Creating the Next FX Market: A Strategy to Attract Liquidity to Celo

[Tomer-Ba]

Creating the Next FX Market: A Strategy to Attract Liquidity to Celo

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TL;DR
Celo has made significant progress in local stablecoin adoption (cCOP, cREAL, BRLA), but its FX markets remain inefficient. Price gaps between CEXs and CELO DeFi remain largely unexploited due to a lack of deep liquidity for fundamental assets and a lack of arbitrage infrastructure. This proposal leverages MEV to align incentives between market makers, the sequencer (later leading to the validators), and searchers, aiming to make it profitable for arbitrageurs and market makers to interact with Celo. This will drive activity, increase sequencer fees, and ultimately improve validator rewards and CELO demand.

As outlined in our March report, we’ve been running experiments with arbitrage strategies and local stablecoin providers, resulting in consistent monthly volumes and tighter conversion spreads across multiple markets.

So far, Credit Collective has processed over 1.85 million transactions across Carbon DeFi, Aave, and Uniswap, representing a cumulative volume of more than $35 million. We believe there’s a clear path to scaling this activity 10x over the next 12 months.

We propose:

1. Deploying $3M into foundational evergreen liquidity pools: CELO/BTC, CELO/ETH, CELO/USDT
2. Using $1.6M Credit Collective treasury for long-tail stablecoin pools (cREAL, cCOP, cKES, COPM, BRLA, etc.)
3. Build open-source MEV bots for FX arbitrage DEX/DEX and DEX/CEX.

1. Introduction: The FX Market Blueprint

Celo has laid the groundwork for real-world adoption of stablecoins, assets like cCOP, cREAL, cKES, BRLA, and COPM are already gaining traction in payments, savings, and DeFi. But there’s a basic component still missing to bring the Celo market to the efficiency needed.

In traditional FX markets, liquidity and arbitrage form a flywheel: deep liquidity enables arbitrage opportunities, arbitrage tightens spreads and aligns prices, tighter spreads bring more volume, and higher volume incentivizes market makers and LPs to deepen liquidity even further. It’s self-reinforcing.

Depth → Arbitrage → Efficiency → Volume → More Depth

In crypto, this function is typically driven by bot searchers. However, fragmented liquidity and relatively shallow pools have limited the full activation of this dynamic on Celo. We’re facing a classic chicken-and-egg problem: you need liquidity to have arbitrage, and efficient arbitrage to attract liquidity.

So far, players like Credit Collective have focused on growing transaction volume, using multiple cheap liquidity pools (low fees), while significantly increasing volumes, but it hasn’t broken the chicken and egg cycle. We propose shifting the focus to kickstarting the Liquidity <> Arbitrage cycle as the coordination layer between validators, liquidity providers, and searchers

Let’s also be clear: this can’t be solved just by the community recycling its own liquidity. We need external capital. And to attract that capital, we need to create an ecosystem where it’s profitable to participate.

2. MEV: The Hidden Agreement Between LPs and Validators

MEV arbitrage isn’t just a trading strategy; it’s the coordination layer that orchestrates LPs and validator revenue.

There’s an unspoken agreement between LPs and validators:

• LPs provide liquidity, enabling deep markets.

• Arbitrage infrastructure generates volume, creating sustainable swap fees.

• Validators process that volume, earning fees through the sequencer.

The result? Healthy, recurring returns on the three sides.

We think of MEV in three categories:

The Good (Strengthens the system)

• DEX-CEX Arbitrage: Buying low on one market, selling high on another. This aligns prices and improves FX efficiency. This can be DEX/DEX or DEX/CEX

• Backrunning: Reacting to predictable price shifts (e.g., after a large trade). It improves market responsiveness and depth.

The Bad (Neutral to slightly extractive)

• Liquidation Sniping: Racing to repay loans and claim collateral. Competitive, but keeps lending markets functional.

The Ugly (Actively harmful)

• Front-running: Bots jump in before a user’s trade, increasing slippage.

• Sandwich attacks: Bots trade around a transaction, distorting execution - users lose value.

We acknowledge these risks and plan to address them in future discussions. But for now, the key insight is:

Bots, not humans, do most blockchain transactions. These bots keep the system efficient.

And the truth is:

• Most validators/sequencers in the general blockchain space rely on Arbitrage for sustainable revenue.
• Most LPs rely on Arbitrage to stay profitable.

3. Why Arbitrage Matters for PoS Chains

On Proof-of-Stake chains, arbitrage is not just a trading game; it’s a key driver of sequencer revenue, validator rewards, and ultimately network security.

Every swap generates a fee, and arbitrage bots are often the most active source of this volume. They continuously scan for price gaps between DEXs and CEXs, execute profitable trades, and in doing so, generate high-frequency flow that sustains the system.

This creates a flywheel:

• More arbitrage → More transaction volume
• More volume → More sequencer fees
• More fees → Higher sequencer/validators revenue
• More revenue → Can raise rewards for staking
• Higher rewards → More staking
• More staking → Stronger consensus & Demand for Celo
• More demand → More liquidity and arbitrage participation

But again, it only works if deep liquidity exists to support it.

4. Why Arbitrage Matters for Liquidity Providers

Arbitrage isn’t just about validator rewards; it’s also the mechanism that makes providing liquidity profitable and sustainable.

In an ideal world, LPs earn fees from organic trading activity. But in early or fragmented markets, that volume doesn’t appear out of thin air. Bot searchers create the volume.

When arbitrage bots actively trade across pools:

• They generate swap fees for LPs
• They reduce price discrepancies
• They inject high-frequency volume even when user activity is low

This sets off its own flywheel:

• More arbitrage → more DEX volume
• More volume → higher LP revenue
• More revenue → more capital deposited into pools
• Deeper liquidity → more arbitrage opportunities

But again, this flywheel only spins if the infrastructure exists to support searchers.

In ecosystems like Ethereum, Curve, and Uniswap, the top LPs are sustained not by casual traders but by arbitrage flows. Bots are their best customers.

So if we want to attract liquidity to Celo, we need to:

• Bring bots searchers in
• Make arbitrage profitable
• Bring LPs to plug into that volume

5. Strategy overview: Deep Liquidity & Bootstrapping MEV on Celo

Phase 1: Concentrate Liquidity

Deploy $3M across three actively evergreen managed pools (to where most needed) to build liquidity:

• CELO/BTC – $1M
• CELO/ETH – $1M
• CELO/USDT – $1M
• Use the existing $1.6M managed by Credit Collective to maintain long-tail stablecoin liquidity
  • Divided into eight $200K pools, each containing $100K of a long-tail stablecoin and $100K of CELO

Why these pools?

• High overlap with centralized exchanges → easier arbitrage.
  Create benchmarks for pricing.
• Attract Arbitrage infrastructure (bots, routing, analytics).

Why these sizes?

• At this depth, searchers can execute $5K–$20K trades with 10 - 30 bps spreads.
• Expected Arbitrage revenue per pool: $5K - $15K/month. Enough to attract sustained searcher activity.
• Sustained arbitrage means tighter spreads, validator fee capture, and stronger market efficiency.
• This is the size at which the arbitrage flywheel begins to turn.

Once searchers build infrastructure for these pairs, expanding to other assets becomes easier.

Phase 2: Build Searcher Infrastructure for FX Markets

• Build and deploy arbitrage and routing bots - specifically for FX markets, connection between fiat & stablecoins
• Enable private orderflow (relays, direct block submission)
• Optimize gas for block inclusion
• Open-source the work so that others can join in.

Support this with:

• Fast, stable RPC endpoints
• Mempool indexing and access
• R&D grants for FX efficiency development

6. Budget

Requested Allocation:

• $1M – CELO/BTC Pool
• $1M – CELO/ETH Pool
• $1M – CELO/USDT Pool
• $300K – Infra, operations, grants.
• $1.6M – Existing Credit Collective liquidity for long-tail stables

7. Conclusion: Arbitrage infrastructure is the missing Layer for Celo

By aligning incentives between validators, LPs, and arbitrage operators, we can build a robust efficiency layer on Celo.

This is how we turn fragmented, underused markets into seamless, efficient FX rails. This is how we external idle capital into productive liquidity on Celo.

And this is how we position Celo as the chain where the FX market flows across borders, cheaply, transparently, and at speed.

We believe this proposal marks the next evolution of Credit Collective: from a grant-supported initiative to a self-sustaining, evergreen engine powering Celo’s FX layer.

As part of this transition, we’re exploring a new name that reflects this chapter. If you have ideas, we’d love to hear them.

This is intended for public discussion, and we warmly welcome any feedback from the community.

If you have specific recommendations or require any clarification, please don’t hesitate to contact me on Telegram: @tomeriko_textile

[Tomer-Ba]

March report: Credit Collective Update – March 2025

Examples of price gaps between COP on Binance and Celo cCOP/COPM that remain underexploited. This is a missed opportunity:

[steven]

Excellent post @Tomer-Ba

I think CELO is indeed making excellent progress towards being the place for stablecoin trading.

I certainly hope we as a community continue down this path.

[ch00d4]

Good post, it’s a good opportunity.

[Alex_APF]

Great opportunity and timely, FX is the world’s largest market (7 trillion + per day), but hasn’t (yet) been impacted by blockchain rail. Very supportive of re-shaping Credit Collective into promoting Celo’s FX layer.

[busaav]

Great opportunity to exploit and be the first.

[0xGoldo]

Hi!

So is this a Governance proposal requesting funds?

If so please can you align it with the other proposals structures for better readability?

Formats for Celo Governance & CeloPG Proposals.

To ensure consistency and clarity, please update your proposal to align with the recommended formats. You can find a helpful template for Celo Governance Proposals here.

This will make the proposal easier to evaluate and follow. Thank you!

[ryanusherlabs]

Great post, @Tomer-Ba

It’s a thoughtful strategy for scaling exchange on Celo.

We’ve been collaborating with Credit Collective over recent months to enhance on-chain FX rails, with a focus on Celo. I fully align with your emphasis on arbitrage infrastructure to bridge DeFi-CeFi spreads and make on-chain FX competitive with brokers like Wise or Revolut.

To contribute input for this proposal and Celo governance, here’s key research we’ve uncovered on persistent FX challenges, especially for fiat-backed stablecoins:

• Non-USD stables (e.g., COPM) are geographically limited, skewing liquidity toward USD pairs.
• AMMs tie up capital, eroding LP yields against fiat inflation.
• Retail liquidity favors higher-return assets, leaving FX markets shallow and under-utilised, evident in EURC/USDC’s underperformance on Uniswap vs. Coinbase.

We developing Fiet Protocol to address these problems. Fiet extends AMMs (e.g., Uniswap v4) to power pairs like COPM/USDT with off-chain reserves in CEXs or banks. Market makers (including us or Credit Collective) cryptographically commit these reserves, settling only on trader demand. This unlocks:

1. Tighter spreads via non-locked liquidity.
2. Multi-market reuse of reserve liquidity for capital efficiency.
3. Reduced opportunity costs for MMs, drawing institutional flow.

We hope to deploy Fiet on Celo one day to support solving the issues you highlight. In making our initial markets for Fiet we’re developing our own CEX-DEX arbitrage strategies within our MM platform.

Therefore, we’re more than happy to continue sharing research and even participating in the MEV opportunities you’ve outlined, working in tandem with your proposal to bootstrap deeper DEX liquidity. Happy to discuss or share more details with you and governance.

[CeloColombiano]

We really like this proposal and appreciate the strategic thinking behind using MEV and arbitrage to strengthen Celo’s FX layer. There’s clearly a lot of untapped potential in connecting DEX/DEX and DEX/CEX markets, and it makes a lot of sense to align incentives between validators, LPs, and searchers

That said, the proposal is asking for a significant amount of funding, and as we all know, the Community Fund isn’t in the best position right now to support very large requests . Maybe there’s a chance to explore a combined strategy with the Stabila Season 1 proposal, since both are focused on building core DeFi infrastructure

We also had a couple of questions:

1. The proposal mentions eight $200K pools for long-tail stablecoins. Could you clarify which stablecoins are included in that list?

2. While we support COPM as part of the broader Celo ecosystem and value the work they’re doing, we believe it’s important to focus more on cCOP. cCOP is part of the Mento protocol, it’s already being used in adoption campaigns in Colombia , and it aligns directly with Celo’s long-term vision for public goods and regenerative finance . We’d really love to see cCOP prioritized more clearly in this proposal.

One last thought: has Credit Collective considered contributing to on/off-ramp infrastructure? That’s still a big challenge in emerging markets and could go hand in hand with the FX and arbitrage work you’re doing.

Thanks again for putting this together. It’s exciting to see more long-term thinking around real world usage on Celo

[unergy_io]

Thanks for sharing, Tomer!

We recognize the importance of efficient and liquid FX markets as foundational infrastructure for enabling real economic activity across diverse geographies and sectors, though it’s important to note that, on their own, FX markets are a zero-sum game.

In line with Celo’s mission to create prosperity for all, we’d love to see this proposal also consider the role of applications that leverage FX infrastructure to power real value-generating use cases, such as payments, loans, donations, and more.

More concretely, we suggest allocating a small portion of the budget to a future mini-grants program that supports teams or applications which, over a defined time window, demonstrate meaningful use of the FX infrastructure to serve end users. This could help catalyze adoption while aligning incentives with real-world impact.

Keep up the good work!

[glenn]

Excellent post and completely agree with building up onchain liquidity for CELO across those three trading pairs (BTC, ETH, and USDT) which are typically the most liquid trading pairs on the majority of CEXs. Not only will this drive more volume and transactions onchain due to CEX to DEX arbitrage but also allow CELO holders to have the ability to buy and sell easily onchain without having to resort to using CEXs only.

When it comes bootstrapping long-tail stablecoin pools, this is something that we believe is important due to Celo having a clear differentiation from other blockchains due to the large variety of world currencies available onchain from Mento and others. Many of these currencies are unique to Celo and are not available anywhere else. This means that for traders that want to have exposure to other currencies outside of USD, Celo is one of the few if not the only blockchain network where they can do so.

Bancor deployed Carbon DeFi on Celo in ~July 2024 in order to help with some of these efforts as we found prototypical AMMs that offer concentrated liquidity or constant product as not being sufficient for traders looking to make FX markets onchain.

With Carbon DeFi we offer the ability for traders to make markets under any trading pair as long as the respective tokens in the pair have sufficient liquidity onchain (on Carbon DeFi or another onchain trading venue). Under a trading pair, you can quote at a specific price point (limit order) or across a range (i.e. similar to laddering up the orderbook with multiple limit orders between two price points). In essence, for people looking to make markets onchain, Carbon DeFi has the exact same structure as what they are used to when it comes to interacting with centralized solutions and can be considered an onchain orderbook like protocol.

Bancor also deployed the ArbFastLane in conjunction with Carbon DeFi (where traders make markets). The ArbFastLane is an onchain arbitrage framework that fills maker orders on Carbon DeFi against each other and also with other onchain liquidity sources. It also has the ability to close any price discrepancies that exist between liquidity pools on any onchain trading venue outside of Carbon DeFi.

This has led to the Arb Fast Lane performing thousands of transactions on a month by month basis in addition to being a top gas consumer as well:

Transactions per month:

Gas utilized per month:

Gas rank per month in comparison to other smart contracts on Celo

Source

There is a large variety of trading strategies on the Celo deployment of Carbon DeFi
created by traders/liquidity providers/makers and many of these make use of the different world currencies that are available on Celo. We think that this proposal is important and fully support these efforts.

[markrichardson]

I have broadcast my support of this proposal on twitter:

Mark Richardson

[glenn]

Posting on behalf of @markrichardson as his post was flagged:

Liquidity First.

Everything Else Later.

I want to discuss Tomer’s (@TBariach) proposal on the @Celo governance forums.

Most blockchain activity comes from bots. They generate the bulk of transaction volume and drive execution across decentralized markets. Their behavior reflects structural demand for connectivity, liquidity, and price coherence.

When the bots are active, the system functions; when the system functions, the bots are active. When the bots are inactive, the system does not function; when the system does not function, the bots are inactive.

These are not tautologies.

Bots are not a niche demographic. They are the primary consumers of exchange infrastructure. Their needs are simple: atomic execution, rational spreads, and depth at key pairs. Bots are undemanding. They don’t care about user experience, branding, or community vision. They are indifferent to token design, governance rhetoric, and narrative alignment.

They require liquidity, predictable execution, and paths to profit. In return, they bring scale, consistency, and fee flow. Measured by activity, they are already the dominant consumers of every major chain. In many respects, they are the ideal user.

A viable exchange begins with liquidity. It must offer connected routes between common numeraires, or arbitrage cannot take place. Without arbitrage, prices drift, volumes fall, and fee flow to liquidity providers disappears.

The proposal by Tomer Bariach addresses this directly. It allocates capital to CELO/BTC, CELO/ETH, and CELO/USDT—three pairs that also exist on centralized venues. If sufficient depth is reached, searchers will engage, and price alignment will follow. This allows CELO-denominated assets to clear against external benchmarks. The long-tail stablecoins depend on the same structure. cREAL, cCOP, and others require anchored CELO pairs before they can support consistent volume. The proposal extends support to these pools using existing treasury funds.

The infrastructure requirements are minimal: reliable block inclusion, mempool access, and execution routes. These are well-understood systems. The proposal focuses on making them available, not redefining them. No effort is spent on messaging or acquisition. This phase is narrower in scope: provide depth, enable routing, and let arbitrage emerge.

From a market design perspective, this is the right order of operations. Systems that support bots will support human users when they arrive. The reverse is not true.

[Skdt]

I must say, this post is outstanding and presents a valuable opportunity for reflection.

[Tomer-Ba]

For some reason we were unable to publish a full revised version that fits the community structure - so we added here the sections that were missing based on the community structure.

Status: DRAFT
Receiver Entity: Credit Collective
Author(s): Tomer Bariach (@Tomer-Ba), Credit Collective team
Type of Request: Funding
Funding Request: $3.3M equivalent to 300,000 cUSD + 9,147,160 CELO based on the 90-day average CELO price ($0.3279 from April 23–July 21, 2025)

Timeline and Milestones

This is a 24-month initiative focused on building and testing arbitrage infrastructure, growing liquidity participation, and onboarding new stablecoin providers to Celo. We expect to work iteratively, with multiple feedback cycles, and publish progress updates throughout.

Phase	Timeline	Milestone
Phase 1	Months 0–3	Deploy initial liquidity pools (CELO/BTC, CELO/ETH, CELO/USDT). Begin internal development of arbitrage bot architecture.
Phase 2	Months 4–6	Run first internal arbitrage transactions. Build basic monitoring and analytics tooling. Evaluate pool performance and spreads.
Phase 3	Months 7–12	Release open-source bot infrastructure. Establish feedback loop with LPs and searchers.
Phase 4	Months 13–18	Expand searcher adoption. Improve routing logic, performance, and error handling. Begin active outreach to new stablecoin issuers.
Phase 5	Months 19–24	Support on-chain onboarding of new regional stablecoins. Evaluate impact on FX spreads and liquidity depth. Publish full-cycle report and recommendations.

Budget Breakdown

Category	Allocation	Description
Liquidity Provision	9,147,160 CELO	Deployed across CELO/BTC, CELO/ETH, and CELO/USDT pools to enable base liquidity and tighter FX spreads
Arbitrage Liquidity	80,000 cUSD	Operational capital for executing arbitrage trades and validating bot performance
Infrastructure and Operations	154,000 cUSD	Infrastructure to build, run, and monitor arbitrage bots: trade logic, servers, dashboards, analytics
Open-Source Development	30,000 cUSD	Documenting and maintaining public tooling
Legal and Accountability	36,000 cUSD	Legal review, compliance, governance reporting
Total	3.3M cUSD	Equivalent to 300,000 cUSD + 9,147,160 CELO (based on 90-day avg of $0.3279)

Metrics & KPIs

To assess the effectiveness and sustainability of the FX infrastructure initiative, we will track and report on the following indicators:

• Number of arbitrage transactions executed by internal bots
• Total volume routed through internal bots (USD equivalent)
• Median latency from signal to on-chain execution (milliseconds)
• Bot uptime (monthly average, %)
• Number of CELO/stablecoin pairs with active, sustained arbitrage activity

[Tomer-Ba]

Team

The multisig responsible for managing Credit Collective strategy has a 3-of-5 multisig.

Current Signers:

• Tomer Bariach – 0x76912c39F87fF2D7A5085cefAbBfD404643331E1

• Sebastian Buenaventura – 0x55b674cbc82ddD62CAFE55fAc65fC1d11aF399d3

• Amit Chu – 0x1a06dEEe9711e293da0b4E1C5715349f39bea32c

• Ryan Nesbitt – 0x116941a12ab69Bc4aD6A3fEb5964E218c4F5Ee64

• Alex Witt (pending) – We will provide an update with the wallet address once onboarding is complete.

[0xj4an-work]

Thanks @Tomer-Ba and team for the proposal, at my end this proposal is fulfilling all the requirements:

• Post a proposal in the Celo Forum and leave it for discussion at least for seven (7) days.
• Present Proposal in a Governance Call and address the feedback received: Proposal was presented during Celo Governance Call #74 | Jul 31st, 2025

On a side note about the new Season Intents and the specific Intent approved for this Season you can notice there are already some proposals being voted that fits under the category Ecosystem Growth and it has a max cap of $3M for this season.

@CeloFoundation

In order to provide predictability to the onchain treasury spending, the proposed budget for the Ecosystem Growth category is the equivalent of $3M for proposals that align with Season 1 Intents.

With the above said, from my end the proposal is ready to move into the voting phase when proposer wants to move forward or consider is appropriate.

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Remember Current Celo Governance Overview & Procedures

To proceed to the submission and voting phase at least two Celo Governance Guardians must post explicitly that the proposal fulfills the requirements to be able to move into the Voting Stage in the proposal thread on the Celo Forum.

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Remember next steps

• Submission of PR to Celo Governance Repository
  Proposers needs to fork the Celo Governance Repository and add a PR including the proposal .md file and json file.
• Approval of PR by Celo governance Guardians and merge into main branch of Celo Governance Repository.
  Celo Guardians are responsible for conducting a comprehensive review of every Pull Request (PR) to ensure that there is complete alignment and consistency between the final proposal posted in the forum post and the specific files that are being requested to be merged.
  This review process is strictly technical in nature, focusing solely on verifying the authenticity and good faith of the proposers. It does not involve any personal opinions or biases regarding the merits or content of the proposal itself. To maintain the integrity of the Celo Governance repository, it is mandatory to obtain approval from a minimum of two Governance Guardians for each PR before it can be merged into the main branch.
• OnChain Submission of Proposal
  After PR is merged into main Governance Repo the proposers needs to fork locally the Celo Governance Repository and submit the proposal onchain using the guidelines described in the Celo Docs.

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CC: Governance Working Group (@annaalexa @Wade @0xGoldo)

[Wade]

It was presented during Governance Call #74 on July 31st, 2025, and the feedback gathered during that session has been incorporated.

With these steps completed, as a celo governance guardian, I consider the proposal ready to proceed to the voting phase at the proposer’s discretion.

[yomfana]

First and foremost, this forum post lacks a clear and coherent proposal format. It took effort to even identify that the proposing receiver entity is “Credit Collective“. I once again urge @celogovernance guardians to enforce the established governance standards on forum submissions.

It appears that there is a fundamental misunderstanding of how the Celo L2 tech stack operates. At present, a single sequencer is run by cLabs, who act as custodians of the system. Any MEV extraction, were it to occur, would be executed by them or require explicit approval of the community through a security governance proposal which is subject to the 90% threshold.

In addition to the extremely high funding request, arguably one of the largest outside of the core functioning bodies, this proposal should have been submitted as a competing entry under the “DeFi Flywheel Infrastructure and Incentives“ category for the Season 1 Intent (contributors were invited as seen here Celo Governance Season 1 Intent ). Was any attempt made to engage with that process?

Given these concerns, I believe that while it may have received approval for the next stages, it is premature and the proposer lacks enough technical, governance and general ecosystem context of Celo to successfully execute this.

[Tomer-Ba]

Hi hi, thanks for your comment!

The $3M is not “spent” — it’s literally going directly into liquidity on Celo. Very important differentiation. So it’s actually smaller than all other proposals.

We did engage — while we were late to understand the process, from the moment we came in, we made the full process of engagement.

The reason we didn’t go into technical depth in the post is because the high-level reasoning is more important than the technical side at this stage, even without MEV basic arbitrage infra is missing, better with, but doens’t have to be.

Ping me on Telegram — tomer_textile — happy to discuss further and explain to you personally why liquidity is fundamental for Celo’s success now.

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