QIP188: Migrate eQI to LP Locking

Background

19 months ago, in July 2021, QiDao launched its QI locking - escrowed QI. This was an internally-built product based on several other governance frameworks at the time. It allowed QiDao to incentivize the locking of QI by boosting both voting power and revenue distributions. The initial goal was to have at least 50% of QI locked. Currently, close to 70% of QI has been locked for an average of almost 3 years.

In parallel, QiDao runs a liquidity mining campaign to maintain QI liquidity (QI-MATIC). This LP allows users to buy and sell QI, and sets the price of QI. The LM campaign costs QiDao 180,000 QI per week, or $18,000 per week. This accounts for 30.72% of total QI emissions. Such an expense is not sustainable, especially given unpredictable market conditions. The DAO needs a better model for maintaining QI liquidity. Switching to a third-party liquidity pool locking product would be a step in the right direction.

Overview

• A maximum of 5% of eQI holders’ QI will be replaced with an equal value in MATIC, resulting in a QI-MATIC LP that is valued at the same amount as the current eQI holdings
• Proposed QI-MATIC split: 95% QI and 5% MATIC (max of 5% MATIC)
• Price of QI: trailing 14-day average
• One-time expense to QiDao: 226,669 MATIC at current prices
• Yearly savings in QI emissions: $1,123,200 or 9,360,000 QI
• A new QI token will be created on Polygon to facilitate the migration. This does not mean that users will necessarily receive a new token. Options exist to migrate QI to a new token without users having to "receive" a new token.

Balancer Option

The Balancer team approached QiDao several weeks ago about migrating eQI to Balancer, via it’s 80/20 locking product. This product has similar characteristics with eQI, being a locking mechanism that boosts both voting power and revenue distributions. The only change is that LPs are being locked instead of the sole governance token.

Impermanent loss

This migration would introduce impermanent loss (IL) to eQI holders. This IL is expected to be between 0% and 0.5% under normal to moderate trading conditions. Under severe price volatility, IL is expected to reach 1%. Using this link, you can view the effects of price movements on IL for Balancer: https://baller.netlify.app/

QiDao will apply to Balancer’s 80/20 grant in order to cover the cost of IL. The expected APR at current price is between 1% to 3%. This should be more than enough to cover IL. More information about the grant program can be found here: https://snapshot.org/#/balancer.eth/proposal/0x3708b9fcb085bccc6ebb9e9708c6e45528a85b22483da9bbdcc0b606103429fb

References

Balancer 80/20 intro: https://medium.com/balancer-protocol/80-20-balancer-pools-ad7fed816c8d

Further reading: https://medium.com/balancer-protocol/liquidity-after-bootstrapping-ffc7856d5c8e

DEX Selection

Final DEX selection will depend on our ability to collaborate and partner with specific DEXs, as well as their governance layers. It is important that QiDao remain flexible on this point, given the unpredictability of external DAOs.

Exit Early Option

An "exit early" option allows users to leave their eQI lock before the locking time has elapsed. For example, a user with 3 years left on their lock would be able to withdraw their QI before the 3 years have passed. This option could offer users that do not want to participate in the migration to LP locking a way out. If this option is passed, then a follow up QIP will decide the details of this option.

Quorum Standards

Approval of this QIP will be based on the combined votes to "Approve migration" and "Approve migration + exit early option" versus the other options. If the approve options have the majority, then the approve option with most votes will be adopted.

Options

• Approve migration
• Further discussions needed
• Approve migration + exit early option
• Abstain