Any interest in proposing to add USDC as a base pair on the Dymension Portal?

[monivong1]

Using USDC as a base pair in a decentralized exchange (DEX) offers several advantages:

1. Stability: USDC is a stablecoin pegged to the US dollar, which provides price stability. This makes it easier for users to understand and calculate the value of trades without worrying about the volatility of the base pair.
2. Liquidity: USDC is widely used and has high liquidity across many platforms. This helps ensure there’s sufficient liquidity for trading pairs, leading to better price execution and reduced slippage.
3. Neutral value reference: As a stablecoin, USDC serves as a neutral reference point for valuing other assets. This simplifies price comparisons and trading decisions for users.
4. Reduced volatility in liquidity pools: Using USDC in liquidity pools helps minimize impermanent loss for liquidity providers, as one side of the pool remains stable in value.
5. Cross-chain compatibility: USDC is available on multiple blockchains, making it easier to facilitate cross-chain trading and liquidity.
6. Regulatory compliance: USDC is issued by regulated entities and is widely accepted, which can help DEXs navigate regulatory concerns.
7. User familiarity: Many users are comfortable with and trust USDC, which can lower the barrier to entry for new traders.
8. Simplified trading pairs: Using USDC as a base pair reduces the number of trading pairs needed, simplifying the DEX interface and improving overall user experience.

This approach improves user experience, reduces complexity, and provides a stable foundation for trading activities on the DEX.

Would love to hear some more thoughts on this.

[OrJah]

This is something we’ve considered internally. While the advantages, as you stated, are clear—improved liquidity, user experience, and stability—the tradeoff is the potential impact on the DYM token value propositions as the sole base pair on the DEX.

Considerations:

• In a future of an immense Internet of RollApp where DYM is the sole base pair - this has a lot of value that I’m not sure is best given up on.
• Selecting one stable coin over the other might be too opinionated for a liquidity base layer attempting to be credibly neutral.

The key question is whether expanding the DEX’s capabilities would add enough value to the Dymension ecosystem and token to outweigh the potential decrease of DYM’s proposition as the exlusive base pair.

Adding USDC as the only additional base pair is a fair request to consider. Personally, I’m not entirely sure, but it’s definitely worth discussing.

[santosdios]

Adding USDC as a base pair in the DEX has its advantages, such as more liquidity and stability, but the main question is how it would affect the value of DYM. If DYM remains the only base pair in the future ‘Internet of RollApps’, it would play a central and very valuable role. Introducing USDC could detract from some of that importance.

Moreover, choosing USDC as the only stablecoin could be seen as a biased decision, when ideally it would be best to remain liquidity-neutral. Multiple stablecoins could be included, but that could complicate matters.

I think we should carry out a more detailed analysis and also get the opinion of someone more experienced in DeFi and tokenomics to make the right decision.

[0xselo]

My personal suggestion is that our only security should be DYM. Although I have no concerns about USDC reliability, this would create problems in terms of the potential liquidity of other stablecoins coming to DYM. I don’t think there is any harm in having more than one stablecoin.

[Shaolin]

Pros

Increasing TVL

As USDC is used in much of crypto ecosystems and has strong liquidity presence throughout ecosystems this can be a driving factor of increased liquidity on Dymension.

Stability

Users new to Dymension may not want price exposure to DYM when opening liquidity pools.

Cons

DYM value accrual

Removing DYM as the base asset can negatively affect the value accrual of DYM as RollApps will be opened with no DYM.

System complexity

Instead of routing multi-hop transactions over one liquidity pool, the system will now have options which can create complexity and open the system to unknown issues. Unlike what OP has stated, adding USDC increases the amount of trading pairs.

Impermanent loss

Adding USDC would increase the impermanent loss risk as you’ll have one volatile and another non-volatile assets in the same pool.

Alternative

Alternatively, increasing USDC usability as a medium of exchange is a good approach. e.g. Paying for transactions in USDC and having the system swap to DYM on the backend.

Additionally, as more stablecoins will be available Dymension will want to introduce stableswaps which operate under a different algorithm than the standard xyk bonding curves.

Lastly, you can reduce user price exposure to DYM when opening liquidity pools by introducing a DYM denominated stablecoin.

[monivong1]

Very valid points from all. The logic of this post was to get some discussions about adding a stable coin as a base pair to the Dymension portal.

I do want to emphasize that when I stated that introducing USDC would reduced volatility in liquidity pool, I was referring to stable pair liquidity pools. So my bad on that part.

You can’t offer competitive prices, if there aren’t enough LPs. Stable pair would allow more LPs to come in. (Certainly no the only factor in offering competitive prices, but definitely one of the main ones.)

With regards to which stable coin to implement as a base pair, I suggested USDC from personal experience. However, either USDC or USDT would be a good option as they are already trading in the Portal. USDT certainly does more daily volume than USDC. But on Uniswap, they do more volume on USDC in recent times. They also added USDC as a base pair back in mid 2020. SushiSwap did it as well in the same year. Chainflip also uses USDC as a sole base pair.

I don’t know if RollApps would be opened exclusively with USDC. Some would, but not all. If it costs 1,000 DYM which is 1,500 USDC, the RollApp would still be opened on Dymension and still has no effect on the buy and burn mechanism. The RollApp Sequencers are still required to stake DYM as a bond, which still maintains demand for DYM regardless of the base pair used. So adding USDC as a base pair doesn’t mandate its use for RollApps. It’s an additional option to RollApp deployers. It doesn’t affect the buy and burn mechanism for bridging or swaps. Even if a RollApp primarily uses USDC, the buy and burn mechanism ensures that DYM is still being purchased and burned through fees. (That’s my understanding of it. Please correct me if I’m wrong.)

The potential increased in activity from having USDC as a base pair means that there would be more users which increases the overall platform activity and potentially leading to more fees being collected and more DYM burned.

As far as system complexity, it would be fantastic to introduce it in testnet first. Not sure if there’s enough resources at the moment to do that. But that would certainly help the team finding most of the edge cases prior to releasing on mainnet. (This assumes that it hasn’t been tested previously.)

So far sounds like the pros and cons come down to whether you are betting on the success of DYM token long term versus a bet on having a more stable market with more capital access through USDC. With USDC or USDT, as a base pair, I think you are creating a more stable and accessible trading environment that can appeal to a wider range of participants from individual traders to larger institutional investors.

The logic of adding USDC to the base pair can be seen as a step towards a more mature and integrated cryptocurrency market.

Would love to hear more from experienced DEFI folks.

[Yishay]

Generally, I think this might end up as a net positive evolvement for the ecosystem and Dymension dex but i am still not fully convinced. As stated above, I believe we should allow more community members to give their input as well as more time for core team to thoroughly test this capability.

Once we have a bit more insights regarding the technical implications and the economic ones I believe this should go onchain for the dymocratic community decision.