CEX Listing and Market Maker Requirements

Context:

One of the requirements to list in Tier A exchanges is to partner with a Market Maker (MM).

Popular MMs in our space: Jump Capital, Alameda Research, GSR, HRT, Dexterity etc)

We have been receiving quotes and a reoccurring theme is the following

Loan

  1. 10,000,000 GRAPE token loan at $0.15

  2. 10,000,000 GRAPE token loan at $0.20

  3. 10,000,000 GRAPE token loan at $0.25

  4. 3 Year loan term

  5. Delivery schedule as below but we mutually agree to work flexibly by considering circulating token supply, listings and other unlocking events.

Explainer: The MM requires a sizable amount of tokens (vs projected circulating supply) in order to fill the orderbooks and create a healthy trading environment. The MM has the option (not the obligation) to buy out the (1,2,3) amounts of $GRAPE for the USD prices quoted.

As the Grape Network does not have such an amount of $GRAPE tokens to loan; I propose:

Proposal:

**Reduce Community Emissions from 5mil $GRAPE to 3,5mil for 20 Epochs Starting November 2021. **
Mint 30mil $GRAPE for the loan.
Return any USDC or $GRAPE to the community vault according to the loan terms.

This also reduces our emissions every epoch which is another topic of discussion

Vote here
  • Accept the Proposal
  • Reject the Proposal

0 voters

I have rejected this proposal.

This market making would be for CEXs. Is there a good reason to extend access to GRAPE to those on CEXs? The only reason I can think of is speculation. If someone has the intention to become part of the GRAPE community, they will need to move their GRAPE off of the CEX anyways. But if they are capable of doing so (i.e. they have a wallet set up etc.), they are also capable of buying GRAPE on a DEX. So the only new thing that GRAPE on CEXs enables is speculators to speculate.

Creating liquidity is catering to speculators; if someone wants to take a large position on GRAPE, they need enough liquidity to be able to do so profitably. Are those who want to speculate on GRAPE important to us? In my opinion, they are not. They will not contribute to the community, only a temporary price appreciation (until they sell).

Of course, listing on a major exchange also means a lot of hype. But this is a short-term effect that in my opinion will not last long (unfortunately, I don’t know how this effect can be measured, so opinions may vary on this). In return, it incurs a significant cost to the DAO. I think those funds can be put to better use rewarding contributors and growing Grape. The value of GRAPE is ultimately a reflection of the value of Grape’s community and tools, and it’s not clear to me how being listed on a major exchange adds value to these.

7 Likes

I haven’t voted yet & think more info is potentially required ahead of making a decision.

I guess the main argument ‘for’ this would be that ‘high quality’ on-chain market-making, especially on Solana is currently very limited. Therefore, the tokens that live exclusively on-chain are more susceptible to extreme moves when market sentiment changes & market participants don’t want to go against the direction prices are moving.

As you point out - speculation/ publicity is the other factor to consider. Listing on CEXs would bring some benefits on that regard but I agree, it’s certainly not a given that this will have a large positive outcome on the Grape community, or even the token price.

Both pieces are difficult to measure. @Whale_s_Friend - did we get any information from the market makers on how tight they would help to keep spreads or their case for why we should work with them? If we can quantify in any way how important CEX market making can be for low-cap DeFi token price stability, it might help us to make a more informed decision?

I expect most DAO members aren’t too familiar with market-making practices, so more context could be helpful

5 Likes

Regarding the main argument “for” that you mention, if I understand correctly you are basically saying that it dampens volatility, which market making certainly will since it adds extra liquidity. I don’t really consider this a benefit, though. There’s nothing inherently bad about high volatility – it’s fine if GRAPE moves up and down a lot, just let the market decide. The purpose of market making is to provide liquidity, not to dampen volatility.

Of course, a certain level of liquidity is needed. What level is that? The most anyone will ever need to participate in Grape at the highest level is 20,000. So if users are able to purchase 20,000 GRAPE with minimal slippage, that should be sufficient. How much slippage is “minimal” is subjective. Right now it can be done for 0.35% on Raydium. Seems sufficient to me.

But even if it’s not, there are much cheaper and long-lasting ways to create more liquidity than hiring market makers. And ultimately, as I mentioned in an informal proposal before, we would like to own our own liquidity rather than rent it.

So it seems to me that, at bottom, this isn’t about adding liquidity but about whether we want to be listed on a CEX or not. And I still don’t see a clear reason to do so, especially given the nature of Grape Protocol as a community-oriented project in which tokens are meant to be owned for the purpose of participation.

2 Likes

Still waiting on some clarifications on the quotes i have received but the amount of tokens asked is consistent so far (the prices are examples in this). Waiting on the spread, prices, time horizon and synergies.

Another argument you are not considering is the growth of the Grape Treasury. In most cases, these tokens are purchased meaning the USDC will return to the community without the need to actively sell in the open market

2 Likes

I think I’m not understanding something. I thought we would just loan them GRAPE, but you’re saying we get USD in return? And then we return the USD when they return the GRAPE (if they do) at the end of the term?

1 Like

We loan 30m $GRAPE and we either get 10m*$0.15 + 10m*$0.20 + 10m*$0.25 = 1.5m+2m+2,5m= 6 million USDC or we get 30 million $GRAPE back.

Those 6m USD would go to the community treasury
The 30 million Grape would return to the community (as emissions or whatever the DAO decides)

3 Likes

Thanks for explaining.

So we could receive USD, but that’s only if GRAPE appreciates in value, so we would have been better off just keeping the GRAPE. If GRAPE depreciates, they give us GRAPE instead. The result for us is kind of similar to impermanent loss.

Regarding not having to sell, I’m tempted to bring up the idea to sell GRAPE bonds for GRAPE/USDC LP tokens once again, since this also lets us acquire USDC without selling GRAPE and, further, allows us to permanently own our own liquidity. This could also be done as a Bonfida VC pool or PsyOption options. I don’t mean to derail the topic at hand, but I feel they are closely related so I felt it’s important to bring it up.

5 Likes

Regarding listing on CEX the main benefit for Grape as I see it is legitimacy which will make more people look into what Grape is all about and join the community.

I do not see listing as a super urgent matter though. We have a hundred protocols or so using the verification tools which gives Grape publicity and organic growth.

7 Likes

Another argument for - would be exposure to a larger audience. Of course there would be some speculators, but there would also bring in legitimate interest, both as community members and teams using Grape product. So this is basically marketing. Marketing which Grape gets payed for, if i understand this correctly?

If this kind of exposure is premature, due to in house capacity, i do not have enough info to decide. I also hold of on voting.

1 Like

I agree with this, it doesn’t feel like an extremely urgent proposal that we need to push through. We also need to be aware of where we are within this market cycle, does it make more sense to get a listing now? or wait until the next bear or bull run?

I’m on board for a CEX listing, I’m just not entirely sure if now is the right moment.

3 Likes