Opening Ceremony Drop #2: Liquidity & Mechanics Update
Big week of alfa for our faithful Templars.
Today’s drop is all about our liquidity pool plans and the Temple mechanics for price incentives / arbitrage.
If you haven’t caught our first drop on Enclaves and Governance, check it out:
But today, let’s talk about liquidity.
First, a quick recap.
The core of Temple is growing Intrinsic Value and harvesting that growth for rewards. This prevents excessive minting of rewards and ensures intrinsic value is always rising.
$TEMPLE price is defended by Temple Defend at the Intrinsic Value. Temple Defend acts as a protective Put option, granting buyers the right but not the obligation to sell Temple to the Protocol at the floor price.
$TEMPLE price has a ceiling at the Safe Premium, which enables users who mint at the Over-the-Counter (OTC) Protocol price to sell (arb) those tokens into the DEX liquidity pool to bring the price back down to the Safe Premium ceiling.
Since our users = our community = our team = our investors, we have been selective with who and how people can mint on protocol. During the Fire Ritual, we were very selective and many who were deserving did not receive incense. We understand your feelings of disappointment.
However, during the Opening Ceremony, all eligible Templars in the Discord will be able to mint if they complete the Opening Ceremony Ritual. While the Opening Ceremony is open to everyone who meets certain eligibility criteria, we still expect the process will turn away a lot of mercenary capital. While some of the eligibility criteria will still remain a secret, Templars can rest assured that those who are most active and engaged will be called to complete the ritual.
It is important to note that $Temple minting will be capped during the Opening Ceremony. This means there will be restricted minting. But given that the original implementation of Safe Premium calls for free and unconstrained minting at any time, what does it mean for Safe Premium moving forward after the Opening Ceremony?
We are implementing Safe Premium in a new way, where both the DAO and community profit from maintaining the ceiling. It will be implemented in two stages.
Many members of our community have pointed out that while the original implementation would have kept a tight ceiling on AMM price, profit from arbitrage would have gone to apostate bots. We agree that it would be much better for the DAO and thus the community to benefit from arbitrage trade to maintain the ceiling.
Concurrent with deployment of the AMM pool, we will launch a price stability bot that sells $TEMPLE into the pool if the price gets too high. While this will put downward pressure on the $Temple price, its objective is not to enforce a tight peg. That level of price control is beyond the capability of this implementation. To use stablecoin nomenclature, $Temple would have an elastic peg. We expect to see the AMM price float above the current Safe Premium value.
Note: During the Opening Ceremony you can mint $TEMPLE at the Safe Premium at templedao.link — So Do Not Buy On The AMM If It Is Above Protocol Price!
The price stability bot will operate in two modes. First, it will mint $TEMPLE, sell them to the AMM at a price above the Safe Premium, and send $FRAX profits to the Treasury. These sales increase Intrinsic Value and the rewards pool for all staked Templars. Second, it will convert a portion of stockpiled $TEMPLE in the DAO pool to $FRAX (up to one third of DAO $TEMPLE) so that the DAO may pay future operational expenses in both $TEMPLE and $FRAX where necessary. Note that these sales come from DAO harvested reserves and do not draw on the staking reward pool in any way.
(There is a possible Third Mode, related to preparations for Stage Two, which will be unveiled at a later date. It will have no impact on Treasury or Rewards in the short term.)
At launch, there will be a short supply of $TEMPLE available as almost the entire supply is staked and locked by the Faithful. This presents an opportunity for the DAO to sell into this pent-up buy pressure to limit price appreciation and deliver profits to the Treasury. Once unlocking begins and the circulating liquidity grows, the DAO will need to apply price pressure in the upward direction as well. The Temple will prepare for Stage Two.
We have a customizable stability tool in development that will provide liquidity and perform open market operations on the DEX while acting in concert with the user-mediated stability mechanics like Temple Defend. Conceptually this is akin to a private AMM that is aimed at achieving DAO monetary and price objectives in a complementary way. The end result is an enhanced level of precision and control over our policy levers.
More details about this stability tool will be unveiled in an upcoming Temple product release.
Liquidity Pool update
Liquidity is a fascinating topic that has been driving a lot of discussions about DeFi 2.0. Pioneers like Tokemak and OlympusDAO have driven the “Own vs. Rent” conversation and have created innovative tools to help Protocols secure their own liquidity.
The genesis TEMPLE/FRAX pool will launch shortly after the Opening Ceremony ritual begins. Initially, TempleDAO will be deploying its own liquidity. We will be utilising harvested $TEMPLE that have been distributed to the LP Pool (i.e., no $TEMPLE from the staking rewards pool) and $FRAX reserves to seed an initial pool.
People who buy from the AMM pool will be able to stake at our dApp, however, they will receive a lower APY than those who have completed the Opening Ceremony Ritual as the Faithful will be able to stake in a different pool. TempleDAO rewards those who have engaged more deeply than the average ape and who have given the most value to the community.
Later, we will explore a number of options to further boost the size of our liquidity pool:
- Further Temple owned liquidity deployed from treasury and harvested rewards
- User-provided liquidity incentivized in the short term via $TEMPLE and partner rewards
- Synergistic partnership with other liquidity protocols are ongoing
These policy decisions will be driven by the Enclave of Logic post Opening Ceremony.
Next Steps & Timeline
What’s coming up next in the Opening Ceremony?
- Call to Prayer this Sunday Oct 24th at 3PM PST (UTC-7) / 6PM EST (UTC-4)
- Final Medium Drop on Opening Ceremony Details
- Opening Ceremony Ritual begins (cheapest $TEMPLE price, best APY)
- Liquidity pool deployed
- On-chain price stabilization bot deployed
- We begin to gear up for Release 02…
Big days ahead.
The Temple is almost open…
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