Proto-Proposal: Develop a Kusama 'common good' DEX specialised in providing liquidity to funded proposals
Introduction
This discussion was inspired in two parts by both recent post on the Polkadot website, Proposal for Common Good Parachains and through the ongoing challenges of facilitating and scaling on-chain contributions in fully decentralised networks such as Edgeware and its soon to launch mirror network, the Kusama parachain Kabocha.
From the Polkadot post:
The roadmap that we originally had in mind for common good parachains has been rendered obsolete by many conversations with community members over the winter and spring. And that is a good thing...
...As the common good parachain team at Parity grows, we would love to see more community involvement from all types of users.
A proto-proposal
Given the current blunt instrument of on-chain decision making and the resulting frictions this can cause through the rapid entrenchment of binary positions, this concept is presented as a kind of proto proposal - a middle ground between a discussion and a concrete proposal, as a way of opening up some creative space to question certain basic assumptions about what relay chains should and shouldn't do, and the same for the parachains onboarding to them.
The aim is to spark discussion, before developing into a more formalised project - either resourced by Parity as part of the general common good initiative, or as a more organic community approach that would bring together a specific working group.
Further, the aim is to open the door to considering how existing and future design frameworks, governance policies and even infrastructure may evolve or adapt when considering the emergence of grass-roots and decentralised parachain projects incubated not by VCs but organically through on-chain funding and organisation.
Background
Currently DEXs on Kusama (and Polkadot) have been delivered by for profit parachain teams such as Karura, Basilisk and Genshiro and are focused in general on more speculative uses and users.
The Kusama treasury has also been tapped a number of times to provide liquidity to these parachain DEXs, setting a precedent for KSM to be used to better facilitate token exchange. In of itself this funding has been contentious, with certain community members believing VC funded projects should not be able to utilise public funds given their business models.
Both Kusama and Polkadot also have common good chains that are akin to public utilities. These chains don't have their own tokens and in return gain certain network privileges such as the ability to receive funding from the relay via on-chain proposals and the ability to be granted a lease via governance rather than needing to provide a sizable KSM bond for a slot in the auction process.
On Kusama, Statemine exists for minting assets and Encointer for IRL identity proofs, with new chains in the works that will provide functionality to benefit both Collectives and Bridging.
In recent discussions, community members have asked if common good chains may compete with For Profit parachains, and the responses were mixed, but all agreed that competition was good since it would then drive up the quality of the products on offer.
One thing that wasn't discussed was that the competitive matrix on which DEXs seek to differentiate is broad and there are very specific ways that a common good DEX, might be developed in a way that does not encroach on the territory of existing parachain DEXs.
The problem
An area of genuine common good demand, is for the facilitation of token exchange from parachain teams who are not financially equipped, philosophically motivated or legally structured in such a way that they would invest heavily in liquidity mining or complete complex centralised exchange listings.
For CEX listings, a sole issuer is demanded and thus takes on the full legal liabilty on behalf of all contributors. In the UK for example, if my company Decent Partners attempted to deliver a service to the community of listing KAB on Binance, we would likely be considered to be acting as a cryptoasset exchange provider. It is a criminal offence to act as such in the UK without being registered with the UK FCA - something we could do (though onerous), but automatically drags the project towards the incumbent system, rather than remaining a parallel and independent experiment.
In addition, the primary day to day operational issue facing more grass-roots teams who do not have VC backers and rely on scaling grass-roots contributions on a broad and fair distribution base, is the liquidation of proposal funding, rather than market driven speculation of the token.
Solution - Kusama public / common good DEX
The aim would be to develop a Kusama 'common good' DEX narrowly focused on providing exchange and liquidity services for parachain contributors with funded proposals that removes the need for grass-roots parachain projects to list on CEXs and more speculatively minded DEXs.
The KSMDEX, would be selective about the pairs it lists - and require chains that do apply for listing to satisfy certain prior criteria, in the same way common good chains can access treasury funding, but for profit ones (supposedly) can't,
Similar to a cooperative model, the DEX would only set prices within its own sovereign economic zone, and the compromise would be that community led parachains wishing to list on the KSMDEX would face is that they could not list on any other DEXs or CEXs.
In this model there would be no need for a new token as the Kusama treasury would provide liquidity, making use of the un-used funds and would retain all trading fees.
If as we hope, more projects such as Kabocha develop and also leverage the common good DEX, then this can develop into a revenue driver for the Kusama treasury, whilst maintaining a simple and publicly focused model.
Issues / challenges
Currently common good chains are the sole preserve of Parity - so this would it seems need buy in from the developer team there. I'm not sure if this is simply due to the Parity team having more expertise and incentive to deliver this rather than anything blocking external / community initiatives so interested to hear from the team on that.
In the event Parity did not have the interest or resource to progress something like this, then this could be developed by a working group who were interested in the concept, given it was something that could be voted on via referendum.
Questions and comments
Please tell me why this is a dumb idea if you believe it is, or if not, tell me how it could be better - looking forward to thoughts.
As previously mentioned, the hope is that this and following concepts can loosen a few of the shackles that are holding back a more open and experimental playground in Kusama.
Comments (5)
Interesting experimental idea to have the Common good parachains acting as the middleman for tokens listing/trading.
Am I right to think that this DEX could potentially support Statemine's and Encointer's operations by allowing users to bootstrap/trade/swap custom assets (DAO tokens, Ceremony tokens, etc) much readily within their own networks without the hassle of a "bootstrapping event"?
Can you clarify what you mean by "Parachain contributors with funded proposals"? Are you referring to:
or
For case 1, I think this proposal a welcome idea because it would allow medium-term projects to manage the volatily of KSM in their books and reduce its negative impact on their overall operations.
For case 2, I think this proposal might not be a great idea, because it is taking the focus away from the parachain platform itself and could potentially have an adverse effect on their tokenomics (i.e loss of revenue from trading fees) and marketing (loss of the "prestige" of being listed on high-profile CEXes).
TL;DR: This proposal sounds great for showcasing the interoperability and community spirit at work in the Kusama ecosystem and also supports the narrative around the decentralisation of web3 services. <3
Somewhat ironically, this is one of the topics that I personally changed my mind on. Late last year I did have it in the Statemint roadmap (at least the version in my head) to have some DEX functionality for a select few, governance-approved assets. However, conversations with community members convinced me that this wasn't a great idea. I outlined briefly some alternatives in this issue and this comment. This is still my prefered solution to this problem, because instead of competing with existing DEXs, it actually uses their competitive nature to get the best execution.
Which is not to say that I don't think this capability is useful, it definitely is. And whether it lives as a pallet on Statemint or needs to be its own parachain is another architectural decision (in favor of KISS, if we're talking about swapping assets on Statemint, pallet on Statemint seems to make the most sense off the top of my head).
Besides giving the Treasury the ability to acquire non-DOT/KSM assets, the rates from something like this are directly useful for other applications on Statemint (another reason to make it a pallet on Statemint), most notably the ability to calculate transaction fees in non-native assets. Right now, when paying fees in sufficient assets, it just calculates the fee in DOT/KSM, and then converts it based on the ratio of minimum balances, which is prone to diverge over time. Having a way to get conversion ratios w/r/t DOT/KSM would allow for more accurate fee calculation, and thus a bit more liberalism from governance in deeming assets sufficient in the first place.
This basically seems impossible to enforce. I still believe that a good solution would take advantage of existing DEXs and not try to fragment or draw lines in the sand.
Drawing a line here because the rest is not directly related to this subject, but a bit tangential and probably worth a separate thread if people want to continue discussing.
I will give my opinion about this here. I do not think that CGP should be limited to only things that "for profit" (FP)* chains are not building. It just gets way too political and murky. For example, let's say that a FP chain is specialising in some feature, but many users/community members feel that they are not delivering an adequate system. Is it not OK for governance to decide that that feature is of critical public importance and allocate a slot to a chain that falls under a common good governance/economic framework?
The primary goal of CGPs is to remove almost all functionality from the Relay Chain and provide the Polkadot core protocol (staking, governance, bridges, auctions, collectives, etc.). But for additional features, my personal opinion is that CGPs can be an "entry point" for the network. Can Polkadot do {NFTs, contracts, ZK proofs, etc.} -> Yes. I think NFTs are a great example of this. Statemint/e supports NFTs, and a lot of people come there as their NFT gateway to Polkadot. But as they discover the ecosystem, they find that RMRK, Unique, Phala, Bit.Country, Efinity, or someone else fulfills their niche objectives better, and they move there. That's totally cool!
* I don't think "for profit" is a good moniker, as we don't know anyone's incentives. "Chain with its own token economy" is too long winded. Anyway, sticking with it for consistency with the OP.
This is actually not true. While it's not directly related to this proposal, I want to highlight some counter-examples: