first time DXdao is owning a smart contract protocol, an important step.

So whether or not you find that compelling you still might be thinking, why is it taking so long?? The idea to fork Uniswap was there in May, 3-4 months before Sushiswap! The most significant factor here is that in May it was just that, an idea. And at that time the product group of DXdao consisted of @corkus, myself and @AugustoL, and boy we had our hands full and still do. Now the product group is 11 people and growing, but it takes time and care to grow a great community. I couldn’t be more excited about the dedication and ingenuity of those involved. Another major factor is that DXdao has been busy with a lot of other things as well . . . Omen, Mesa, Rails, adding governance features and integrations, establishing procedure and structure. In addition to that, it’s a DAO and decision making requires consensus. Finally, DXswap involves a decent amount of work. Besides the changes required to the 4 repositories involved with Uniswap, there are governance integrations and audits being worked on.

In summary, I am super excited about DXswap and the future of DXdao and as I see it, DXdao is not trying to beat Uniswap or Sushiswap at their game, but trying to change the game for DeFi. DeFi protocols exist in silos controlled by centralized teams or plutocratic token voting. DeFi is not decentralized. DeFi is not integrated. DXdao is changing this and DXswap is an important step on this journey. I encourage everyone to get more involved. Join keybase. Join the weekly calls. DXswap is currently being tested on Rinkeby. The relayer is going into audit. DAOstack is helping DXdao improve the governance platform.

Ask not what your DAO can do for you, but what you can do for your DAO.

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I think it would be good to avoid shaming people having different views (also note that someone made a similar post previously and had then removed it telling that no matter what he says it would be done anyways and it’s better not to show dissent) and keep the conversation on the project, not people. I’ve been following DXswap since May and always had been bearish to its value proposition.

I think releasing dxSwap now would be a flop and a net negative for the dxDAO (reputational damages will be greater than the few liquidity which will get in it).

Changing the fee individually or redirecting it to different actors is not a good enough value proposition to have a new product.
If you think I’m wrong, I’d be happy to make an Omen/Conditional prediction market on the liquidity which would come into it.

To get a successful dxSwap there is a need for a good enough value proposition, it could be:

  • Second layer integration (xDAI or using loopring).
  • Ability to have limit orders.
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it was not my goal to shame you but rather clearly point out that your statement is wrong:

  • The promised of DXswap (decentralized governance and fees for platform development) has already been done by SushiSwap and Uniswap.
  • Uniswap has a liquid token governance which is the exact opposite of DXswap governance.
  • At Uniswap only whales can create proposals <=> At DXswap anyone in the world can create a proposal.
  • Sushi swap is in control by bad acteurs via a multisig <=> DXswap is governed by 430 Member and growing DAO with full time developer in place who are actively working on the project since March.
  • DXswap will be ENS native, which means it is in general more secure then any of the competitors. Sure Uniswap can use their ENS but the influence will only be done by huge whales.
  • DXswap will not have any token list because the DAO will maintain the token list, improving the UX as it was before.
  • DXswap pools will have their own governance dashboard (which will merge with the liquidity provision Interface) which will at first, only set the pool fee but can greatly extended to even own DXdao reputation and vote on DXdao proposals.
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To get a successful dxSwap there need a good enough value proposition, it could be:

  • Second layer integration (xDAI or using loopring).
  • Ability to have limit orders.

Great points!

As you are (hopefully) aware the DXdao was cloned to xDai and is currently building up its own infrastructure on it. Which means it will first replicate the current system on mainnet (All its connections) and will play a big and important role for all our products as it will govern and have influence of Omen and DXswap on xDai.

A few examples what the DXdao is or will be able to do on xDai:

  • Proposal lifecycle is much quicker because it is way less money at stake
  • Provide Liquidity on DXswap for xDai
  • Change protocol fee, pool fee and delegate ownership of pools for xDai
  • Add/Remove tokens from its token list on xDai
  • Create markets on Omen and provide liquidity to it
  • Do Arbitration for Omen
  • Being an Oracle for Omen
  • Most important point: It is already providing the collective a very cheap way to find consensus.
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Jumping in here late after a busy weekend.

Just to recap, there seem to be two separate discussions:

  1. DXdao providing liquidity at a lower price than the bonding curve

  2. Overall DXswap strategy and whether it is a worthwhile strategic choice

I’m very interested in discussing #1 as I don’t have a good answer. Good points brought up by @pulpmachina and @papa_raw about a buyback. The inconsistency comes from the 100k DXD pre-mint. Does the bonding curve prevent DXdao from ever moving these tokens? Or just at a price that is above the bonding curve price? I don’t have the answer to these questions and would like to hear more discussion.

For #2 over the strategy of DXswap,

  • DXswap is a worthwhile product launch for one reason alone: on-chain fees. No other product category has the on-chain fee capability of an Automated Market Maker. Uniswap had $15bn of volume in September. DXswap only needs to capture a tiny fraction of that. No other development work could have a higher ROI for DXD holders and its not even close.

  • What’s ‘different’ about DXswap governance? Not just the ability to govern the protocol, but for each pool to govern itself. AMMs are becoming more specialized and the future is specific curves/strategies for each trade pair. This is not important now, but will be in the future.

  • DXswap is DXdao’s first shot in the liquidity wars - Balancer, Stablecredit, the move to Layer 2 - we are in the midst of a massive battle for liquidity. As a DAO that aims to govern and decentralize DeFi, DXdao needs to think strategically about how to compete, and DXswap will be DXdao’s first foray into the liquidity wars. This first iteration of DXswap will not win the liquidity wars but it will lay the foundation for more. To win the war, you need:

    1. Trade Flow

    2. Lots of liquidity

    3. Super efficient AMM.

    DXswap’s launch should help build the first two, while we work on the last one.

Overall, I think too much focus is on how DXswap will do in the next 3 months and not how it will build long-term liquidity integrations, enhance DXdao’s treasury management and governance capabilities. I’m surprised at everyone crowning sushiswap - this is just getting started. The switch to Layer 2 and Uniswap v3 are going to change everything (again).

@clesaege @two_cheers why do you think DXswap will be a flop? what do you define ‘success’ as? On-chain revenue? Reception by crypto twitter?

Lastly, I think the key advantage (right now) is DXdao’s on-chain treasury. The ability to seed a new protocol and adjust the liquidity to where it’s needed is genuinely new and not on the market (yearn.finance is the closest corollary but they use outside capital; yam is trying to do this now).

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This has been a super good discussion already, looking forward to the call today. Thanks @pulpmachina and @powers for saying much of what I was thinking, better than I could. The power of the DAO!

As a relatively large DXD holder (app 150) and Uniswap LP (app 20%) I can certainly nod to both discussions raised. We want a vibrant market for DXD on both DxSwap, Balancer and Uniswap (and eventually many other places too).

i) If we just launch 300k USD liquidity of both ETH/DXD I am also concerned of it skewing the secondary market for DXD negatively without achieving much in terms of strategic growth. The bonding curve is the main way for DXD to raise new funds and the treasury is still the largest holder of DXD by far, so letting so much new DXD supply out so far below bonding curve price just seems bonkers. Supporting the scarcity and price of the token is in our clear common interest here. Therefore supporting the DXD price by buying up DXD under book value in market and launching the DxSwap pool with that as liquidity seems the easiest choice - no tech involved and it stops new DXD from being released by the treasury for no strategic reason. Alternatively we need to focus a lot on why, as an LP, I should move over from Uniswap and populate the pool? Right now I would compete with DXD liquidity and be paid less in Tx fees, hardly a winner for me… shouldn’t we be winning people like myself over to DxSwap?

ii) That goes to discussion number 2. Why are we better and competitive? I am not 100% sure yet, but keen to see DxSwap launch and us building on the initial deployment. It’s exciting. But we should be very clear about what we think it takes to be competitive for users, LPs and/or projects. Picking one is fine too, as long as we think that can drive adoption of the others in niches/broader. Providing a bunch of short term liquidity can assist a lunch, but won’t cut it in terms of overall competitiveness anyway so my suggestion is we go much smaller.

Just my 2 cents

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Some further discussion on this today in DXswap strategy chat. Read call notes here:

It would be great to discuss again on Monday’s Biz Dev call and hear any additional feedback or suggestions. Or here on the forum.

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Just to be clear on the terms, there is not “a new bonding curve” and an “original bonding curve”: There is a “secondary market” and a “primary market”. From what I am reading, it seems that the issue you’re raising is not that a “secondary market” exists (you cannot prevent it anyway and it already exists…) but that the dxDAO wants to provide a lot of liquidity to a secondary market at the current secondary market price (on Uniswap).

If that’s your point, I can understand it. Providing a lot of liquidity at this price will make it hard for $DXD to reach the latest issuance price (= the price of the primary market) and it will make the price much less volatile than in a “low liquidity” context. On the contrary, one could argue that the current secondary market price reflects the true market price and, as such, choosing to provide liquidity at another price would be hard to justify.

Maybe a fair thing to do at this point if dxDAO wants to find what the real price of DXD is and provide liquidity at that price would be for dxDAO to create a liquidity bootstrapping pool (like what PERP did) using the latest issuance price as starting price. This would help the price discovery process without penalizing current DXD investors (as those who would like to sell would have the ability to).

Another option would be for dxDAO to refrain providing all of a sudden a large amount of liquidity on a secondary market at this point.

Finally, this brings me back to my previous point on the importance of developing a trade optimizer between the primary and the secondary market to make those 2 markets live in coordination and not like 2 independent markets.

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Thanks for the input @thibauld.
In your imagining of some method to find the “true market price” of DXD (this method could be Balancer’s “Liquidity Bootstrapping Pools” or using orders Mesa), would you be starting low and moving higher or would you be starting high and moving lower?

I am not sure either of these methods work in a scenario where you don’t know if DXdao is selling or buying DXD???

Do we have some reason to not believe that the “true market price” of DXD is not what it is trading at in the secondary market?

I was thinking starting high and going lower because that is what would have happened at a trade optimizer be in place. Obviously, it would be risky for the dxDAO to do that right now as the initial hype around DeFi has faded because a lot of DXD holders would likely take the opportunity to sell…

Yeah, I think a project can only use that Liquidity Bootstrapping Pools method when doing an initial token offering. Doesn’t really work once there is a secondary market trading.

Depending on whether DXdao wants to sell DXD or buy DXD, it would make sense to gradually put limit orders into the market using Mesa.

"Just to recap, there seem to be two separate discussions:

  1. DXdao providing liquidity at a lower price than the bonding curve
  2. Overall DXswap strategy and whether it is a worthwhile strategic choice"

It seems like the DAO is actively incentivizing liquidity for DXD tokens that is currently traded below the bonding curve price.

This provides more DXD tokens for the market to have to absorb before the DAO can actually get funded through the bonding curve itself, so if the DAO is actively trying to seek funding through the bonding curve, this seems counter intuitive, but regardless, im neutral on this subject.

I think we should just think how to improve what this is and focus on next products.

My thinking is that we should focus less on DXD/ETH pair, not many people outside the DAO wants to trade and speculate on DXD/ETH pair, focus more on the most popular traded pairs across other DEX’s like ETH/USDC, ETH/USDT, YFIUSDC, LINKUSDC, these are very popular among trades that will probably bring high revenue.

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I’m confused by some of this conversation. The way that this is being framed is as thought the dxDAO providing DXD/ETH liquidity at the current market price is somehow increasing the supply of DXD on the market. This would be the case if it added the DXD in a one sided manner but not if it is added with ETH at the current market price. The only change is in the liquidity in the market. Yes, more liquidity means the price is less reflexive and it takes more to move the price back up to the sale curve price, but it also means that it takes more ETH to move the price down more!

It seems just yesterday that people were clamoring to pause the curve and stop raising funds in order to allow the secondary market to do the heavy lifting of price discovery. How is this different? In this case the dxDAO will also earn fees from this liquidity. If the price of DXD goes down then the DAO is buying DXD with ETH, and if it goes up it is buying ETH with DXD.

As far as questions about releasing dxSWAP… it would be stupid not to release it, but I do think it should be framed in a way that doesn’t imply it is a uniswap or sushi-swap killer, but a cog in a larger dxDAO machine that will be used in conjunction with the other product offerings.

*Apparently I always post after @thibauld. I swear I’m not one of his socks!

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Just to try to answer here, @thibauld first.
Yes, the increased circulating supply was my only point. Providing new circulating supply/liquidity at this price will make it harder for $DXD to reach the latest issuance price (= the price of the primary market). This move directly provides more DXD tokens for the secondary market to absorb before the DAO can eventually get funded through the bonding curve (primary market) again.

To @rossgalloway. It would directly increase circulating supply in the market by moving DXD from the treasury (not in circulation) to being in active circulation on the secondary market, while also increasing liquidity. As you say more liquidity means the price is basically less reflexive and it will take more to move the price back up to the sale curve price. You are right that it also means it takes more to move the price down more. But, what is the benefit of this compared to say a buy-back approach that doesn’t add liquidity while also protecting against downwards price pressure?

Here’s a summary again of why I don’t think it is beneficial to DXDao (incl. thoughts on curve);

  • new investors can simply buy larger quantities of DXD in the secondary market, potentially circumventing the primary market (and our fundraising ability) for much longer. This situation is present and can persist for an unknown period. During this unknown time our fundraising mechanic (the primary market) is out of play.
  • Existing investors can exit DXD token’s with less loss, so if we want to encourage that behaviour this absolutely seems the tool to try achieve that. But then why not just enable the full bonding curve mechanic on day one, allowing everyone to dump DXD in exchange for ETH anytime? If we fully trust this idea then we should just let people sell back to the curve, take ETH directly from the treasury and circumvent the secondary market.
  • People sensibly arguing to change/pause the curve were (apart from obvious speculators) mostly worried that it would lead to an inflated supply of DXD, while leaving a much thinner secondary market to pick up that excess liquidity in down times. This scenario has in my opinion played out to almost perfection, with the price now being down 75% from the high, leaving the DAO unable to fundraise (so much for continuous funding). To me it is the combination of a flat curve design (meaning high inflation per unit of fundraising in the good times), combined with having no ability to sell back to the curve (meaning a disproportionately high price impact of selloffs in down times) that has exaggerated this situation. Increasing liquidity now, would contribute to the present situation persisting for longer.

I am simply making the argument that due to the above market mechanics at play, increasing liquidity/circulating supply in the secondary market at present is an irrational decision by DXDao.

The “fees” we can earn, shorter term, is also in my opinion a minimal consideration compared to the risk to our main fundraising model, the primary market. It also limits our upside on a future price increase in DXD, either via price appreciation or future revenues.

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I think this is an important point from @CLCL :

My thinking is that we should focus less on DXD/ETH pair, not many people outside the DAO wants to trade and speculate on DXD/ETH pair, focus more on the most popular traded pairs across other DEX’s like ETH/USDC, ETH/USDT, YFIUSDC, LINKUSDC, these are very popular among trades that will probably bring high revenue.

5% of trading volume marketshare for these pairs would bring in more revenue than owning 100% of DXD/ETH trading. Of course, this would require a lot more liquidity/deposits and someway to attract them.

It should be easy to own the DXD/ETH pair, but DXswap’s sights should be on much larger fish.

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