[SC] - Making the DAO own Liquidity on DEXes

I promised this Sentiment check a while ago, but unfortunately i had a little bit of a forced break through COVID after Paris.

Essentially, i am of the firm belief that we have a slight liquiditiy issue that makes it very difficult for a lot of people to become part of the DAO.

How am i coming to this conclusion?

Let’s take the current voting power threshold required to create a proposal. With about 46M API3 staked, it takes 46000 staked API3 to have enough voting power to create a proposal.

Going to an aggregator like 1inch, directly shows us the problem at hand. At current prices, aquiring enough API3 to gain “proposal creation rights” costs you about 200k USD. I don’t have an issue with that number per se and i think its a good limiter to filter out unnecessary proposal creations. What i do have an issue with is that aquiring this amount of API3 will make me loose 10% of it to slippage. As the above example shows, i will have to pay 200K USD~ to get out about 181K worth of API3.

This does not even factor in that scaling out of API3 will again cost me about 9-10% in slippage, further diminishing my initial holdings.
If we take an extreme example, where i would buy 46k API3 and straight up sell it again, my initial 200k would be worth about 164k, which is a 36k direct loss, just for scaling in and out of API3.

This example should make it blatantly obvious why a lot of people simply cannot affort or don’t want to bother with getting involved with API3 in any way. I have dealt with this personally, where friends are asking me if there is a way for them to scale into API3 without moving the price by double digit % points for “ridiculously low” amounts they want to buy and i always have to tell them, they could try OTC, which is hard when nobody wants to sell.

It would be in the DAOs best interest to increase liquidity and actually also own that liquidity because:

  1. it would make it easier for new members to be attracted to the DAO

  2. future insurance payouts (that will probably be made in API3), would be worth a lot more if 10-25% of it isn’t lost to slippage, making the insurance product even more attractive to potential customers

  3. Owning liquidity would create income for the DAO in forms of liquiditiy provision fees and possibly even further incentives depending on which DEX is used.

Now the issue that we as the DAO face is, that we have an incredibly large amount of API3 and also some USDC, but no ETH. I am of the strong believe that our USDC reserves should not be touched and only used for grants towards initiatives, because otherwise we’ll run into the situation where we have nothing but API3 to pay for salaries, which ultimately will mean, we would need to sell API3 to pay people.

With the USDC out of the equation, we’re left with API3 and we’re missing ETH in order to LP either on Sushiswap or Uniswap. The only solution we have here is to sell some of our API3 into ETH, similar to how e.g. Lido did it. The approach of selling DAO owned API3 also makes the most sense, because the DAO cannot stake its own treasury, which means that it is loosing value each week where inflationary rewards are paid out. So selling some of the treasury, to make up for our need for ETH is a logical approach.

The questions that come up however are:

  1. Who do we sell it to? (Value add to the DAO, with the exception of ETH?)
  2. What are the conditions? (Price, Vest, Cliff, can they vote?)
  3. How much are we willing to part ways with? (In API3)

Considering Point 1:

A lot of people would want to go the VC route here. They have the money yada yada. Personally, i’m not really a big fan of it. Looking at our current portfolio of VCs we have significant VCs covered already. Is another Crpyto VC really going to add any more “exposure” that benefits us as a project? Is the little amount of exposure we’d gain worth things like a) giving another VC voting power or b) giving them a discount on market value?

Considering Point 2:

What price are we selling for? Is there a vest & a cliff involved? If yes, what discount does the party receive for buying and accepting our terms? Are the vested tokens usable to participate in governance? All points that we have to consider.

Considering Point 3:

The DAO treasury currently sits at 27M API3 and loses about 18% of value each year at current inflation rates. Just considering that perspective we’d want to get some “bang for our buck” before the treasury is simply dilluted away. On the other hand, price is also something to consider and we don’t want to make our entire treasury available for cheap. Where is the right balance though?

What are we supposed to do?

In my opinion, selling portions of our API3 treasury in order to fund things is the only viable solution we have. The treasury is massive and suffering under inflation with nothing that we can do about it. The question is not really if we should sell but how. I see two viable options to go forward with this.

Option A: Make this a one-time event and raise enough ETH in order to tackle our liquiditiy issue.
Option B: Create a solution that can be used for future sells as well (a.k.a a smart contract that sells portions of the funds it receives on the basis of a 10 day TWAP)

I have ideas for both, but would love to hear some community feedback before i go further into detail on what i have envisioned.
No matter which path we go, i think the ultimate goal should be to use the funds that the DAO acquires by selling portions of API3, to pair liquiditiy of API3/ETH on Sushiswap in order to increase our liquidity on DEXes, while earning fees & SUSHI for doing so.

~just brainstorming - shoot your ideas ~


@UgurMersin thanks for the analysis. After seeing what happened with sushiswap, my conclusion is that their community doesn’t want only VCs getting a discount for vesting tokens, they themselves wanted to also participate with the same terms.

I’d love to hear what other mechanisms we could potentially use for increasing the liquidity without necessarily selling or renting the liquidity from mercenaries farmers.


We wouldn’t necessarily need to sell to VCs, as i kinda agree that our VC portfolio is kinda saturated at this point.

One valid way to approach this could be to create a smart contract that can be funded by the DAO with API3. This contract would then allow anybody to buy the API3 in it in return for ETH on a 10 day TWAP basis. The received ETH on the contract can then be send to the DAO by calling the transfer function (which is obviously limited to the DAO address)

This way the DAO would have a way to actually make tokens available in a “fair” manner on a consistant basis without it being a one-time VC favored event.

Also, just because you brought up the liquidity mining part:
I think creating some sort of program to attract liquidity is not going to have a lasting effect on our liquidity in general. If we e.g. make 1M API3 available for liquidity providers for 1 year, i can almost promise you that all of that liquidity will instantly vanish the moment our “liquidity mining program” is over.
Since selling of API3 tokens is involved here, i think it is important that the resulting liquiditiy is actually owned by the DAO and not given out to strangers that will simply sell/withdraw liquiditiy the first chance they get.


Thanks @UgurMersin for very thoughtful thread.

I think there is sufficient consensus (backed with logic and evidence) that:

  1. We have a significant liquidity issue as further evidenced by @Ashish here

  2. 27M ($100m+) API Treasury balance is missing out on the large staking reward (50% APR) and left with a large dilution each year.

Now, here are my thoughts.

  1. Option B of creating smart contracts and doing a 10 day TWAP selling have few concerns:
  • With the current levels of weak liquidity, anyone with 6 figures can manipulate the pricing and suppress the price down to enable them to acquire at a massive discount. Kucoin already supports shorting so the said malicious actor does not even need to acquire API3 token in the first place. One thing we can’t predict and undermine is that there are a lot of sophisticated crypto scammers who exploit these vulnerabilities. We don’t even need to go so far, the Mesa DEX exploit is one of them. If there is a single exploit, the said sales balance will be drained quickly.

  • Smart contract sale require diversion of our engineering effort (planning, coding, auditing,etc) and makes us susceptible to unforeseen smart contract risks. If we want to add extra features such as restrictions on staking, voting, vesting, etc all creates additional engineering burden. The core product shipping needs to be the utmost priority and the logistics should be spearheaded by non-engineering team for the most part.

Option A seems to be the most plausible and pragmatic option.

  • This is what VCs would call as a strategic round. We would raise funds from pure strategic investors and partners, instead of vanilla VCs who just provide capital with minimal value-add. These could be:

1, Strategic partners and projects: DeFi bluechips (AAVE,Compound,Yearn,Curve) with large treasury who would also be interested in a bespoke and additional integration with Airnode. And Foundations of protocol layers, DOT, ATOM, ADA. The L1s.

2, Data providers :Coingecko, Coinmarket cap, Kaiko, AmberData,etal

3, Strategic venture arms: venture arms of Coinbase, Binance, Okex, Huobi, Bybit (they recently launched a 9 figure DAO and close to Pantera), AmberAI, Woo or the likes of Galaxy who is experts on financial operations and have ties with traditional finance (Goldman Sachs, Jump, etc) sourcing data and integrations with their projects

The gist is to go for strategic and value-add partners who can help with Airnode adoption. Once this is done and deal terms are concluded, we could do a small public LBP on the same and similar terms to not negate the general public.

Deal parameter (Consideration Point 2) discussion will be long so before we go there, we need to decide on option A or B.

But general principle or the function that we want to maximize is:

  1. increased liquidity with minimal stakeholder negatives
  2. maximizing adoption for Airnode

To maximize these functions:

  1. Discount kept at minimal 10-15% but rather give them incentives once certain KPIs are met to align projects success. As an example, if we get to market cap of $500m, $1bn, they receive a certain % more. This could be based on number of requirements, such as number of partners, API calls, protocol revenue. The gist is to not blindly give them discount for being an institutional investor but reciprocate only if when they have added value, as measured by KPIs.

  2. We should limit the ticket size. Say $0.5-$1m so we can have as many partners to max Airnode.adoption. And we should try to onboard as many partners while the entry market capitalisation is still sensible.


I think the major issue i have with all 3 of your potential partners that would want to buy in is, that i know either a) that they are not interested or b) that they are interested under conditions that are not interesting for us.

Take for instance the raise of Lido. Yeah sure, they raised a bunch of money and did so while giving away tokens with a cliff and vest, but at the end of the day they suffered a 50% discount for it. VCs are simply not interested in your 10% discount to buy in and also having to endure a cliff and vest on top of it. I talked to numerous of them in Paris and without sounding too negative here: We already have one of the best portfolios of VCs you could have out there. What value will e.g. Coinbase Ventures add that is not already covered by DCG or Coinfund?

In regards to data providers: It is already very hard to get them to run Airnodes and there we have the advantage of excluding crypto completely if they don’t want to. I think there is a slight overestimation going on here in a) the willingness of providers to actually touch crypto and b) the numbers that are being thrown around here. Just from my experience, thousands are a speaking point. Assuming that somebody will invest half a million into crypto under those conditions is a bit out of the blue.

Strategic partners and projects: L1s are interested in data becoming available, not about the liquidity of the project that claims they will bring data to their L1. In a similar fashion dApps are interested in using data and not bringing the means of liquidity to a project that claims they will provide them with data. Until data is available and actually used, it seems unlikely that any project will use parts of their treasury to buy into a serivce they have not even seen in action yet. (token swaps are a different thing). The reason this works with yearn & e.g. curve is that its working and they use it. We’re not there yet.

I’m happy to be argued against here and hearing a different stand on it, but the major reason i want a “fair, public and relatively decentralized” way of distributing these funds is that i simply do not see any meaningful value add or willingness to buy from:
a) yet another crypto VC
b) data providers that won’t touch crypto
c) platforms/dApps that are still waiting on data to become available first

I think people neglect the fact that we are still at very early stages and to expect that we have this insanely long line of investors outside of our doors willing to throw in millions under conditions that are not extremely favorable to them is a bit wishful thinking.


I see your points but under current climate, it would be harder to raise meaningful amounts from retail than institutions.

If we were to go straight into public sale and end up raising some mediocre to disappointing amount, this will simply tarnish the value of API3 nor achieve the original liquidity goal.

I think its unfair to completely rule out each and every one of the non-vanilla investors without trying, for following reasons:

  1. By giving them 10-20% upfront discount and additional spread incentive of 20%+ upon meeting certain KPI, we are effectively giving them a 40%+ discount. If they don’t think we can’t get to $0.5-$1 billion market cap or other meaningful KPIs with a 40% potential discount, they shouldn’t be investing in the first place.

And there are other examples outside Lido. LEND (AAVE) have raised from a good number of investors in early 2020 before gaining major traction at a sensible discounts. Even, Injective and Graph got the strategic round done pre- major traction at much higher valuation than ours. For the sake of NDA, I won’t give names but I’ve recently seen dozens of successful deals with KPI clauses added. So, a sensible discount and a decent KPI based incentive hopefully addresses your concerns.

  1. A lot of institutions have recently raised funds and are in a sentiment to deploy than ever. They are struggling to find good projects to deploy and the process is competitive than ever with the introduction of non-vanilla crypto VCs. To name a few, Wintermute, AmberAI, Woo, etc are all launching some form of investment arms. Combined with large angels from the leading DeFi platforms, i think you could get the raise done.

  2. In this heated market, the valuation is still sensible and the alternative question is, if we can’t do it at current valuation, it will only get harder later for them to come in at a higher valuation. Right now, $140m based on circulating. we’re giving them an effective 40% discount. This is $70m valuation. Even by just factoring 20% upfront, its still low a $100m valuation.

Maybe the reality is that we need to add some mixture of crypto native VCs. But this is better option than a failed public LBP where we fail to raise meaningful amounts and tarnish brand value. Yes, some of the investors, its hard to pinpoint the value they bring and maybe hard to raise from them, but whats the alternative? selling to retail will bring less value. In the previous post, I also mentioned we should do a small scale LBP on same terms, upon the successful conclusion of the round to not negate the general public. So, if we can’t even get institutional calibre buy-in, this should provide an important data point that the public raise won’t go far.


Same. Methodology not bothered. Just get it done.

In light of any upcoming API3 subDAOs and for these to be able to jumpstart their (sub)Tokens on liquid markets (vs API3) how about this “crazy” idea:

Let’s just fork an existing and working solution. Bancor has implemented single-side LPing. We could just fork from them and instead of the native intermediary/base token being BNT we could use API3 itself

That way we can just create our own DEX WITHOUT SELLING any API3s and own our own markets, vs stablecoins and vs upcoming subDAO tokens. Positive side effect we help the sDAOs to jumpstart

We just offer API3 and the other side of the respective market will fill itself because of single-side LPing, which is in nature staking-like and offers IL-risk-free APR


I largely agree with you on the VC part @UgurMersin. We should be very careful in introducing new voting bocks + the project already has good VCs. We should add selectively only where we see huge benefit.

A couple of thoughts / queries

  • Regarding the idea of TWAP smart contract. It will perhaps only be attractive when TWAP is lower than spot price and there is an arbitrage opportunity. In this case, the DAO would be at a loss.

  • API3 price is expected to rise, which poses threat of impermanent loss. If this is compensated through staking rewards, it appears a bit of circular play - treasury does LP, treasury mints new tokens to compensate it for it’s impermanent loss. As SubDAOs and the main staking pool is also part of the ecosystem, i hope this does not create any perception problems in the future.


Just to give a small update here.
This topic isn’t forgotten or anything, i’m just checking the legalitly around everything.

The token distribution event had various limitations because of legal reasons and any subsequant sale of API3 is similarly “difficult”.
In the same fashon a lot of legal problems could arise when thinking about liquidity provisioning that have to be cleared up before.

It’s unfortunately not as easy as “let’s sell 1M api3 and then just LP on sushi” as i thought it could be.


Thanks for the update. If we do go down with institutional route for initial sale (of API3 to USDC), i think the best barometer for market wide interest level is first to ask existing VCs whether they are up for a follow-on ‘round’.

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Technically there is no protocol-level reason for the DAO to pursue DEX integration/liquidity right now, as there is not enough required protocol-level service activity that would justify this move.
HOWEVER, this of course changes with Airnodes, dAPIs and insurance becoming available and more highly active.

The reasoning here is simple:

  • Web3 data consumers need a way to either programmatically acquire, or have their ETH or other token payments convert to, API3 without relying on a central entity (CEX)
  • Insurance customers need a way to either programmatically acquire, or have their ETH or other token payments convert to, API3 without relying on a central entity (CEX)
  • Insurance customers need to have access to/have the ability to route claim awards to a functional decentralized exchange to potentially make use of their insurance without losing the proceeds of their claim to slippage (this would otherwise be bad for insurance users and also issuers, since insurance in API3 is worth a lot less if there is no way to trustlessly convert those API3)

So what does this mean?

a) The DAO can start thinking about a way to use third party protocols to integrate trustless API3 conversion, which would in practice result in diversifying some API3 into ETH

b) The DAO can use a nominated fund manager group, smart contract or other third party to LP on Sushi or other DEX

c) In the Sushi example, the SLP tokens can be staked by such nominated fund manager group, smart contract or other third party in order to receive Sushi rewards, accruing more grant funds to the DAO treasury.

For point a) I am still not in favor of running to more VCs or our existing ones for treasury diversification with the simple reason, that most of them are aware of what we are doing and nothing stops them from creating a proposal themselves in here to acquire more API3 or otherwise using existing channels.
I think creating a mechanism where the DAO instead routes to an established DEX for trustless liquidity for users is an easier way, is more in line with decentralization, and perhaps more importantly, solves the trustless conversion needs listed above.

I’m potentially thinking of calling this the “API3 Fund Management Monolith” with several steps.

Undertaking/Step 1:
A smart contract that makes it possible to convert to API3 for the purposes listed above for a fixed price (depending on how much API3 is available in the contract). This would be a contract that allows switching ETH for API3 on the basis of a price oracle. Before sufficient Airnodes are live it can make use of e.g. the Uniswap TWAP Oracle and later down the line switch it to a dAPI. The contract would also have a transfer function that would make it possible to send ETH proceeds to only the DAO treasury.

This contract could be reused whenever the DAO wants to commit more API3 from the treasury for the purposes above. Larger users and DAO participants would have a way to acquire/convert ETH to API3, at a foreseeable/calculable ratio/price without moving markets or affecting the API3-native pricing aspects of the protocol (which is a big potential issue atm).

I’m currently in touch with one external dev team, that could build this for roughly 25k € (± any changes). A potential audit pending ofc.

Undertaking/Step 2:
Form a Fund Management council (preferably with a very diverse member pool - e.g. current team members in addition to very active DAO members like @Headroom or @Marco or other very active community members should be incorporated).
This council would create a multisig and be put in charge of managing, well, funds. This could include e.g. pooling on Uniswap/Sushiswap/etc and also e.g. staking SLP tokens on Sushi for additional rewards.
Why would we need a council for that, can’t the DAO simply do this directly? Well, technically yes, BUT it would require a vote every single time.

Approving API3 before pooling? Vote.
Pooling API3/ETH? Vote.
Approving API3/ETH SLP for staking? Vote.
Staking API3/ETH SLP? Vote.

I think you get the gist of it. This would spam the DAO with proposals that we know should pass (given the initial undertaking) and require meaningless gas payments of a lot of people.

We’d still have to figure out how we would “best” choose the people in charge of this multisig, but I can also propose something and see how the sentiment around it would be.

Undertaking/Step 3:
Prepare a DAO vote to send treasury API3 tokens to the smart contract from Undertaking 1 (still need to think of a fancy name) with e.g. 1 Million API3. Once all API3 tokens are gone, the ETH proceeds can be send to the DAO.

Undertaking/Step 4:
Make the ETH and an equivalent amount of API3 available to the Fund Management Council that was formed in Undertaking 2, through DAO votes to transfer each to the multisig.
I have confirmed with Erich that such “third party fund management” of the DAO treasury is contemplated in the API3 Foundation’s bylaws (as the legal wrapper of the DAO), but must be accomplished with care and some restrictions.

Undertaking/Step 5:
Let the Fund Management Council manage funds. Possible first goals would be to LP on Sushi and also stake our SLP to gain Sushi rewards, but this group could be on the lookout for other “safe” DeFi opportunities to generate yield with additional funds from the DAO treasury, at their reasonable discretion with community feedback.

This is a rough outline and a lot more detailed work needs to be done here, but I wanted to see what everybody’s thoughts on this are.
As a timeline I think 2-3 months to be ready with this are reasonable (pending audit availability etc).


Thanks for driving this effort @UgurMersin . Just want to point this out

Essentially, the DAO supports proposals specifying multiple calls (for example an approval and a pooling transaction) but the dashboard doesn’t (so if you made such a proposal now the dashboard would fail to display the proposal details – and everyone should vote against proposals whose details can’t be displayed, at least under normal conditions). Three reasons for this

  • It would make the new proposal modal more complex (it’s already pretty complex)
  • It would make the proposal details page more complex (more difficult to decide if a proposal is safe to vote for as a voter, again, already pretty difficult)
  • Requires a lot of additional design and development that would have delayed the launch

We’re not working on this at the moment because it still feels like a nice to have with downsides, but just putting it out there as an option.

I think one problem with the multisig approach is that even when its signers are assigned by the DAO and can be replaced at will, the decisions it will take will be more risk-seeking. That’s because there’s a lot of friction in being able to pass a DAO proposal and that reflects as conservatism (which I believe to be a feature of a DAO). So the multisig approach leans towards the DAO taking more financial risks.

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The signers could also have their risk-taking abilities/preferences parameterized by legal agreement if it’s a worry. Of course that would require identification and/or some simple legal entity establishment, which would be best practice anyway for accountability and their liability limitation. All around, personally I would prefer (regulatory-wise) outsourcing fund management/provision rather than the Foundation-wrapped treasury directly assuming new categories of risk.


Translation of this is - even if the DAO can the DAO maybe shouldn’t? :stuck_out_tongue:

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There is definitely a DAO level need for additional liquidity. See your OP comments below. I know doing liquidity provision is difficult for legal and compliance reasons but it needs to happen for decentralisation. We are a start-up, we can’t always say no and take the timid route, our mindset should be more on overcoming obstacles and challenges and doing whats best for the project. We have so little participation from the wider community.

We talk so much about decentralisation and yet we are only listed on Chinese exchanges. What’s the point committing a great deal of resources on building IPFS staking and yet initial acquisition method of the tokens are all on CEXes? Let’s not contradict ourselves.

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While i appreciate the feedback, if we’re going to rekk the entire protocol by “just LPing” i’d rather not do that and think it through for another month or 2.

@Erich brought up how we can achieve this and there is a way of doing this without putting the entire project at risk.

Again, a lot of these decisions are based on a vision of YEARS and not months.

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Again all i’m doing is referring back to your own OP comments:)

Yeah, but I’m not a lawyer and as I pointed out in a post thereafter, it is not as easy as just LPing. I got multiple opinions in on this and the easiest way for us to get on the radar of some agency is doing stuff like this.

I mean there is nothing stopping you from pursuing this in a riskier way by building out your own proposal but my potential proposal will stay as compliant and “risk-free” as possible for the longevity of the project.

Airnodes and insurance are not live yet so there is no „do or die“ action required as of this second.


yeah agree - i think there should be some internal brainstorming at least because its an important aspect of the project afterall from non-devs at least.