What do you propose?
Hello everyone,
This proposal asks the Marinade DAO treasury for a budget of 26M MNDE to onboard 2 to 3 market makers for 12 to 18 months. The objective is to significantly improve MNDE liquidity on centralized exchanges. A much more liquid market will positively influence investor sentiment and allow more traders to position themselves in MNDE. Tighter spreads will promote higher trade volume. With those efforts, MNDE will have more efficient price discovery as it’ll benefit from deep and resilient liquidity.
MNDE would be transferred to the Marinade Council, which would engage in those contracts with market makers on behalf of Marinade’s DAO.
What is the rationale behind the proposal?
The liquidity available on exchanges for MNDE has been a sore point since the token’s inception. This can be partially explained by the initial distribution, which was conducted through a retroactive airdrop without any ICO.
As of today (June 11th) and in the current liquidity conditions, someone buying $10k of MNDE would raise the price 2%, and someone selling $25k of MNDE would lower the price 2%. This situation is detrimental to the token, as this lack of liquidity makes entering a position more dangerous.
We can compare the liquidity level of MNDE to two SPL tokens that are much more liquid on CEXs, JUP and JTO.
MNDE has an aggregated liquidity on CEXs of $35k in +/- 2% (for a marketcap of $32.9M)
JUP has an aggregated liquidity on CEXs of $9.3M in +/- 2% (for a marketcap of $1.2B)
JTO has an aggregated liquidity on CEXs of $10.2M in +/- 2% (for a marketcap of $361M)
When indexed for MNDE marketcap, this gives us:
MNDE: $35k of aggregated liquidity in +/- 2%
JUP: $258k of aggregated liquidity in +/- 2% (as JUP’s marketcap is *38.4 the one of MNDE)
JTO: $935k of aggregated liquidity in +/- 2% (as JTO’s marketcap is *10.94 the one of MNDE)
Data as of June 11th, Coingecko. Smaller exchanges have not been considered in those calculations.
Those numbers show that MNDE is highly illiquid on CEXs compared to other comparable SPL tokens. This lack of liquidity has multiple consequences:
- Traders are not interested in trading MNDE as the liquidity is too low.
Taking a big position on MNDE is much harder and riskier, as the liquidity to buy in size is not available, and the liquidity to sell in the future is also uncertain. - Exchanges are not interested in listing a token that has too shallow liquidity.
This proposal suggests onboarding professional market makers to improve MNDE’s liquidity situation. This could lead to more organic trading volume and more interest in MNDE from additional exchanges.
A group of Marinade contributors has already conducted initial research on potential market makers to evaluate the budget needed to achieve those objectives. The research concluded that the most optimal strategy to significantly improve the liquidity was to onboard 2 to 3 market makers, with a time horizon of 12 to 18 months.
To onboard 2 to 3 large market-makers for 12 to 18 months and provide significant liquidity to the order books, Marinade would need a budget of 26M MNDE (2.6% of the total supply).
Onboarding multiple market makers will bring a significant amount of liquidity to the order books, which should result in a healthier and more attractive order book for traders and investors. The interactions between those different market makers in the same order book should also bootstrap trading activity.
What is the expected positive impact of this change?
By onboarding 2 to 3 market makers, Marinade expects to significantly improve MNDE liquidity on centralized exchanges.
Marinade will target roughly $250,000 worth of depth inside plus or minus 2% relative to MNDE’s midpoint price, equaling approximately $125k of buy or sell orders needed to move the price by 2%. This represents a *7 improvement relative to MNDE’s current liquidity conditions.
Such a significant improvement in liquidity would allow traders and investors to enter or exit MNDE positions much more easily, which should drive organic volume to MNDE. As MNDE liquidity and volumes improve, it will be in a much better position to be listed on more major exchanges.
Improving MNDE liquidity should also improve the experience of all MNDE holders, as it is currently almost impossible to buy or sell MNDE in size without suffering slippage and heavily impacting the price.
Any other considerations?
- The details of the contracts with market makers are confidential, so they cannot be shared with the DAO in that proposal.
- Some of those market makers could potentially also operate on DEXs and improve the available liquidity there too.
- The contracts with market makers will be structured as loans + call options. This means that the market makers will have the option to buy their loaned tokens at certain strike prices at the end (or during) the loan. If such loans were to be exercised, the USD received would belong to the DAO treasury. Strike prices will also be determined with a premium to the inception price or using TWAP at later dates throughout the contract to prevent market makers from having the option to buy tokens at a lower price than its current one and protect Marinade from predatory behaviors.