Summary

The ultimate objective of this initiative is to create the conditions for Stride's stJUNO to be approved as collateral on the Umee money market.

Umee contributors have determined that 1M JUNO in the stJUNO/JUNO Osmosis stableswap pool is the minimum trading liquidity needed to safely enable stJUNO collateralization on Umee.

Therefore, this proposal asks the Juno community to deploy 1M JUNO of protocol owned liquidity (POL) to the stJUNO pool on Osmosis.

This 1M JUNO would not be spent in any way, and would always remain under the control of the Juno community.

The term of this liquidity position would be one year. If Juno governance does not authorize an extension by passing a new signaling proposal, the 1M JUNO will be withdrawn and returned to the community pool on May 1st, 2024.

Justification

Recently, JUNO was approved as collateral on Umee. This was a hugely significant development for JUNO. For the first time, it gave JUNO holders an alternative to selling. Now, JUNO holders can access the equity of their JUNO without selling, simply by using Umee to borrow USDC against JUNO.

However, unstaked JUNO forfeits its staking rewards when collateralized. Given the high JUNO staking reward, this is a major disincentive to borrowing against JUNO. 

The solution to this problem is liquid staking. If Umee supported liquid staked JUNO, then users would be able to borrow against their JUNO without forfeiting staking rewards. This would likely increase the popularity of borrowing against JUNO and thereby decrease sell pressure.

But in order for stJUNO to be supported by Umee, Umee contributors have determined that at least 1M of JUNO liquidity is needed in the stJUNO/JUNO stableswap pool on Osmosis. This liquidity is needed so that the pool can serve as a reliable oracle for the price of stJUNO while at the same time absorb potential stJUNO liquidations.

Stride and Osmosis

Stride's liquid staked token of JUNO, stJUNO, launched in October of 2023. To give the Juno community a voice in the Stride DAO, 200,000 STRD was airdropped to JUNO stakers. Since the launch of stJUNO, its supply has steadily increased, suggesting that JUNO holders believe stJUNO to be useful and trust-worthy. 

Stride prioritizes security over all else. The Stride codebase has been independently audited by three security firms, and receives continuous auditing from Informal Systems. The Stride blockchain is on track to adopt interchain security, which would increase its economic security by more than 100x. And to mitigate any potential issue, the Stride chain uses IBC rate-limiting.

Turning to Osmosis, it is the most suitable place for this 1M of JUNO liquidity for two main reasons. First, Umee's oracle implementation is currently configured for Osmosis. This means that Osmosis liquidity pools can serve as oracles for tokens listed on Umee, but liquidity pools on other DEXes currently cannot. Second, Osmosis has a stableswap pool type, making it an ideal place for an LST pool. As opposed to constant product, the stableswap pool type utilizes liquidity much more efficiently.

Details

If this proposal passes, it will release 1M JUNO from the community pool to a subDAO / multisig controlled by these trusted community members:

• Rarma (C-2)
• Brandon (Umee)
• John (Stride)
• Dimi (C-1)
• Reece (C-2)

You can check the multisig on DaoDao: https://daodao.zone/it/dao/juno15y8mzyzyksw2wzfcv5d67j5pzxzwj0n00agt5kk08mqwykqamheqgvsd9l/proposals

The multisig signers have bound themselves to follow this set of instructions. Multisig signers will:

1. Liquid stake 500K JUNO with Stride protocol, resulting in a certain amount of stJUNO.
2. Provide the remaining 500K JUNO along with the full stJUNO amount to the JUNO/stJUNO (# 817) liquidity pool on Osmosis.
3. Leave the liquidity in the pool, and do nothing else with it.
4. If Juno governance does not make a signaling proposal to extend the term of this liquidity position, withdraw the 1M JUNO from the liquidity pool and return it to the Juno community pool on May 1st, 2024.
5. If Juno governance passes any signaling proposal at any time containing instructions for the multisig regarding the 1M JUNO liquidity position, then promptly follow those instructions.

Final thoughts

There's currently ~15M JUNO in the community pool. Deploying 1M of that liquidity to the stJUNO/JUNO pool to enable stJUNO collateralization on Umee would be a very good deal for the Juno community. None of the 1M JUNO would be spent in any way, and would always remain under the control of the Juno community. With stJUNO listed on Umee, JUNO holders would have a good alternative to selling - they would be able to borrow against their JUNO without forfeiting any staking rewards.

If this vote passes and the 1M is provided to the stJUNO Osmosis pool, an Umee governance proposal to enable stJUNO collateralization on Umee will quickly be made. And Umee contributors are confident that such a proposal would pass.