Treasury loan for kick-starting money market activity on Kusama
From the Composable Finance team, the purpose of this post is to prompt discussion and collect community feedback before proceeding with an on-chain proposal.
The proposal is summarised below and is co-authored by the founder and head of product at Composable Finance, 0xBrainjar.
Summary
Provide a $ 5 million KSM loan to lending protocols to kick-start the money market activity on the Kusama ecosystem.
Context
Kusama needs a structured incentive program to attract customers and showcase its unlimited scalability, efficiency, and cross-chain interoperability potential. However, incentives should be wisely directed towards activities that, if adequately rewarded, create a positive feedback loop with a resulting exponential increase in liquidity gathered from outside. Lending is one of the essential pillars in a well-functioning DeFi ecosystem because it allows customers to capture opportunities without compromising capital efficiency.
Other chains are skewing funds towards lending too. The Avalanche Rush program has allocated the highest incentive tranche to AAVE ($ 20 million). AAVE Total Value Locked (TVL) on the Avalanche chain has gone from $ 622 million to $ 3.46 billion in just two months. Benqi, the Avalanche native lending protocol, has obtained $ 10 million from the Avalanche Rush incentive program. Its TVL has gone from $ 112 million at the Avalanche Rush announcement date to the current $ 1.85 billion.
Problem Statement
The lending activity on Kusama is currently anemic and, without lending/money market opportunities, there’s little room for onboarding foreign assets on the ecosystem. Projects like Angular Finance, an isolated lending pair pallet built on top of Composable Picasso, could help mitigate such a gap by enabling loans on Kusama.
Proposal
Unlock $ 5 million KSM from the Kusama treasury in the form of a loan to Angular Finance or other lending projects aimed at kick-starting usage of DeFi applications.
The rationale behind the loan
While these incentive programs are standard for other networks, we know that this is a new step for Kusama. Therefore, we use this proposal to pursue a loan rather than direct liquidity incentives. We feel that this aligns incentives with the participating protocols to use the loan as a proof of concept to illustrate the potential effectiveness of such a program in the future.
For further details please view the proposal on our Github. We look forward to the discussion that this creates, and following up with a firm on-chain proposal for the council to evaluate.
Comments (3)
Decent proposal, glad this starts the discussion.
I think calling the current lending activity "anemic" is a bit inaccurate, since hardly anything has actually launched yet, mostly due to technical reasons.
There's probably a better way to do it than a loan, which introduces issues of repayment. Also a loan of $5M wouldn't actually provide any benefits to end users, only liquidity, which could easily be received from the community.
Why not liquidity incentives? A few million $ in liquidity incentives to deployed projects like Karura, Zenlink, Solarbeam, Sushi, Standard, and others when they launch should be easier to manage and more scalable. Distribution of incentives from the Treasury to the project could be based on current TVL and active users (higher figures, higher incentives), and projects can make their own decisions on how the incentives should be utilized.
With liquidity incentives, then the Treasury wouldn't be "earning" yield from regular users, but providing yield.
I think liquidity incentives would work well. Actually enacting this proposal would require setting up standards for non-custodial fund management over XCM, which I think should clarified first.