MNDE Gauges Proposal

MNDE Gauges Proposal

Idea:

The Hubble protocol should apply for a Tribeca Gauge that represents Hubble’s substantial mSOL Collateral position to be included in the Marinade liquidity mining program. This will allow Hubble to direct MNDE emissions to users’ deposits creating extra yield and improving user experience and engagement.

Background:

The MNDE token is the governance token of the Marinade Finance protocol and is used to vote on future MNDE emissions. Anyone can take part in the voting process by locking their MNDE tokens into the Tribeca Locker to receive a Marinade NFT which represents their voting power.

The allocations are voted for on a weekly basis and the percentage of votes given to a gauge will dictate the allocation of MNDE tokens, the same process is true for validator allocations of staked SOL to validators. As per the Marinade liquidity gauge documentation, 1m MNDE tokens will be allocated on a weekly basis.

As it stands there are currently a number of high-profile Solana defi projects that are utilising the gauges to divert part of MNDE emissions to their users mSOL deposits such as Solend, Port, Frikton, Katana, Apricot, including several liquidity pools which receive incentives for mSOL liquidity providers.

Solend holds a large portion of the current emissions with around 36% of the MNDE being awarded to their mSOL collateral position, which currently stands at over 2.3m mSOL. The amount of voting power that Solend currently holds is 2.55 times more than the next largest share, which is the Marinade protocol itself with around 14% of the votes.

Implementation:

Anyone can apply to have a gauge put forward to receive a share of the votes using this.

Form: (Liquidity Mining Gauges - New Gauges request).

For a protocol to take part in the process and receive a portion of the MNDE emissions, they must have a Quarry integration for each pool that they intend to have MNDE allocated to. If the protocol does not wish to have the Quarry integration the this can be done in the background by Marinade to facilitate the distribution according to the Marinade documentation on this link: (Liquidity mining gauges - Marinade.Finance).

Part of the reason why this proposal should be of interest to the Hubble team and the Hubble community is that the Hubble protocol currently has 64,868.53 mSOL locked in the protocol as collateral. This amount of mSOL puts Hubble amongst the top holders of mSOL collateral, yet Hubble receives none of the liquidity rewards for a governance token that has influence over our second largest collateral token.

Taking this into consideration, I feel as though Hubble would be missing a great opportunity to provide extra value to its users whilst potentially increasing USDH adoption via mSOL collateralised loans. The process of voting on the Hubble gauge on a weekly basis with new MNDE rewards could spur further community engagement as it requires active participation/discussion from community members.

Benefits:
  1. Extra yield on mSOL collateral deposits held with Hubble. Yield examples Solend -0.88%, Port- 5.66%, Frikton - 9% (Based on current cycle voting share).
  2. Increased decentralisation of the MNDE supply to prevent other protocols locking up and having an oversized influence on the future emissions and validator allocations.
  3. Ability to take part in Marinade voting to ensure Hubble users have a say in an asset that is a large part of the protocol TVL.
  4. Closer cooperation with the Marinade protocol and increased visibility of the Hubble protocol among Marinade users.
  5. Incentivise the minting of USDH as users deposit mSOL to take advantage of MNDE emissions (the recent LIDO rewards for stSOL deposits is an example of this in practice).
Risks/Limitations:
  1. Centralisation of MNDE supply giving other protocols an oversized influence over the Marinade protocol.
  2. Hubble being able to acquire a MNDE position that would have a meaningful impact on the allocation of MNDE emissions.
  3. Frequency and mechanism for rewards allocation to users.

Notes on the risks/limitations:

I consider the main limitation to this proposal to be the amount of MNDE that would need to be utilised to make this process worthwhile. To this, I think there are a couple of things that could be considered to provide the initial momentum needed to aid the process.

Firstly, the Hubble team could arrange a collaboration with Marinade where they provide initial liquidity for the voting process under the premise that it adds extra utility to MNDE and increased usage of the token. For this, Marinade may want to arrange a token swap program whereby Hubble provides X amount of HBB for a defined amount of MNDE.

Hubble could then use this position to kickstart the distribution process. Secondly the Hubble protocol could run a similar arrangement whereby users swap MNDE tokens with the protocol for the equivalent dollar amount of HBB.

In terms of the time factor associated with acquiring MNDE there is a cost of delay that should be considered. Each week 1m MNDE are distributed to other protocols and users, which will increase the barriers to entry to building up an influential MNDE position.

Analysis and Simulation:

This section will contain some estimates and suggestions on the amount of MNDE held by other protocols and the rewards earned. It will also contain some estimates and recommendations of the amount of MNDE Hubble would need to accumulate to make this proposal worthwhile. Please see below.

MNDE Share of Votes

Project % Held MNDE MNDE/USDC
Solend 31,10% 4,329,334.15 $185,327.50
Marinade 12,17% 1,694,147.80 $72,522.05
Port 5,80% 807,399.94 $34,562.68
Frikton 3,64% 506,713.07 $21,691.06
Katana 0,51% 70,995.51 $3,039.13

MNDE Rewards

Project Daily Rewards (MNDE) Annual Rewards (MNDE) Dollar Annual mSOL TVL APY
Solend 44,425.28 16,215,227.20 $694,131.55 $96,425,484.00 0,72%
Marinade 17,380.99 6,344,061.35 $271,572.71 $36,220,000.00 0,75%
Port 8,287.00 3,024,754.64 $129,481.85 $2,921,874.00 4,43%
Frikton 5,197.00 1,896,904.64 $81,201.54 $2,020,331.00 4,02%
Katana 734,00 267,909.96 $11,468.53 $618,173.00 1,86%

Hubble Share
of MNDE

% Held MNDE MNDE/USDC
2,50% 348,017.21 $14,897.71
5,00% 696,034.43 $29,795.42
10,00% 1,392,068.86 $59,590.83

MNDE Rewards

Daily Rewards (MNDE) Annual Rewards (MNDE) Dollar Annual mSOL TVL APY
3561,64 1,300,000 $55,649.61 $1,057,093.00 5,26%
7,123.29 2,600,000 $111,299.21 $1,057,093.00 10,53%
14,246.58 5,200,000 $222,598.43 $1,057,093.00 21,06%

The above table is built on a number of assumptions based on the amount of MNDE held by various protocols, using their percentage share of the next rounds emissions x total votes cast on the gauges as a proxy for the size of their MNDE holdings. The next section details the daily rewards x 365, giving an estimate of the annual regards based on the current share of votes (this will obviously vary from week to week). Finally to get an estimate of the expected APY, the dollar value of the annual MNDE rewards are divided by the total mSOL position currently locked in that protocol.

The section that relates to Hubble shows three scenarios in which Hubble was able to acquire 2.5%, 5% or 10% of the total voting power for the liquidity gauges. The next section then uses the total annual emissions of MNDE (52m as per the Marinade docs) and divides by 365 to give an estimate of daily rewards under each scenario. The same process is then used to calculate the estimated APY on Hubble’s mSOL deposits, however it is important to note here that Hubble would issue rewards based on the USDH minted against the mSOL deposits and not the mSOL position itself. For this calculator a 40% LTV ratio has been assumed which is roughly the system LTV adjusted for PSM and the SRM position.

As you can see, based on these assumptions, if Hubble wants to acquire 5% of the total voting power of Marinade gauges, it would require 696,034 MNDE, which is a dollar value of $29,795, without accounting for the increased amount of votes that Hubble would own. From this the annual rewards to users would be around 2,600,000 MNDE or $111,229 representing an estimated 373% return on investment over the period or an expected yield on USDH borrows of 10.53%.

Based on these calculations it would make sense for Hubble to try and acquire at least 5% of the voting power on Marinades liquidity gauges as it would present a net positive for Hubble users. With this extra yield being directed to borrowing USDH against mSOL, we can expect USDH in circulation to increase as new mSOL enters the Hubble ecosystem, and existing users borrow more to take advantage of the extra yield on collateral, something that has been mentioned as priority of Hubble users on numerous occasions.

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