Hello Rally Community,
For those of you who don’t know me, my name is Miguel Vias. I am a cryptocurrency markets consultant appointed by the community on May 7th to help develop liquidity for $RLY. As part of this effort, I’ve put together the following proposal which outlines why growing liquidity is necessary at all, which types of partners we’ll need to engage to grow liquidity, in which capacity we will engage those partners, how we’ll measure success, and lastly, the budget necessary to be successful.
Why do we need to focus on this?
One of the core features of the Rally network creator economies is that all creator coins are backed by $RLY. Via the network’s token bonding curve architecture, fans and creators alike are guaranteed the ability to transact in creator coins. Without this system, it would be much more challenging to enter and exit creator economies. At the outset of a creator coin, especially for smaller creators, there likely would be very limited liquidity, which would present a bad user and creator experience.
However, while this architecture solves certain liquidity needs for creator coins, it migrates that need for liquidity to $RLY. Because $RLY is the common element across all creator coins, its liquidity is paramount. If $RLY markets are thin, meaning a small amount of buying and selling has a large impact on its price, we would see a significant amount of volatility in creator coin prices, which again, is not a good experience. As a result, it is important that we have robust $RLY markets globally.
To be clear, none of what we will detail below has anything to do with driving the price of $RLY higher, or lower for that matter. That is not why we are doing any of this. Over time the market will decide what the price of $RLY does and that should largely be based on the size of the creator economies on the platform.
What do we need for a healthy liquid market?
This will be somewhat simplified, but there are similar components across most well-developed markets. In essence there are market participants, and those participants need infrastructure to trade and store assets. In crypto, the infrastructure broadly consists of:
- exchanges, initially centralized but increasingly, decentralized
- over the counter markets
- derivatives platforms
The participants who use the infrastructure consist of:
- speculative traders who trade to make money on price movement
- market makers who trade to make money by capturing bid/offer spreads
- commercial participants who transact in markets as a normal course of business and are market price agnostic
When all of the above is present in a market, generally it means a market is liquid and can support large amounts of activity.
On what will we focus?
With respect to $RLY, the critical infrastructure needed now is centralized exchanges. Since it is an ERC-20 token, $RLY already has broad support across wallets. The other infrastructure pieces will largely fall into place once the exchanges support $RLY. As a result, partnering with exchanges to support $RLY will be a key component of the liquidity strategy, not only initially, but more importantly on an on-going basis. This will be the case for new listings as well as for some of the exchanges that have already listed $RLY. Because the exchanges have such extensive reach, they are a critical gateway for the community to educate and inform the public about the Rally network now and in the future.
In terms of market participants, we will look to ensure that market makers grow their participation in $RLY markets. We are fortunate to have a clear use for $RLY as the backbone of the creator economies on the Rally network. This means creator coin transactions serve as natural commercial flow in and out of $RLY and thus we do not need to, from a market’s perspective, focus on activating this segment. With respect to speculative trading interest, that will not be a direct focus of any of our efforts since there is little we can do to attract that kind of interest ourselves. This leaves us directly engaging the market makers to ensure that they are active market participants now and in the future.
How will we measure success?
It is important for us to be specific with respect to how we measure the success of this initiative. Sometimes it can be easy to think an effort is progressing but be missing the mark because metrics chosen are too broad or simply incorrect. In this instance however, our goal is clear: we want to increase liquidity for $RLY. As a result of this clear goal, and given the discussion above around what a market needs to grow and sustain liquidity, I think we can avoid that pitfall by focusing very specifically on the following:
- Growing number of exchange listings
- Larger $RLY volumes against fiat pairs
- Tighter Bid/offer spreads
- Depth of book
For those who are unfamiliar with some of these terms, a $RLY fiat pair means $RLY against traditional currencies like the dollar and the euro. A bid/offer spread is the difference in price between where one can buy and sell something in the market. As an example, if it costs you $3 to buy bananas, but you can only sell them for $2, the bid/offer spread is $1 ($3-$2). Lastly, depth of book means how much you could sell or buy at each price level represented in an order book. Using the banana example, if you can only sell two bananas at $2 and one more banana at $1.50, that book would be shallower than one where you could sell ten bananas at $2 and ten bananas at $1.50.
As an aside, measuring fiat liquidity, as opposed to all liquidity, is consequential because most people enter creator economies via fiat. To increase the probability that experience continually improves, fiat liquidity is key. In any case, if we can manage to improve each one of the above metrics, we will be well on our way to growing sustainable and healthy liquidity for $RLY.
What do we need to get this done?
To properly engage with the partners, and progress the metrics, outlined above, a very high-level budget request for the following 12 months is outlined below, consisting of up to a maximum total of 35M $RLY, to be deployed as follows:
- Loans: $RLY deployed in the form of loans to enable key market making partners to provide consistent liquidity
- Amount of allocation: 60-70% of total budget
- Loans may contain embedded options to sell $RLY
- Loan terms to be no longer than 12 months
- Education/Marketing: $RLY deployed to exchange-specific education and marketing programs relating to the token are generally required by key exchanges.
- Amount of allocation: 30-40% of total budget
- $RLY will be returned to community if not used
The maximum number of $RLY to be deployed is substantial but will not be the total amount actually spent. We are not simply going to hand over 35 million $RLY: most of the budget is comprised of loans which will be repaid either in $RLY or USD depending on the terms required by the relevant partners, and much of the educational/marketing spend will likely come back if initiatives are not executed or are unsuccessful. In short, we should expect the actual spend of $RLY to be between 5M and 10M $RLY. However, to enable the engagement with exchanges and market makers, this amount needs to be approved by the community as available for deployment should the need arise.
Additionally, my community engagement commitment is set to expire in less than five months but some of these engagements will extend beyond that and require continued overseeing. Before my tenure ends, I will work with the community to ensure this responsibility is handed over properly so there are no gaps in process management or reporting.
How do we track and govern all of this?
I will freely admit that much of my thinking around how to manage this piece of the process borrows significantly from what Bremner proposed in his budget request. Not only because I agreed with most of what he proposed, but also because I believe it is important that we have a certain amount of standardization across community agents and accountability on reporting. As such, I propose the following structure:
- Quarterly reports delivered to the community on June 30, September 30, December 31, and March 31
- Quarterly community calls to review the report and collect community feedback on progress, spend, and strategy.
As part of the role for which I was originally appointed, I will act as the community’s agent for purposes of identifying, vetting, and officially contracting with partners, as well as overseeing and managing relationships with partners selected.