Shade Protocol X Sommelier Finance Liquidity Matching

TLDR

  • Shade Protocol is proposing a $150k SHD token loan to the Sommelier Community to be matched with $150k of SOMM for the creation of a $300k SHD/SOMM LP pool
  • ShadeSwap supports 37 assets that are all connected via multihop routing
  • Half of the LP ($150k worth of SHD) will be owned by the Shade Protocol community, the other half ($150k worth of SOMM) will be owned by the Sommelier Community Pool.
  • This will sustainably deepen the liquidity for SOMM in the form of Protocol Liquidity Matching, with zero additional incentives required to bootstrap a solid trading experience
  • As part of the deal, Shade Protocol commits to exploring the addition of Sommelier yield bearing assets on ShadeSwap, and potential as collateral for SILK long term

Introduction

Shade Protocol is an array of connected privacy-preserving DeFi applications built on Secret Network. Shade Protocol is governed by the SHD (“Shade”) token which governs the following products:

  • SILK (private stablecoin tracking basket of global currencies & commodities)
  • ShadeSwap (DEX supporting private tokens w/ 100% front-running resistant trades)
  • ShadeLend (private leverage)
  • stkd-SCRT (private LST)
  • Bridging (IBC bridge experience that auto wraps into private tokens)
  • Bonds (protocol open market OTC mechanism w/vesting periods)

Shade Protocol’s mission is to built out the most cohesive private DeFi suite in crypto that empowers “Your Money. Your Data. Your Decisions.” We believe in the power of sustainable DeFi - which ultimately comes from providing valuable services that are consistently used with an intelligent flywheel of repurposing fees to continue to slowly grow the protocol base of liquidity over time.

Shade Protocol has generated $388k in fees since August of 2023 (converted into SHD) which have been repurposed into real yield for SHD stakers. Shade Protocol has also closed liquidity matching deals (~$5.7M) with the following partners:

  • Andromeda ($1.96M)
  • MantaDAO ($438k)
  • FINA ($380k)
  • Oraichain ($330k)
  • Stride ($260k)
  • Kujira ($187k)
  • Levana ($150k)
  • Composable ($172k)
  • Persistence ($131k)
  • White Whale ($97k)
  • Archway ($60k)

Shade Protocol hosts ~$35M in TVL across its various products, with a variety of new products (debit card, money market, liquidity orderbook, SHD LST, etc.) currently under development.

There is a total of 10M SHD, of which 2.78M (27.8%) is currently in active circulation with 37% of all supply (~$27M) worth of SHD in the community pool, with the remainder split between liquidity providing rewards and the Shade Protocol development fund.

Proposal

Liquidity Matching

Shade Protocol is offering a token loan where Sommelier would receive $150,000 of SHD to be matched with $150,000 of SOMM from the Sommelier Community Pool for the creation of the SHD/SOMM LP token on ShadeSwap. The exchange ratio will be based on a 20-day TWAP at the time this proposal is placed onchain.

Key to note is that the Sommelier Community would be the custodian of both the SHD & SOMM tokens.

In the event of a pool wind down as desired by either protocol, the initiating community must give a 30 day heads up to other community of their desire to wind the pool down. This must be done via a forum post. Upon expiration of the 30 day heads up, all SHD tokens from the LP token would be returned to the SHD community & all SOMM tokens from the LP token would be returned to the Sommelier Community pool.

If accepted, this proposal will greatly increase SOMM liquidity on Shade Protocol, and facilitate several routes to the SHD/SOMM pair. In particular, this would enable users to trade SOMM across all of the available pairs such as USDC.axl, USDT.axl, SILK, ATOM, stATOM, STRD, wstETH, wETH, wBTC, etc. This is made possible via the ~$1M in SILK/SHD LP that helps actively route the majority of trades.

If accepted, this liquidity matching deal will generate $300k in SHD/SOMM liquidity & open the doors to additional traders & users for the Sommelier platform

Benefits to Sommelier

The proposed toke loan will provide several benefits to Sommelier:

  • Sustainable deepen liquidity for SOMM in the form of POL, at zero additional cost for Sommelier, and without the need to pay incentives to LPs
  • Sommelier will be the custodian of the SHD/SOMM LP tokens on ShadeSwap
  • Access a set of unique traders that may want to acquire SOMM but value their privacy such that they are only comfortable trading on a venue like ShadeSwap
  • Facilitate trades to SOMM from 37+ other assets supported on ShadeSwap
  • Establish SOMM liquidity such that it may be used as collateral for SILK minting in the future
  • Establish SOMM liquidity in advance of the Shade Money Market product launch (such that SOMM could be supported as a lendable/borrowable asset)
  • Establish IBC connection with Secret Network - opening the door to bridging & supporting additional market making strategies & assets.
  • Shade Protocol power users specifically requested the ShadeDAO team to pursue this deal as they love SOMM and want to be able to acquire it within the private trading environment of ShadeSwap. There appears to be cross pollination between these communities, and this deal would help solidify users ability to go back & fourth between the two platforms & products.
  • No speculative risk of owning a 3rd party’s token
  • No speculative risk of trusting a 3rd party to own a significant portion of your protocol’s token
  • The protocols are the only liquidity providers
  • Can withdraw at will

Risks:

  • Impermanence Loss, but only for the single sided portion of liquidity provided.

Shade Protocol is an excellent venue for SOMM with the following statistics:

  • ~$35M of TVL
  • $2M - $4M daily volume
  • ~16,000 monthly active users
  • New venue of traders that value private token balances & transfers
  • $2.7M of ETH/wstETH on the Shade platform
  • $4M+ of stablecoin liquidity (USDC.axl/USDT.axl/SILK)

Proposed Execution Process

  1. The Sommelier team will act as the intermediary for Sommelier on-chain operations. The Shade Protocol community will post the on-chain Community Pool Spend Proposal for the Sommelier community in order to transfer $150k SOMM from the Sommelier Community Pool to the Sommelier team operation address: [address TBC].
  2. If the on-chain proposal passes, the Secret <> Sommelier IBC connection will be spun up via IBC relayers
  3. The Shade team will add in bridge support on its bridge portion of the Shade App
  4. The Sommelier team will perform an IBC transfer of $150k of SOMM to Secret Network
  5. The ShadeDAO liquidity council will then send $150k of SHD to the Sommelier team’s operation address on Secret
  6. The Sommelier team will then seed the SHD/SOMM pool with $300k worth of liquidity as received from the ShadeDAO liquidity council on the Sommelier Community Pool.

Conclusion

In conclusion, this proposed partnership between Shade Protocol and the Sommelier Community holds immense promise for both parties. By leveraging the strengths of each platform, we can collectively deepen liquidity, enhance accessibility, and foster innovation within the decentralized finance space. With Shade Protocol’s proven track record of building cohesive, privacy-preserving DeFi solutions and Sommelier’s dedication to empowering its community, this collaboration signifies a significant step forward in the journey towards a more inclusive and sustainable financial ecosystem.

Through the establishment of the SHD/SOMM LP pool on ShadeSwap, we are not only creating new avenues for traders but also laying the groundwork for future endeavours such as yield-bearing assets and collateralization opportunities. Furthermore, the commitment to exploring Sommelier’s integration into ShadeSwap demonstrates a shared vision of interoperability and mutual growth.

As we embark on this (potential) collaborative endeavour, let us seize the opportunity to amplify our impact, empower our communities, and pave the way for a brighter future of decentralized finance. Together, we can unlock new possibilities, redefine standards, and continue to push the boundaries of innovation in the ever-evolving landscape of DeFi.

We look forward to receiving feedback and answering any questions on this forum post. We plan to leave this post up for a minimum of 10 days worth of feedback before going onchain with a proposal :slight_smile:

-Shade Protocol Core Contributors

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