GIP-28: Storm King MM Proposal

Authors : Richard Liu, Storm King

Summary : This proposal outlines an agreement for market making services, to be provided by Storm King (operating as Velar Technologies outside of the US), for the GFI token. The purpose of this proposal is to seek approval for a loan of ~1.5% of total GFI token supply that would be used by Storm King to provide liquidity for GFI tokens on two CEX’s and Uniswap v3.

Motivation: Storm King is proposing a market maker agreement between Velar Technologies and the Goldfinch Foundation. Currently, GFI markets are experiencing issues on both DEX’s and CEX’s, so doing larger transactions without significant slippage is challenging.

Given that much of GFI volume continues to exist on CEX’s, onboarding Storm King to facilitate market making services on key centralized exchanges is timely, particularly given the upcoming launch of Membership Vaults (GIP-13). As Membership Vaults will introduce additional utility for GFI holders upon lockup of GFI tokens, there may be an increased need for GFI accessibility for the Goldfinch community. Engaging Storm King as an official market maker will mitigate the risk that there will be launch-related GFI liquidity issues.

Specification & Requirements:

Market Making Quote:

  • Loan Size: Authorization for a loan of 1,828,571 GFI tokens to Storm King (Current market value as of 10/21/2022 = $1,243,428)
    • The loan size is ~1.6% of total GFI token supply
  • Loan Term: 24 months
  • Payback Option (Strike Price Calculation):
    • We agree to return the full token loan to the community treasury at the end of 24 months or exercise one or both of the repayment options:
      • 50% of loaned GFI tokens purchasable at $1 per GFI token
      • 50% of loaned GFI tokens purchasable at $1.5 per GFI token
  • TOB B/O Spread
    • Coinbase = 10 bps
    • MEXC = 10 bps
  • Cumulative Order Book Depth ($-equivalent)
    • Within 25bps - minimum $3.2k USD, 4.0k GFI
    • Within 50bps - minimum $6.4k USD, 8.0k GFI
    • Within 100bps - minimum $12.8k USD, 16.0k GFI
    • Within 200bps - minimum $25.6k USD, 32.0k GFI
  • Fees: None
  • Supported Exchanges: Coinbase, MEXC, Uniswap v3
    • Option to swap supported exchanges upon community proposal and approval
  • Additional Exchanges: Will be subject to further conversations

Background on Storm King:

Storm King is a boutique market maker with operations around the world. The team operates as “Storm King” in the United States and operates as Velar Technologies outside of the US. Our team brings experience from well-known trading, software development, and blockchain backgrounds, from the following companies:

  • IMC
  • Town Square Trading
  • Vatic Labs
  • Bloomberg
  • Microsoft
  • KCG
  • Millenium
  • MIT Lincoln Labs
  • AQR
  • Shapeshift
  • Cosmos
  • Cardano

The leadership team has nine decades of experience in trading and technology between 5 individuals.

Our team at Storm King hails from top academic backgrounds, with affiliations with institutions such as Harvard, MIT, Carnegie Mellon, and Stanford.

Storm King makes markets for over 200 tokens across most major centralized exchanges and decentralized venues, transacting over a billion dollars a day during the more busy half of the last year. We have key market making agreements with the leading venues, allowing us to quote tighter and pass the spread savings back to the community.

Why Storm King over larger, well-established market makers?

  • We intend to keep a limited number of clients to ensure superior, mutually beneficial market making
  • Our trading volume on some well-known exchanges (think: top 20 exchanges) exceeds that of some of the largest market-makers; we have intentionally limited our public-facing marketing to instead focus on delivering results
  • We adhere to a strict market neutral (to dollars) mandate; our balance sheet is not weighed down by VC investments or other riskier long term plays; we started being profitable on a daily basis a few months into starting our business and market neutral algorithmic trading is the only business line
  • We prioritize operational security above other considerations; we keep our ears to the ground and are very defensive on exchange counterparty risk; we also keep a small publicity footprint to minimize risks

Benefits:

Market making by Storm King will help reduce current challenges faced by the Goldfinch community, namely that large GFI transactions are not possible right now. As most CEX listings require the use of a market maker, designating an official market maker is critical for any additional exchange listings.

Downside:

A prolonged bear market may see further depressed volumes across crypto-assets; lower GFI volumes from a broad drop in crypto interest would be outside of our control. We commit to maintaining liquidity KPIs rain or shine so that, in the event of lowered volatility and volumes across crypto, GFI liquidity should relatively outshine.

Exchange counterparty risk is a non-trivial risk in crypto. We assess this risk on an exchange by exchange basis and assign a “max percentage of assets” threshold for each exchange and will use these guideposts for market making GFI as well. It is possible that the changing exchange landscape may add to or change the list of venues best suited to trade Goldfinch token and we are flexible to move our liquidity commitment around as needed.

Voting :

YES vote: Authorize signing of agreement and GFI loan with Storm King for market making services

NO vote: Do not authorize Storm King as a Goldfinch market maker

Resources : Reference GIP-13

2 Likes

Sounds like a very interesting and potentially good proposal. However, I’d be interested to know whether the Goldfinch team believes this is a top priority and whether they can vouch for Storm King.

As a community member I can see the value of this proposal, but given some of the potential risks involving market makers, it would help a lot to know what the Goldfinch team members views are on this.

2 Likes

I like your proposal. Have few questions,

  1. Which Crypto projects have you MM’d so far?
  2. Can you show your CEX volume reports?
  3. How have you arrived at $1.5 being a fair compensation for GFI token? Why is it not $3 ?
1 Like

Hey Mark, Punia from Warbler Labs here, and I’ll jump in here to provide the perspective from our side. Important to note that there is no “Goldfinch Team” as such, and we are providing our perspective as one of the members of the DAO.

GFI Liquidity is important to accomplish the protocol’s goals. Specifically, having adequate liquidity is important for the upcoming launch of the Membership Vaults, as people need to hold GFI tokens to participate.

The current levels of liquidity don’t support trades over $5,000 without incurring significant slippage. For the community to increase protocol participation, they need access to more GFI. In general, having sufficient liquidity for price discovery helps bring in and align people within an ecosystem.

Based on conversations with experts in our network, we think Stormking has a strong reputation and has the right team & technical capabilities to deliver on these KPIs.

1 Like

Thanks for the questions ezio!

  1. We are exclusively engaged with two projects (with confidentiality clauses) with 5-50mm marketcap listed on top 5 US exchange. We have been non-exclusively engaged for liquidity provision for 30 tokens (one of top 2-3 liquidity providers in these cases for those tokens on exchange).
  2. This data is a bit proprietary for this public forum, but we are happy to figure out ways to substantiate specifics with key community members if need be.
  3. Good question. We came up with the targets based on our estimates of the cost of liquidity provision rather than estimates of fair intrinsic value of the token. We took into consideration the increase in liquidity needed from current levels as well as current prices for GFI, ETH, BTC. It’s not an exact science but we aim to be methodical in deriving a price that was priced aggressively and favorably for the Goldfinch community yet still fell within our operating capabilities.

Thanks for replying.

I like your honesty; however you’ve done MMing for only 5mn-50mn USD mcap a.k.a small cap projects. I’ll be a bit uncomfortable loaning such a significant amount of supply to just one entity, which hasn’t really yet proven itself.

I’d prefer if you’ll loan 500k of GFI for starters; put out a proposal for revaluation of 500k more GFI tokens after four months of your MMing. If the DAO finds your results, satifactory the DAO will vote for more loan grant.

However, I’d prefer to cap your limit 1mn even after the secondary vote. Also, I’d prefer if you raise the bid to $2.75. I think GFI is a top project, & I think will be one of the top defi protocols in a year or two. $1.5 is an under priced quote.

I’d like a more senior market maker to come join market making with similar criterion I’ve laid before you.

We’ll have multiple marketmakers for GFI which I think will work for every stake holders interest.

Qiao from AllianceDAO chiming in here. I happen to be an early investor in Goldfinch and have known Richard for almost a decade as a former colleague and LP.

As an LP Storm King has a phenomenal track record, with 0 operational incident. As a former colleague Richard is one of the most brilliant and reliable traders I’ve known.

I’m confident Storm King is the right market-making partner for Goldfinch.

2 Likes

I get your point but at the same time, giving on ~1.5% of the supply to a single entity is unhealthy which is why I have suggested to start with 500k tokens, couple it with one more senior market making entity- TPS, JUMP, etc (just no Alameda).

& revising the warrant quote to $2.75 from $1.5

Such tranching based on KPIs makes sense! I would recommend this be outlined and specified in the contract that the Goldfinch Foundation signs with Stormking, and the governance post be used to cover the proposal at a high level. In general, there are going to be a lot of such measures that the Foundation and Council must work to outline and enforce in a contractual form.

Based on Warbler Labs’ experience, we think the quoted price is competitive. We think that a situation that we, as the DAO, would want to avoid is one where the strike price is out of money, and thus the MM loses its incentive to provide its services.

We don’t think it would be prudent to be double paying for the same KPIs. For example, we would want to avoid the situation where 1 MM is doing all the work to meet the KPIs outlined, and the second is not doing anything and is still reaping the strike price.

We should consider this if the Council and Foundation don’t find Stormking performing well or if we need to expand the number of venues we provide GFI liquidity.

1 Like

I think $1.5 is low a strike price. Very low. We are probably the best credit protocol out there. At $1.5 we become a ~171mn FDV MCAP project, which is still quite undervalued in my opinion. I think if GFI starts bringing in more deals, more “hard” utilities for GFI we could see it trading at a billion $ mcap. At which GFI would be ~$8.5 a token. Hence I quoted $2.75 which is roughly ~310mn FDV.

We will do due diligence on the second market maker, clearly we won’t pick any incompetent market-maker. Storm king isn’t charging us anything & TBH we do need to expand venues of liquidity. We are on Coinbase, Gemini but we aren’t on other venues of trading, we are still majorly closed off major T1 CEXs Binance, Huobi,etc. vast majority of Asians don’t trade on CEXs where GFI is currently listed & TBH a good market maker(Jump, TPS) has great relationships with lot of T1 CEXs, they may reduce friction when we want to pursue listing on those exchanges. I’m saying let’s talk with these guys; see what their quote is in comparison to Storm King. (I know JUMP is pretty expensive, but let’s converse with them, see what they have to offer and then decide)

Council has approved the proposal