Ecosystem Market Maker for ICON

Recently, I wrote a thread: https://twitter.com/FOMOmental/status/1508922546053332993, however it was probably unclear and not as conscise.

Market Makers are an essential component for tradeable assets on the market, with a primary role of providing enough liquidity on the market to prevent huge sells from dumping the price. Similarly, you also have ‘friendly’ market makers, who can help pump up the price with variour methods.

Currently, ICON has wintermute as it’s market maker, but they have only provided them with $6.5m ICX, this is not a lot in retrospect: https://twitter.com/helloiconworld/status/1417939406363766790

The current volume of ICON on exchanges is low and probably one of the impediments of getting listed on huge exchanges and growing demand.

Another problem for ICON is the growing inflation over the 5 years which was not counter-balanced with adoption, although this is being remidied now, ICON’s peak price is $ was only at a $4b market cap, for ICON to reach ath in $, the market cap would have to reach around $11B, which is doable for ICON given BTP + growing ecosystem, but without a shadow of a doubt inflation needs to be countered, take into perspective ETH’s EIP-1449 and their merge will reduce another 90% of inflation:

Currently ICON has a 4% inflation, much of which goes towards stakers, however, stakers staking $ICX are only retaining their share of the $ICX in circulation, this does not neseccarily mean they are profiting. Staking in DPOS is made for the ecosystem to vote on who they wish to run their ecosystem (node operators). As a side note: ICON has sICX, which is a solutions that alieviate the issue of locking stake vs freedom to use your $ICX.
The point of this is: staking without price action is not really beneficial.

Proposal: Ecosystem Market Makers

Brief: By redirecting inflation (staking and p-rep rewards), $ICX inflation can be used to mint stable coins which burn $ICX from the market, ultimately, burning $ICX and increasing stablecoin TVL in the market.

The process explained:

  1. A portion of ICON inflation is directed towards a Market Maker Fund (e.g. 50% of the inflation which is 2%)

  2. The 2% from $ICX inflation is sent to a stable coin Dapp such as Balanced. Balanced offers stable coins at 150% collateral, this means for every $1 of $ICX, you can get $0.66 in stable coins. We could chose to over-collateralise by 200%

  3. Using that 2% of inflation, we are able to mint a further 1% by the stablecoin, e.g. 100k of $ICX will mint $50k bnusd. Whilst locking in the 2%

  4. The $50k of bnUSD is then used to buy $ICX of the market and burn it.

  5. overall, this process results in the locking of 2% of $ICX and burning a further 1% out of circulation for ever.

Initial questions might be: Why don’t we just lower inflation vs the market maker idea:

Lowering inflation:

  • Lowers circulation supply, YES
  • However, does NOT increase buying pressure

Maket Maker Idea:

  • Lowers circulation, IF managed properly and aversis risks
  • Increases buying pressure.

Further advantages of the market maker idea are:

  1. Increases stablecoin tvl in the icon ecosystem
  2. create arb opportunities between ICON’s ecosystem dex and CEX’s.
  3. Helps the standardization of $ICX becoming a stablecoin collateral.
  4. Grows ecosystem dapps such as BALN.

Why should we do this:
Instead of inflation that goes towards node operators and stakers either:

  1. Not increasing buy pressure - because it is held
  2. being dumped on the Market

This method will, 1) reduce market supply, 2) increase buying pressure

To put this into perspective, ICON currently has an inflation of 33m icx a year, if 50% of that inflation (16.5m) goes towards the market maker, we can potentially burn 8.25m of ICX a year, whilst locking away 16.5m, in-total reducing 24.75m ICX from the market a year, which is 75% of the inflation.

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Thanks for the more detailed explanation @Ali.

As I try to internalize this a bit more, here are a couple initial questions:

  1. Who is managing this?
  2. What would entail managing this “properly”?
  3. How could risks of this strategy be mitigated?

Also I need to do a bit more research, but I will defer to @Benny_Options: How risky is high growth of an overcollateralized stablecoin without correlated growth of that stablecoin’s utility?

One other thought is this would probably significantly decrease the the yield earned for borrowing bnUSD on Balanced, leaving us w/o any organic borrowing done on Balanced?

We should also analyze a liquidation scenario of that 24.75M ICX in the case of a blackswan event (since we wouldn’t be able to pay back/manage our loan position like a normal investor).

Final initial thought is this should probably be tested out with a much smaller % of network inflation initially (maybe 3% instead of 50%).

Overall - appreciate you thinking of innovative ways to improve our network and for bringing this discussion to the forum!

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So it’s like the ICX network itself has a loan on Balanced and by having a loan you’d get BALN fees, maybe these fees could be used to fund a monthly lottery for BALN holders or some other sort of incentive.

But how would this impact the bnUSD peg?
What happens if 99% of the total collateralized ICX is actually this “inflation fund”?
And what happens if this fund gets liquidated? Would bnUSD break?

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Thanks FOMO :raised_hands:t3: real interesting idea, would love to read more input from other community members too!

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@shikamaru;

  1. the idea is for this fund to be controlled by the community/node operators, who then lialise with elected member to do this, ideally in a large multi-sig? or can this be done automatically?
  2. Managing this properly would entail a ‘safety reserve’ of $ICX, in case it gets close to liquidation ratio, more $ICX can be added to prevent liquidation. Additionally, this means we do not start close to liquidation.
  3. same as above ?

Regarding decreasing yield earned for borrowing bnUSD for others, we potentially burn the rewards? Additionally, the rebalancing with this huge amount of $ICX will earn them a lot of rewards…

A liquidation of 24.75m $ICX would not be good, however, this can be prevented with a reserve treasury. Also bare in mind this is $ICX which we took out of circulation to begin with.

I agree, it should be started off small.

@EncryptedPedro The liquidation is a risk and needs to be considered.

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Overall I think it’s great idea to use inflation in a wise way ,so I support the idea very much👍

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This is a really interesting idea. I’m going to bring it to a Blockchain professor that specializes in game theory and see if he has any feedback.

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To cut down the risk of liquidation would it not make sense to split it for example 50/50, 50% the route you mentioned and the other 50% created through stably, If I am right in how stably make the stable coin it will add them into circulation and add some sell pressure but it can be used in case of risk of liquidation of BnUSD and it still ads TVL /liquidity to the stable coins on ICON

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See if they feel like participating in the discussion in any way. Always open to including knowledgeable professionals in community discussions

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