Mento Reserve: Returning CELO

Thanks to @roman for sharing this update and to @MarkusBerlin @Slobodan @bowd whole team for your effort in standing up Multi-Collateral Mento. The proposal to return 120M CELO is clearly a testament to your broader success since the genesis block!

I agree with several opinions voiced on this thread, and think the funds should be split for multiple uses:

  1. On-chain community fund for ecosystem grants as @rene_celo supports
  2. Stake for rewards that are redirected to an evergreen campaign as @marek suggests
  3. Bolster on-chain liquidity for key protocols as @nraghuveera suggests
  4. Hold (or delegate) a portion of tokens for Mento to seed future liquidity pools with digital environmental assets (eg. for carbon offsets tokenized by company X, Mento could seed the CELO portion of trading pair XCO2-CELO). This will bootstrap on-chain liquidity for key natural capital assets, which is a prerequisite for Mento onboarding these assets into the reserve itself

There are obvious concerns about impermanent loss for #2 and #3 - but it would fulfill a crucial market making function, without which it is difficult for most projects, climate or otherwise, to scale up.

6 Likes

Second the idea of strengthening initiatives that lead to natural assets backing Celo Stables. Bringing #ReFi RWA on chain is a necessary step and Celo community is extremely well positioned to do it (e.g. Hacking USD400bi in Brazil Public Goods - How Celo Community Wrote Their Name in 🇧🇷 History - #7 by RodrigoMerakiWeb3 )

2 Likes

Agreed.

Does a cost-benefit analysis for each option makes sense; breaking down each option into its own proposal?

If so, would it make sense to move all 120m into the community pot. Then start proposals / voting on allocation?

Agreed.

Does a cost-benefit analysis for each option makes sense; breaking down each option into its own proposal?

If so, would it make sense to move all 120m into the community pot. Then start proposals / voting on allocation?

1 Like

Hi all – speaking as CEO of cLabs, I strongly support this proposal. It leaves enough of an additional buffer of CELO to mean that Mento assets have a greater cushion that other stablecoins. It is a step towards a crisper separation between the core Celo protocol and community, and the Mento protocol and community.

We could do a lot more with these funds as a community if they are available, over a period of time, through the on-chain Community Fund for the sorts of proposals and funding mechanisms we’ve developed so far (like grants to Climate Collective for their amazing work, and to Prezenti) plus many new ones. I think of this as permanent uses of the funds.

One potential future use of some of these funds: I also see the opportunity to move cLabs towards to a more community-funded model, and more transparent and responsive to community needs. cLabs is a non-stock, non-profit company. We don’t have shareholders or equity. Most of our expenditure goes directly on working to provide public goods for the Celo ecosystem – engineers working on blockchain, core contracts, and developer tooling. I hope you see the results of their work every day.

Right now, we fund that work primarily via a grant directly from Celo Foundation. cLabs also does strategic consulting work, and has spun out companies including Valora and Hyperlane, but as a non-profit any return on equity cLabs owns in those companies would be directed back into more public goods work, or more spin-outs.

Over time, I would love to explore increasing the role of the community directly in funding work done by cLabs (and other contributors) on core platform public goods. It would be awesome to be able to expand the team and accelerate the Celo v2 roadmap.

I also think there are great temporary use of these funds – e.g to provide liquidity and TVL, like @marek @nraghuveera @nirvaan s’ suggestions above. Some of these we might be able to do immediately, some may be held back for projects happening in the near future. But Governance should always be able to reclaim these funds to put to another temporary use, or disburse as a permanent grant.

I feel like if we can identify strong candidates for temporary uses, we should earmark the majority of the new funds for that purpose for now – say 100M out of 120M. And we should identify these before we move the funds, so they continue counting towards TVL metrics for the Celo ecosystem.

That would mean:

  1. get general consensus on returning the 120M to the Community Fund
  2. write and discuss proposals for temporary uses of funds, and agree those, and their allocation
  3. build one or more governance proposals that does (1) and as much of (2) as is possible (or if necessary delegates those funds to community multisigs)
  4. Execute/audit/vote on the on-chain governance proposal
  5. After all that, then discuss permanent uses of funds

Thoughts?

10 Likes

I like the framework for permanent and temporary use of funds.

Along the lines what’s been suggested in the comments already I’d be very interested to see us evolve to a model where the majority of community fund assets are actively managed by community operators (eg for a fee or rev share), ideally in service of the community (eg by increasing liquidity in on-chain assets, provide debt capital to Celo-based lending protocols, etc) ahead of disbursements.

If there are folks/groups that have been considering something like that or where that’s complementary to an existing biz model, would be great to hear from here.

Generally agree with @tim proposed next steps.

5 Likes

Following up on this thread @roman – I’ve seen a whole range of exciting new proposals for Community Fund allocations, mostly permanent use of funds, that would need this return of funds advanced first.

It does feel from this thread like we have general consensus on returning the 120M to the Community Fund – do folks agree?

I think the next step after that is explicit proposals for temporary use of funds to make sure we make best use of the TVL here.

And while we’re doing that, queue up and debate the relative benefits of proposals for permanent use of funds…?

Hopefully we can move quickly on this.

2 Likes

The temporary/permanent framework as outlined by @tim above makes sense to me.

In fact, the temporary portion reminds me a lot of endowment capital funds (sometimes also known as restricted funds) where the capital can be invested but not allowed to be “spent” as part of operations. Of course, in these instances, the income generated from the “temporary portion” is generally available for unrestricted use, i.e., “permanent use of funds.” Given the parallel, I wonder if there is any merit in considering non-web 3 governance frameworks to govern the allocation and management of the temporary portion.

Nonetheless - I would agree that the first step is to firm up the consensus on returning the 120M to the community fund, and it does seem like the general sense from the thread is that we have that consensus.

3 Likes

One thing to flag here is that when the CELO is returned to the community fund, Celo’s ranking on Defillama will drop substantially. Mento remains the highest TVL protocol and CELO locked into Mento is included as part of the overall TVL figures.

2 Likes

Agreed that

  • there seems to be a consensus that returning a large portion of the CELO (aiming for 120M) currently held in the Mento reserve is the right thing to do as long as it leaves the Mento reserve in a comfortable state

  • the framework of temporary vs. permanent use of funds proposed by @tim is a good one to structure the discussion around usage of those funds

  • Celo and Mento TVL would be strongly negatively impacted by this as long as there is no new destination for those funds (i.e. liquidity provision in the sense of temporary use of funds)

To still get actionable despite the TVL aspect, I suggest we start by a governance proposal that

  1. asks for official consensus to move up to 120M CELO out of the Mento Reserve and into the Community Fund stepwise over time with the total amount potentially reduced if the Mento Reserve would run uncomfortably low by doing so. Every removal of CELO from the Reserve would be accompanied by a respective reduction in the CELO target weight of the Mento Reserve to make the removal permanent…
  2. proposes a first such transfer of Reserve CELO by adjusting the CELO target weight to 40% (down from 50%) and immediately sending the equivalent amount of CELO to the Community Fund (about 20M CELO at the current price levels).

The idea behind 1. would be to create some certainty around the funding that will become available to the Community Fund in the future whereas 2. would incentivize folks to come up with first concrete proposals on temporary and permanent use of funds through making some funds immediately available. Does this sound like a good first CGP to everyone? If so, I would aim to draft and submit it on chain next week.

Agree with @roman and the overall approach.

Re TVL @nraghuveera: Would it be possible to register the Community Fund as separate protocol on Defilama and other information aggregators? In a sense, the Community Fund is simply a grant DAO governed by Celo holders and the Celo would just transition from one use (safety cushion in Mento) to another (grant funding) without affecting overall TVL.

There’s something I don’t quite understand about this proposal.

The reserve currently has ~125M CELOs. If it returns 120M, there’ll be 5M left. At the current USD price (~0.64), that’s ~3.2M USD worth of CELOs in the reserve. At the same time, there are ~30M cUSD outstanding. How would users swap cUSD for CELOs if the reserve does not have enough CELOs to cover the outstanding amount? And what about cEUR and cREAL?

I’m sure I’m missing something?

With the Mento upgrade that is currently being rolled out (MU01), cXXX assets will become redeemable also against other reserve assets, such as USDC.

1 Like

Just voted on this today. Wanted to call out that we should probably be ready to PR manage the people that come out of the woodwork noting that the reserve ratio has significantly changed overnight when this is executed.

1 Like

Hi all, the CGP was submitted on-chain and is in voting stage now: CGP 102: Mento Reserve Returning CELO

Please cast your vote!

1 Like

I don’t think a community fund would register under TVL as I don’t think Defillama captures grant DAOs as part of liquidity

First, let me introduce myself. My name is Henry and I am leading the development of Double (https://double2win.xyz/).

Double is an AMM LP-side only innovation that adapts the widely used market making model in CEX to AMM, and as a result, it doubles ROI and significantly reduces impermanent loss for capital providers, while at the same time solving the liquidity challenge for token projects. (https://twitter.com/double2winwin/status/1509638710400323587)

More importantly, Double has formed a strategic partnership with Celo (https://twitter.com/double2winwin/status/1521508881733664769). Double is currently working closely with the Celo team to prepare for the execution of the mainnet launch marketing program and will be launched on Celo mainnet very soon.

Personally, I have been researching stablecoin and CBDC for a while. Here is some of my research in this space:

“Wake up, US Federal Reserve! China just showed how digital currency is done”

“Governance — The Achilles Heel of Libra (Facebook Coin)”

“Price War: A new type of attack on stablecoins”

“Op Ed: Anatomy of the Tether Attack: Are Stablecoins Vulnerable?”

With the above context, below are my thoughts:

Returning 120M CELO Reserve

Returning CELO reserves will not only help Mento to expand but also reduce the risk of CELO. The market narrative on stablecoin designs backed by non blue chip crypto assets is not positive. Since CELO reserve is not really needed by Mento, removing/reducing CELO as reserve will calm the market fear and position Mento well for expansion. Given the liquidity of CELO right now is not large enough to handle the sales of CELO reserve without a big price impact to defend the peg, the depeg of cStables could cause the collapse of CELO and impact the whole Celo ecosystem. Hence, disconnecting CELO as the reserve will eliminate this risk.

Usage of the 120M CELO

I agree with @marek @nraghuveera @rene_celo that the majority of the 120M CELO should be used to serve the community and ideally in a sustainable way. Naturally, it should be deployed to AMM/DeFi and staking as they are the only 2 sustainable yields in crypto.

One proposal is to deploy CELO into Double which will 1) compound the CELO reserve as Double favors capital providers; 2) solve the liquidity challenges for tokens on Celo blockchain especially those ReFi tokens such as Toucan, Flowcarbon, etc.; 3) increase TVL and trades on AMMs in Celo ecosystem. Again please refer to: https://twitter.com/double2winwin/status/1521508881733664769.

Please note: Double will benefit from this proposal. Hence it is “Double to Win-Win”!

Defending Peg of cStables

I would suggest returning 120M CELO all at once instead of gradually or leaving some as reserve. Having some CELO as reserve for cStables won’t reduce market’s concern against this design and is also very capital inefficient since CELO reserve won’t generate any yield.

Instead, I have an alternate proposal: add a mandate to the CELO reserve operation to defend the peg of cStables in extreme market conditions, for example, depeg of USDC. At a high-level, it works like this: for example there are $100M cUSD in circulation, and the collaterals in USDC and DAI drop to $99M, then the CELO reserve operation will commit to buy, say $5M cUSD, and commit to hold, not redeem until the collaterals are back on track, effectively taking $5M cUSD out of circulation and defending the peg. This design will actually send a strong signal to the market to strengthen cStables and enable Mento to expand!

The proposal requires much less capital $5M vs $20M worth of CELO reserve and ONLY during extreme market conditions. There is definitely a risk even though the chance is small that collaterals of cStables will not recover to normal. Typically others won’t take this risk without any rewards. The reserve operation unfortunately has to absolve the loss when it happens and hopefully compensates the loss via its earnings.

TVL in Celo and Mento

It is a legit concern regarding TVL in both Celo and Mento. To avoid significant TVL dropping, one solution is to after returning 120M CELO, immediately stake 60M to get stCELO and pair the rest of 60 CELO to create an AMM LP position of <stCELO, CELO>. When CELO is needed to support other initiates such as supporting ReFi token liquidity via Double, the <stCELO, CELO> LP position can be reduced to release those stCELO and CELO.

To boost liquidity and TVL in Celo, the best way is to leverage up CELO, for example, pairing CELO with ReFi tokens as AMM LP positions can double the TVL. To drive the TVL in Mento, the best way is to drive the usage and adoption of cStables, and one approach for example is to pair cStables with ReFi tokens as AMM LP positions.

Double as an Operator of the CELO reserve

Currently in the bear market, lots of liquidity has left the crypto market. The tokens launched or bridged or to be launched on Celo really need to solve their liquidity challenges. The best use of the Celo reserve to serve the Celo community is to act as strategic capital and solve the liquidity challenges for those tokens especially the ReFi tokens.

Again, since Double’s design favors capital providers, this usage will not only solve the liquidity challenges for tokens in Celo but also compound its value. Obviously, Double team is in the best position to deploy CELO reserve and support liquidity for tokens issued on Celo. More importantly, the goals and incentives are aligned between Double and the CELO reserve.

The Double team would like to step up to operate the CELO reserve. We like to request at least 25% of the CELO reserve to be operated by the Double team and to solve the liquidity challenges for tokens in Celo via Double.

2 Likes

Thank you all for voting! The proposal has passed with 100% support and the Mento Reserve has returned the first batch of 25M CELO to the On-Chain Celo Community Fund (see Transaction #1 andTransaction #2).

2 Likes

The balance has increased as you can see below (credit to Arsen for sharing)

(for future reference) You can see community fund stats here:

2 Likes

I just posted a concrete proposal as a follow-up to this: Funding for cLabs blockchain public goods work - would love your input!