HOP gauge proposal

Angle Improvement Proposals
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HOP Gauge Proposal

This is a proposal to add a gauge for the agEUR-HOP Uniswap v3 pool on Ethereum to the Angle Gauge system and enable users to assign gauge weight to it and receive $ANGLE emissions.

Uniswap pool address: 0x9cfa26bf9e3df63c78142b9ef15f959a0dd69050

Context

About Hop Protocol

Hop is a scalable rollup-to-rollup token bridge. It allows users to send tokens from one rollup or sidechain to another almost immediately without having to wait for the rollups challenge period. It is one of the most popular bridges within the Ethereum ecosystem with over $3.3bn cumulative transfer volume.

HOP is the governance token of the Hop Protocol. The token was released along with the DAO launch in June 2022 in an airdrop to early community members and users.

Links

Proposal

The proposal is to include the agEUR-HOP UniV3 pool to Angle gauge system.

Implementation

We propose to rely on Angle UniV3 incentivization mechanism for this gauge. This means that on the one hand liquidity providers of the pool will not have any particular action to do to be eligible for the rewards, and on the other hand, there will be no extra recurring cost for adding this gauge as it just implies computing the Merkle root that is updated weekly differently.

Value to the protocol

The agEUR-HOP has been live for a week and currently has $7,500 liquidity.

Incentivizing through a gauge the pool pairing the HOP token with agEUR will help attract more liquidity and create more awareness for both tokens. HOP is still in its infancy and although it has pools on Uniswap and Sushi, liquidity is still relatively low. With some initial rewards, the agEUR-HOP pool could become one of the main liquidity venues and grow with Hop as it progresses to become the #1 bridge protocol.

It will also be a kick-start to future integrations between Angle and Hop Protocol.

Overall, the more tokens agEUR has liquidity with, the bigger the volume and global usage will be. Like any stablecoin, agEUR is a standard, and it is only valuable if other people use it, having DAOs building liquidity for their token around agEUR and participating in Angle governance for that means is a first step towards a more global and widespread adoption of agEUR.

Risks

The risk with creating new gauges is that they cannibalize other existing gauges, also bringing value to agEUR and the protocol. This risk however can be controlled and the DAO has the means to adjust the importance of gauges relative to the value they are really providing.

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Heavily in support of this proposal! Having protocols building their liquidity with agEUR is a nice way to grow agEUR as the de facto asset that is paired with others.

With the potential upcoming launch of Angle incentivization product, this is something which will be costless for the DAO: there are no extra operation costs linked to adding this gauge.

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I understand the value of investing in liquidity around agEUR more broadly. Maybe this isn’t the best thread for this but the alternative is to identify the handful of pairs that are meaningful for agEUR and put all the chips on red.

Have you evaluated the pros and cons of investing in deep liquidity on a handful of pairs vs spreading liquidity over more pairs?

I would hate to spend a fortune on agEUR/HOP for minor incremental utility for end-users vs funneling that expense towards say USDC/agEUR and cementing agEUR as the main EUR pair against the largest tokenized FX pairs. Piggy-back on the liquidity that USDC or ETH are driving against last-mile tokens and focus on pairing up against the main hub.

Focus on becoming a large spoke vs investing in becoming a new hub. Spoke-> Hub can follow easier/cheaper after collecting enough network effects and/or branding, going for hub first is much more expensive and risks missing identify the right PMF for the hub in the first place.

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Thanks for the insightful comments here!

I agree that this kind of pair should not distract us from what we have with USDC for instance.

The way I see this kind of pairs is that it’s a way to create more attention from other DAOs to Angle emissions (a bit like what’s currently happening on Euler, Curve or Balancer). Like if no one votes for HOP-agEUR there won’t be any incentive and agEUR-USDC liquidity will stay the same.
It won’t cost anything to the DAO if no one votes, but if people vote for it, it would probably result in increased ANGLE price with DAOs acquiring tokens to direct emissions, or incentivizing as well resulting in more incentives towards agEUR.

So essentially, for me the costs (emissions probably going to HOP-agEUR rather than agEUR-USDC) will probably be outweighed by the benefits.

Good points though on Spoke vs. Hub, had never thought of it this way.

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Thanks for the post @litocoen ! Nice to see a good protocol like Hop interested in agEUR liquidity.

Well put @adcv , I wasn’t thinking about it that way. This is what we have done so far, and part of the rationale behind AIP 31 - Change in ANGLE emissions .

Do you see any other “Spoke strategy” beyond agEUR-USDC & agEUR-ETH ? Maybe looking at the other most traded tokens on-chain?

This is my concern as well, though as @sogipec puts it risk seems limited: either HOP holders buy & lock ANGLE to vote which should have a positive effect on the token / protocol (1); or they don’t and no emission is spent on the pool (2).

The remaining issue are bribes and Stake DAO votemarket. I feel like there is a lot of idle sdANGLE voting power, which will vote for any gauge once they realize they can get paid for it. This would write off the positive effects on ANGLE, and can be significant as sdANGLE holders represent more than 50% of veANGLE voting power.

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You’re both right on this point of course. I suppose a mitigant would be protocols that are smaller than agEUR / benefit more from agEUR than viceversa adding a lot of wash volume to help their own liquidity, which might not move to other useful tokens. I have only started thinking of this hub and spoke analogy on the basis of this conversation and will explore how much we can visualize of the ‘jumps’ between tokens on Dune to inform the conversation with more data.

Yes precisely this is a great development.

Until there is a large and competitive enough market for liquidity incentive allocations, it might be worthwhile to find ways to incentivize sdANGLE holders to point their gauge votes at the pairs that are the most long-term useful for agEUR users.

I have a hypothesis it’s more about FX pairs than government tokens to protocol tokens but the ‘jump’ analysis might disprove this idea.

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I share your hypothesis on that. Unfortunately, I don’t see how the protocol can incentivize sdANGLE to point their votes towards specific gauges without subsidizing bribes itself.

Pools elasticity

On another, it made me think about this tweet, about pools APY elasticity. This could help us evaluate how much APY change in ANGLE rewards on agEUR-USDC would impact the pool liquidity. Not sure how they computed their results though.

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This is kind of what I had in mind (Dune). The overwhelming majority of swaps are USDC and WETH.

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If you focus on renting liquidity for this key pair you might sacrifice agEUR to protocol pairs temporarily, but you implicitly piggyback on USDC’s liquidity with those pairs. This would be a valid framing if it turns out that most EUR based crypto users actually flip from EUR to USDC first and then into crypto. As long as this is the case, the primary use case for agEUR will be as a conduit from EUR to USDC and back and there’s no issue with this tbh it’s just the structure of the market atm.

I suspect it is easier/cheaper to go from USDC/EUR liquidity to EUR/protocol liquidity than to bootstrap EUR/protocol liquidity from the ground up. Especially since native EUR DEX liquidity has dried up substantially of late

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But crucially, agEUR has a leading volume share position on these trades which is worth defending.

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(Dune)

This on the other hand is the sort of proposal that can really drive new transaction volume and support slippage on a key DEX pair.

Sorry to dump all this on HOP protocol, you are right it will only ‘cost’ if people vote for it and it is a good long-run strategy to make sure there are paths to building agEUR to protocol liquidity. It is also good that you are rationalizing liquidity incentives and focusing them on key channels. Within that scope, it is worthwhile to explore increasing share of liquidity incentives to sustain and promote usage of USDC-agEUR as a ‘spoke’.

Keen to hear people’s thots on this

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Thanks @adcv for your insights. On my end, I agree with most of your points. I doubt having external gauges and pairs with low liquidity tokens will have a significant impact on the overall agEUR volume or TVL. In addition to this, on this specific proposal, there is a difficult balance between having people vote for this gauge to direct incentives in a healthy proportion and the risk of vampire attack where we could find ourselves incentivizing pools that aren’t useful.