[Fast Track] HEP-1: Hydra Expansion Program

General
1

HEP-1: The Hydra Expansion Program

This proposal outlines an expansion initiative for Hydra. It is proposed for the DAO to allocate up to $10m in STG tokens to support key initiatives on Hydra chains. This allocation should last 12 months and any funds not used should rollover into the following year.

If approved, Berachain (Boyco) will be the first recipient of funds under this program.

Note: This proposal is intended to go through the fast-track process established in this proposal due to its time sensitive nature.

Context

Hydra extends Stargate via Bridging as a Service (BaaS). With Hydra, Stargate makes bridging USDC, USDT, WETH to non-native asset chains possible, enabling users to transfer Hydra-wrapped versions of USDC, USDT, and WETH to Hydra chains (and between Hydra chains).

The intention is for Stargate to enable chains to build day 1 USDC, WETH and USDT liquidity. In the event that Circle, or Tether respectively, wish to assume ownership over the stablecoin assets, Stargate’s Hydra has been built with the ability to hand over those contracts.

Importantly, whilst Hydra presents a multitude of benefits to chains and users, it also provides a unique opportunity for Stargate to reduce incentives by an order of magnitude. Once capital is locked in Stargate’s pools and Hydra assets are minted on the destination chain, the Stargate protocol now has protocol locked liquidity (PLL) and no longer needs to directly incentivise pools, which is a big unlock for the DAO.

Budget

Given the promise of Hydra, this proposal is for a reallocation of the incentives currently being provided on Stargate’s farms, to instead be allocated as incentives on Hydrachains. The amount of reallocated incentives aims to be significantly lower than that of the current emissions rate since Stargate V2 and Hydra launched. This will mean that when opportunities arise the DAO will have the possibility to efficiently incentivise the usage of said Hydra assets to bring in and lock as much capital in Stargate as possible.

Currently, ~$50m of Stargate’s $330m TVL is minted on Hydrachains and with the launch of Berachain, Story, Abstract and other significant partners one could anticipate the ratio to be even more skewed towards Hydrachains moving forward. Increasing Stargate’s PLL reduces incentives but also ensures users are able to bridge significant size through Stargate.

For this budget, it is proposed that $10m is set aside. This need not be used in its entirety over the next 12 months and anything remaining will remain in the DAO treasury. Importantly, the amount of capital earmarked should be less than that which has historically been used to incentivise Stargate itself.

Introduction to Berachain & Boyco

It is proposed that if this proposal is approved Berachain, and specifically the Boyco program, is the first recipient of a portion of this new budget.

Boyco (Bera’s iteration of Royco) is a protocol that enables dApps to create liquidity markets. These markets enable applications to negotiate with LPs to provide liquidity for an incentive (i.e. pre-deposit for points or tokens).

Via the market on Boyco, applications can negotiate with LPs to provide liquidity for tokens, points, future tokens, etc. Any LP can place intents “ie. I will provide $10M Day 1 Liquidity, for 1000 $XYZ tokens, for 90 days”, which an application can see on the market and accept/negotiate. Liquidity Depositors have funds locked for a predetermined period of time, and can be rewarded in vanilla tokens, points, vested assets, or any combination.

If approved, Stargate should provide a portion of this STG through Boyco to incentivize users to lock up their capital in applications on Berachain for 3 months. All protocols partaking in Boyco will also be offering up incentives for users to deposit. All USDC and WETH on Berachain will be Hydra assets, generating Protocol Locked Liquidity within Stargate’s Pools.

The initial focus on Berachain and the Boyco program provides a unique opportunity to lock substantial liquidity for a guaranteed extended period, fueling long-term growth and value for the Stargate ecosystem.

HEP-1 Capital Efficiency

Stargate currently incentivises users to deposit into pools using STG emissions; this has historically cost the DAO ~$15m a year at current levels. In certain circumstances incentivising on Hydra chains ends up being more capital efficient than keeping emissions on the protocols pools. This difference in the efficient use of STG is broken down in a Google Sheet, screenshots of which are included in the comments on this proposal.

Data: Stargate incentives

In sum, for every $1 of STG incentives Stargate created about $47.95 of LP. Now looking at the bear case for Berachain TVL (based on the fact that Boyco pre-deposits have already reached $2B in TVL) we can see that for every $1 of STG allocated to this Hydrachain we can expect to create around $112.50 of LP.

The benefits of replacing regular incentives with Hydrachain incentives in situations like this are even greater when looking at the Base and Bull case for TVL as demonstrated in the document provided.

Conclusion

The Hydra Expansion Program presents a significant opportunity for the Stargate DAO to optimize its incentives and accelerate the growth of key Hydra chains, starting with Berachain. By allocating no more than $10m annually in STG tokens, this proposal empowers the DAO to strategically incentivize key Hydra chains, ensuring their success while reducing overall STG emissions.

2

Not going to lie, was looking forward for us to stop needing to give out incentives, and start having significant value accrual for STG token holders & stakers.

I’m a bit doubtful that this is necessary, as air-drop farmers will swarm berachain with liquidity regardless (clearly seen with $2b pre-deposit). Relatively speaking, to them this might be considered a very small incentive.

Although, as Stargate benefits in terms of locked liquidity, I understand that it’s reasonable for us to help with incentives. But, I do prefer for us to evaluate this on case by case instead of providing blanket approval for incentivizing any future chains/incentives.

Other thoughts/concerns:

  • Boyco is down
  • spreadsheet not accessible (and screenshot haven’t been included in comment)
  • please provide specifics on Boyco allocation, how much [STG, APY, duration, etc.]
  • as STG/USD price changes all the time, should we determine a fixed amount of STG ahead of time
  • chains might be competing with each other, will this set a bad precedent?
1 Like
3

It’s an excellent proposal.

Let’s do it and do it fast.

1 Like
4

Gm Sendok!

Thankyou for your engagement with our proposal.

We wanted to address some of your concerns in our comment here.

  1. Boyco is down.

In our view this demonstrates the demand for Berachain which ultimately supports the intention behind this proposal. With more demand we can expect to see more liquidity deposited. We have full faith in the Berachain and Royco team’s technical prowess and don’t view this temporary downtime as indicative of anything negative.

  1. The numbers.

Apologies, our security settings don’t enable us to make it entirely public. However, we are accepting all viewing requests. Given the format screenshots would likely be confusing but if enough people request to view we will publish those in the comments.

These numbers show that once Berachain has sufficient USDC/WETH the DAO can turn off farm incentives. It’s clear investing in Hydra chains is an efficient use of STG.

  1. Allocation.

The target APY for the 90D lock period on Boyco is 6/7%. This would be approximately $3-4m. The rest of the STG allocation would be spread over the following 9 month period, so that liquidity is sustained post unlock. The amount of STG used will be slightly dependent on price as you mentioned, however will be no greater than 20,050,125 as determined by a backdated 90-day TWAP (putting the price of STG at $0.399).

The incentives will be focused on markets that create deep sinks specifically for USDC and WETH, both of which provide maximum benefit to Stargate.

Also, if the Treasury Consolidation Proposal is approved the DAO could look to direct capital towards Boyco/Berachain which would ultimately reduce the amount of STG externalised.

  1. Teams competing for allocation.

We think ultimately having a budget may result in more teams considering Hydra. There of course may be competition for budget, however, if anything this will likely simply bring more attention to Hydra and its potential for the DAO.

  1. Evaluating case-by-case Vs having a budget.

Whilst we are proposing a budget each case will certainly be taken very seriously. By having earmarked funds for this purpose and outlining a direct program the DAO would be making the adoption of Hydra much less burdensome and far more nimble. Ultimately, in our view, the DAO can more strategically identify targets and act on them with a clear budget outlined.

1 Like