Stargate Deployment to Sonic

New Chain Deployments
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Summary:

This governance proposal outlines the integration of Sonic, a high TPS Layer 1 blockchain, with Stargate, a cross-chain and interconnectivity protocol powered by Layer Zero. This proposal outlines a request for the DAO to approve a deployment of Stargate with a USDC and USDT pool on Sonic. This deployment should be incentivised by STG as/when needed according to SIP #23. It is also requested that the DAO migrates and provides liquidity of 1m USDC and USDT respectively from whichever chain makes sense.

Background:

Sonic is an EVM layer-1 platform that offers developers attractive incentives and powerful infrastructure. The chain provides over 10,000 TPS, sub-second confirmation times, and a secure gateway to Ethereum for enhanced liquidity and asset security. The launch of Sonic is scheduled for December 2024.

Motivation:

Shared Liquidity: Stargate will enable Sonic to gain access to Stargate’s vast ecosystem of 15+ blockchains.

Cross-Chain Transactions: Sonic users will be able to safely conduct cross- chain transactions with ease and at a low cost

Integration within DeFi: This integration will serve to open up opportunities for Sonics DeFi ecosystem by attracting LPs to provide liquidity and also DeFi protocols to build on top of Stargate.

Proposal

Sonic proposes for Stargate to deploy on the Sonic mainnet as a Day 1 partner for V2 EVM compatible mainnet launch. Layerzero endpoint will be available on Sonic mainnet on day 1.

To begin, we proposes for the following Stargate pools/pathways to be enabled upon successful deployment:

  1. USDC

  2. USDT

Both USDC and USDT on sonic on day 1 will be bridged via the Sonic gateway, which is our trustless bridge that facilitates ERC-20 token transfers between Ethereum and Sonic. By leveraging Sonic’s own validator network, with validators operating nodes on both chains, it establishes a secure, decentralized channel between the two platforms. Sonic is in active conversation with both Circle and Tether to get the respective native versions in 2025

Users have access to all funds transferred via the Sonic Gateway; there is no possibility for any centralized authority to override user control or access funds through a master key. The Sonic Gateway is also designed for efficiency. Transfers from Ethereum to Sonic only take up to 10 minutes, while transfers from Sonic to Ethereum take up to 1 hour.

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Incentives:

Sonic Points Program:

Sonic is planning an incentive programme of 190,500,000 $S to incentivise users of both Opera and the new Sonic chain. The incentive programme encourages users to provide liquidity across a range of dAPPs and Stargate could benefit from the same.

All the $S earned via the points programme earned by Stargate on Sonic will be redirected towards incentivising the USDT and USDC pools on Sonic

Fee Monetisation Program (FeeM):

The Fee Monetisation (FeeM) program on Sonic, previously named Gas Monetization, offers developers up to 90% of the fees their apps generate, providing them with a sustainable income, retaining talented creators, and supporting network infrastructure.

Stargate has consumed ~$3.5m (adjusted) worth of gas on ethereum mainnet alone since June 2022. With the same volume on Sonic and across the same period, this would have earnt Stargate DAO $3.1m via FeeM on Sonic.

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Execution:

If approved, Stargate will launch on Day 1 of Sonic mainnet. USDT and USDC pools/pathways are to be enabled upon the successful deployment of Stargate on Sonic.

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Wonder if Sonic can help in providing incentive and liquidity? If it’s possible, then I also propose for Stargate DAO to help with providing incentive and liquidity.

Otherwise, I’m quite certain we’ll be spending more in terms of incentives, compared to fees that Stargate will receive. Thus, I disagree with providing unrestricted STG incentive and moving 1m of USDC/USDT liquidity.

May I know how did you calculate the $3.1m in fee on Sonic? Even if Stargate consumed $3.5m
worth of gas on ethereum mainnet, wonder if you assume we’ll also consume $3.5m worth of gas on Sonic?

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The protocol owned liquidity that we have requested to seed the USDT and USDC vaults will be eligible to earn both Sonic Points and also Sonic Gems both of which can be redeemed by Stargate DAO for the $S token. The $S token is a 1:1 swap from $FTM and not illiquid like the current airdrops that are all over the market. This ensures that there is no opportunity cost in the capital provided as liquidity by the DAO

Sonic has a fee monetisation program which allows protocols to earn upto 90% of all the gas generated by its core contracts. $3.1m = $3.5 * 0.9 which is just calculating if ethereum had a fee montisation programme similar to Sonic and not an implication of what Stargate will generate on Sonic. First mover advantage and a decent amount of TVL will definitely help Stargate to generate plenty of volumes and thereby FeeM revenue and hence the request to fund via $2m POL.

Here are some examples of FeeM by Andre Cronje: x.com

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It’s not only the matter of $2m capital from Stargate DAO POL. Currently a lot of bridges are subsidizing bridging cost in one way or another, Stargate is doing it by incentivising Liquidity with STG tokens. This is not sustainable, and Stargate have what called Hydra to solve this in the long run, but currently still have a long way to go.

Ballpark estimate from me, based on past Fantom TVL and social engagements, we would need:

  • Liquidity: somewhere around $10-20m of USDT & USDC, which is 20m-40m in total
  • LP Incentives: at 10% APY, this is 2-4 million USD per year

I do believe this integration is beneficial to both Stargate & Sonic. As such, would it be possible for Sonic to help bear the burden of this liquidity cost? As an example, by providing:

  • Liquidity: 2,500,000 USDC & 2,500,000 USDT (will not lose this, can redeem in the future when it’s no longer necessary)
  • LP Incentives: 1,000,000 $S token

Got it, understand where you’re coming from. But I’d guess the gas cost on Sonic will be a lot cheaper compared to Ethereum Mainnet right? I believe the amount of FeeM will not be significant enough compared to the liquidity cost that Stargate will need to bear.

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As i mentioned above, Stargate will be eligible to earn Sonic Points and Gems at a linear rate with increase in TVL rather than a fixed incentive. Further, we also have several DeFI integrations that can build on top of stargate which provide liquidity indirectly such as Beefy vault strategies (can be used as collateral also), Balancer boosted pools etc…

There is no liquidity cost for the duration of the points programme as the DAO is getting paid in $S via points and gems to migrate $USDT and $USDC POL to Sonic.

From what i understand of SIP23, this is not how incentives work, rather “Stargate should align emissions with pool utilization. This would allow the protocol to target an optimal and healthy TVL for each pool to facilitate the transfer of value and provide efficient liquidity.”

Hence, every instance of Stargate could be eligible for $STG emissions if they meet TVL and volume targets

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Yes, the incentives will be dynamic and adjusted based on needs. This is a rough estimate based on napkin math, intended to help our discussion. Please also consider discussing this directly with the Stargate team.

I still don’t see how Sonic Points & Gems would be substantial enough to offset the liquidity cost, but I’m open to being proven wrong. Could you provide an estimate on this?

If Sonic is not willing to help cover the liquidity costs, I propose postponing the Sonic integration until Stargate’s Hydra TVL grows further to ~50 mio USD (currently ~20 mio USD). I believe Stargate is already emitting enough STG tokens as it is.

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The sum total of Sonic points and gems is worth 190.5m $S tokens ($133m) at todays FTM/USD price. Check of our docs under subheading “Funding” for more details.

We are in direct contact with the team and have discussed how the points and gems programme, DeFi composability as well as FeeM can bring organic traction in the form of liquidity providers

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I really appreciate the proposal & the conversation we’ve been having, but it seems like we’re not getting anywhere at the moment. I think it might be best for me to pause here and give others a chance to share their perspectives as well.

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I discussed the concerns mentioned above privately with YJN21.

While I agree that enabling the Stargate bridge on Sonic from day one would drive significant bridging volume, my main concern is related to STG emissions. Higher volume will require more liquidity, which in turn necessitates higher STG emissions.

However, Sonic’s marketing campaign will motivate users to provide liquidity in Stargate in exchange for Sonic points or gems. This means that while STG emissions will still be necessary, the APY required to incentivize LPs could be lower.

Additionally, as a Builder, Stargate will receive an allocation of Sonic gems (although the full methodology for this is not yet publicly available).

Since there hasn’t been any other feedback from community members, I will move forward with submitting this proposal to snapshot and gather opinions from other veSTG holders.

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https://snapshot.box/#/s:stgdao.eth/proposal/0x85cf8edee24777c81f449c311b3f6df0a88aa5ecce31ddf4c429a0bff0a37573

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Appreciate it @SendokGarpu :saluting_face:

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