Aavegotchi

Author: Jesse | gldnXross#6482

GotchiID: 4563

Quorum requirement: 20% (9M)

Vote duration: 14 days

XP Reward: 20 XP for each Aavegotchi in the voter’s wallet

Discussion Thread: https://discord.com/channels/732491344970383370/1180534503828111471

BACKGROUND When the GHST Bonding Curve closed in early 2023, our governance token lost its deepest liquidity pool (paired with DAI). To prepare for the coming loss of this GHST/DAI pool, Pixelcraft Studios took it upon themselves to lend a total of 300k GHST to Skynet Trading, a liquidity solutions company, to bolster liquidity on major exchanges such as Binance and Coinbase. As part of this initiative, Skynet Trading contributed the necessary USDT to improve the liquidity and close the spreads, thereby ensuring a more stable, safe and efficient trading environment for GHST.

Skynet Trading has successfully fulfilled its role as a market maker and liquidity provider for GHST throughout the entire year of 2023, operating under a loan agreement in collaboration with Pixelcraft Studios. Both parties involved have expressed a high level of satisfaction with the loan agreement and its outcomes. Skynet Trading has been the majority of liquidity for GHST on Coinbase. Skynet Trading merges its respected status with extensive institutional trading experience with an exemplary reputation and commitment to compliance and market integrity.

The loans that made this possible will soon expire but Skynet Trading has expressed interest in continuing to support GHST initiatives. While the loan has served its purpose and Skynet Trading its performance is everything Pixelcraft Studios hoped for, we believe the next such loans are something better suited to be executed by AavegotchiDAO represented by the AavegotchiDAO Foundation.

PROPOSAL With the first year viewed as a sort of due diligence, I am now proposing that AavegotchiDAO replace Pixelcraft Studios with new loans to Skynet Trading, beginning with 600k GHST for 12 months explicitly to improve GHST’s liquidity on more centralized exchanges. Other potential loans are expected to be crafted with their own proposals by myself or anyone else on an as needed basis.

Skynet Trading is dedicated to providing trading services that aim to reduce slippage by narrowing spreads, increase the accessibility of GHST by focusing on spread and depth key performance indicators, encourage organic trading through the development of attractive order books, and minimize the impact of large market orders.

Whereas last year’s focus was primarily on Coinbase, a 600k-sized loan makes it possible for Skynet Trading to also provide liquidity on OKX and HTX respectively.

The second part of this proposal defines how the relationship between AavegotchiDAO and Skynet should be managed. We propose a Liquidity Management Task Force (LMTF).

Based on community feedback on recent DAO calls and in Discord, there seems to be support for AavegotchiDAO to handle making the transfers of GHST tokens but to entrust Pixelcraft Studios with representing AavegotchiDAO as the main point of contact with Skynet Trading. In this way, the LMTF will be co-chaired by AavegotchiDAO Foundation (the signers of multisig to transfer funds) and Pixelcraft Studios’ leadership (the entity tasked with being the main point of contact with Skynet).

I am personally neutral on whether or not Pixelcraft Studios serves on the task force. Having Pixelcraft serve as main contact is more work for us and serves no benefit to us (as whoever accepts this role has a fiduciary responsibility to AavegotchiDAO). That said, I am familiar with Skynet team communicating for over one year and it is really not a heavy lift so I’m fine with Pixelcraft Studios serving as the Liquidity Management Task Force’s lead until further notice. Ideally, a new individual or team can step up in due time to replace Pixelcraft in this role, as we continue to transfer authorities to the DAO and focus our energies on gaming products.

THE PROBLEM

The problem is poor liquidity on the majority of CEXs that GHST is listed on. cmc ghst liquidity.png

This screenshot from coinmarketcap (Dec 16, 2023) shows the amount of GHST buys and sells it would take to move the price 2% in either direction (slippage). While Binance is good and Coinbase is OK, most suffer from significantly thin books and volatility. For instance, in the above image, Gate.io looks good at north of 9k USD but watch it over a week and you will see how often the 2% slippage number drops significantly lower.

Long story short, GHST is inaccessible to those seeking medium to large allocations on most exchanges listing the token. By lending Skynet Trading tokens, we can substantially improve liquidity and narrow the spreads on exchanges. This strategic move will foster a safer and more reliable trading environment for all participants interested in trading GHST utility tokens.

THE SOLUTION This proposal is for AavegotchiDAO to lend 600k GHST to Skynet Trading for a 12 year term. As per industry standards, this loan will not have any interest attached to it. At the end of the 12 months, Skynet will have the option to A) return the 600k GHST to AavegotchiDAO or B) purchase the GHST at the strike prices established in the agreement.

To enhance flexibility and fairness, Skynet is offering to view the loan in three tranches of 200k GHST each with strike prices based on premium and/or future token prices.

THE RISKS We believe that the loan to Skynet Trading presents minimal risk, given the company’s financial stability and reputation in the industry.

Although Skynet Trading utilizes Fireblocks for institutional-grade custody solutions, risks associated with exchanges such as Coinbase, Binance, HTX, and OKX remain present. It is important to note that Skynet Trading does not bear liability for any risks or losses incurred due to the operational aspects of these exchanges.

While not a direct risk, it is prudent to acknowledge the possibility of ‘seller’s remorse’ should GHST values significantly surpass the contract’s strike prices within the next 12 months. The strike prices, set as either premiums or averages of future market rates, are designed to align the interests of both parties. Both parties must enter this agreement with a comprehensive understanding of the associated risks.

POTENTIAL BENEFITS The benefits and reasoning for this are already well fleshed out above but to briefly review:

Improving liquidity on at least three more exchanges improves the trading efficiency of the governance token.

Maturing the relationship with an industry-leading company like Skynet Trading may also lead to indirect benefits such as introductions to more exchanges and more opportunities for future loans related to on-chain DEX support and even perps markets (Skynet Trading is open to advocating for GHST perps and can make introductions).

CONCLUSION

For the benefits noted above, I am proposing that now is the time for AavegotchiDAO to engage with Skynet Trading to improve the currently weak state of GHST liquidity on most of its current listed exchanges.

Pixelcraft Studios, having successfully navigated a previous loan arrangement with Skynet Trading and being more than content with the results, is well-positioned and enthusiastic about presenting this new proposal. They have proven to be professional, compliant, ethical, and transparent experts in their field that can greatly benefit our governance cornerstone, GHST token.

Please note, AavegotchiDAO Foundation is required to pass KYB and AML with Skynet Trading for the official onboarding.

I am familiar with the process and it is not invasive. Basically there will be 1 KYC’d board member to represent the company as an official associate and then a number of official documents and certificates to provide.