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:
âWake up, US Federal Reserve! China just showed how digital currency is doneâ
âGovernance â The Achilles Heel of Libra (Facebook Coin)â
âPrice War: A new type of attack on stablecoinsâ
âOp Ed: Anatomy of the Tether Attack: Are Stablecoins Vulnerable?â
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 âDouble to Win-Winâ!
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 wonât reduce marketâs concern against this design and is also very capital inefficient since CELO reserve wonât 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 wonât 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 Doubleâs 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.
