Introduction
The Internet Computer Protocol (ICP) stands at the forefront of decentralized computing, offering a scalable, secure, and efficient platform for building the next generation of web applications. However, despite its technological prowess, the ICP ecosystem grapples with significant challenges in liquidity and project funding. These challenges, rooted in the reliance on ICP as the primary denominating asset, have led to price instability, limited liquidity, and destabilizing feedback loops that hinder the growth of decentralized finance (DeFi) and project development.
This forum post aims to dissect these issues comprehensively and propose a viable solution: denominating projects in GLDT, a gold-backed token from GoldDAO. By leveraging GLDT’s stability, liquidity, and unique benefits, the ICP ecosystem can overcome its current hurdles and thrive. We will explore the mechanics of the problem, the advantages of GLDT, and the growing community movement towards this solution.
Current Situation and Issues
SNS Fundraising and ICP Liquidity Problems
The Service Nervous System (SNS) is a decentralized framework on ICP that enables projects to raise funds by pledging ICP tokens. While this mechanism democratizes fundraising, it inadvertently contributes to several systemic issues:
- Selling Pressure: Projects that raise funds through SNS often need to convert ICP into other assets to cover operational costs. This conversion increases the supply of ICP in the market, exerting downward pressure on its price.
- Feedback Loops: As ICP’s price declines due to selling pressure, the effective funding for projects decreases, prompting them to sell more ICP to meet their financial needs. This creates a vicious cycle that further depresses ICP’s price and destabilizes the ecosystem.
- Limited Liquidity: A significant portion of ICP’s total supply—over 60%—is staked in the Network Nervous System (NNS) for governance and rewards. This staking locks up ICP, drastically reducing the liquid supply available for trading, fundraising, and liquidity provision.
These dynamics result in a fragile market environment where ICP’s volatility and liquidity constraints impede the development of a robust DeFi sector and discourage project innovation.
Key Identified Issues
- Price Instability: The volatility of ICP directly impacts project tokens denominated in it. This instability erodes investor confidence and complicates long-term planning for projects.
- Liquidity Constraints: The high staking rate of ICP leaves a scant liquid supply, leading to high slippage in trades and inefficient markets. This is particularly detrimental for DeFi protocols that require deep liquidity to function effectively.
- Feedback Loops: The interdependence between ICP and project tokens creates feedback loops that amplify market instability. A decline in ICP’s price can trigger a cascade of selling, further weakening the ecosystem.
Potential Solutions
GLDT and USDG: A Path Forward
GLDT, launched by GoldDAO, is a fungible token that represents fractional ownership of physical gold, leveraging the transparency and security of the ICP blockchain. Each GLDT token is backed by physical gold reserves, ensuring intrinsic value and stability. GoldDAO also plans to introduce USDG, a gold-backed stablecoin pegged to the US dollar, which will further enhance its utility in DeFi applications.
Advantages of GLDT:
- Stability: As a gold-backed token, GLDT inherits gold’s historical price resilience, offering a stable alternative to ICP’s volatility. This stability is crucial for denominating project tokens, as it provides a predictable value foundation.
- Liquidity: GLDT boasts one of the deepest liquidity pools in the ICP ecosystem, ensuring efficient trading and minimal slippage. This liquidity is essential for supporting active markets and DeFi protocols.
- Unique Benefits: Holders of GLDT benefit from gold’s price appreciation, providing a hedge against crypto market volatility and diversifying the ecosystem’s asset base.
USDG: Enhancing DeFi Integration
The planned launch of USDG, a gold-backed stablecoin, will offer additional benefits:
- Stability and Pegging: USDG will be pegged to the US dollar, providing the stability needed for DeFi applications while maintaining the backing of physical gold.
- Interoperability: As a stablecoin, USDG can seamlessly integrate with existing DeFi protocols, facilitating lending, borrowing, and trading without the volatility risks associated with ICP.
Addressing SNS Funding and Liquidity Challenges with a Dual-Token Approach
The Challenges with SNS Funding in ICP
The Service Nervous System (SNS) on the Internet Computer Protocol (ICP) allows projects to raise funds by pledging ICP tokens, fostering decentralized capital access. However, this mechanism introduces significant issues that undermine both project stability and the broader ICP ecosystem:
- Selling Pressure on ICP: Projects often convert raised ICP into other assets to cover operational expenses, flooding the market with ICP and driving its price down. This selling pressure harms ICP’s value and creates instability across the ecosystem.
- Price Instability for Projects: Projects denominating their tokens in ICP are exposed to its volatility, making it difficult to plan financially or maintain investor confidence. A sudden drop in ICP’s price can slash a project’s effective funding overnight.
- Vicious Feedback Loops: As ICP’s price falls, projects may need to sell even more ICP to meet their budgets, amplifying the downward spiral. This cycle erodes trust and hampers long-term growth.
These problems stem from relying solely on ICP for both staking and liquidity needs. A new approach is needed to decouple these functions and stabilize the ecosystem.
A Dual-Token Solution: ICP for Staking, GLDT for Liquidity
To address these challenges, I propose a dual-token strategy for SNS funding, splitting responsibilities between ICP and GLDT (a gold-backed token from GoldDAO):
1. ICP for Staking and Governance
- Purpose: Projects raise ICP specifically for staking to secure the network and participate in governance.
- Benefit: This preserves ICP’s core utility within the ecosystem without forcing projects to liquidate it for operational costs.
- Implementation: SNS raises can allocate ICP pledges explicitly for staking, with restrictions to prevent immediate selling.
2. GLDT for Liquidity Provision
- Purpose: Projects raise GLDT to provide liquidity for their tokens on decentralized exchanges (DEXes) and cover operational needs requiring stable value.
- Benefit: GLDT’s backing by physical gold offers price stability, deep liquidity, and a hedge against crypto volatility, making it ideal for these purposes.
- Implementation: Projects can pledge GLDT alongside ICP in SNS raises, using it to seed liquidity pools or fund expenses without touching ICP.
How This Solves the Problems
This dual-token approach directly tackles the core issues with SNS funding:
- Price Stability for Projects:
By denominating tokens in GLDT, projects shield themselves from ICP’s price swings. GLDT’s stable value—rooted in gold—ensures consistent funding and token pricing, fostering investor trust and enabling reliable financial planning. - Reduced Selling Pressure on ICP:
With GLDT handling liquidity and operational costs, projects no longer need to dump ICP on the market. This preserves ICP’s price stability, benefiting the entire ecosystem and breaking the destructive feedback loops. - Enhanced Ecosystem Liquidity:
GLDT’s deep liquidity pools support efficient trading on DEXes with minimal slippage. Projects can leverage this to build active markets for their tokens, strengthening ICP’s DeFi infrastructure.
Improving the Neuron Fund (NF) and SNS framework:
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Accountability: Requiring projects to allocate GLDT for liquidity and ICP for staking provides clear, auditable purposes for raised funds.
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Ecosystem Benefits: Using GLDT for liquidity provision directly supports DEXes, while preserving ICP for staking enhances network security—both clear wins for the ecosystem.
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Milestone-Based Funding: Funds (ICP and GLDT) could be released in stages tied to deliverables, ensuring projects deliver value before accessing more resources.
Practical Steps Forward
To implement this:
- SNS Updates: Modify the SNS framework to support dual-token raises, specifying ICP for staking and GLDT for liquidity.
- Community Buy-In: Engage the ICP community to refine and approve this approach, ensuring it aligns with collective goals.
- DEX Integration: Encourage DEXes to support GLDT trading pairs and liquidity pools, amplifying its utility.
The current SNS funding model, reliant solely on ICP, destabilizes both projects and the broader ecosystem through volatility and selling pressure. By adopting a dual-token strategy—ICP for staking and GLDT for liquidity—we can ensure price stability for projects, reduce ICP dumps, and bolster ecosystem resilience.
The Shift to GLDT and Stable Assets in the ICP Ecosystem
Current Movement Towards GLDT Denomination
The Internet Computer Protocol (ICP) community is witnessing a significant shift towards denominating projects in GLDT, a gold-backed token launched by GoldDAO, rather than relying solely on ICP. This movement is gaining traction as a response to the ecosystem’s challenges with volatility and liquidity, which have hindered project development and decentralized finance (DeFi) growth.
- Community Momentum: Across forums, social media platforms, and community calls, discussions about GLDT’s potential are intensifying. Influential developers and thought leaders are championing this transition, emphasizing the need for a stable and liquid asset to bolster the ecosystem. The buzz reflects a collective recognition that GLDT can address systemic issues tied to ICP’s price instability.
- Early Adoption Success: Projects like GoldDAO are paving the way, utilizing GLDT as a stable foundation for funding and liquidity provision. Early adopters report tangible benefits, including reduced token price volatility and enhanced liquidity, providing compelling case studies that are inspiring broader adoption within the community.
This shift isn’t just a passing trend—it’s a deliberate evolution driven by the promise of stability and efficiency that GLDT brings to the table.
Superiority of GLDT, USDG, ckBTC, and ckUSDC Over ICP Pools on DEXes
On decentralized exchanges (DEXes) within the ICP ecosystem, solutions like GLDT, USDG, ckBTC, and ckUSDC outperform traditional ICP-based liquidity pools in several key areas:
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Stability:
- GLDT: Backed by physical gold, GLDT offers a stable value tied to a real-world asset, shielding it from the crypto market’s wild swings.
- USDG: A planned gold-backed stablecoin pegged to the US dollar, USDG promises consistent value for DeFi applications.
- ckUSDC: As a stablecoin tied to the US dollar, ckUSDC provides predictable pricing, unlike ICP’s volatility.
- ckBTC: While more volatile than stablecoins, ckBTC leverages Bitcoin’s established market dynamics, offering more predictability than ICP.
In contrast, ICP pools are subject to significant price fluctuations, making them less reliable for trading or project denomination.
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Liquidity:
These tokens boast deeper liquidity pools, enabling smoother trades with minimal slippage. For instance, ckUSDC maintains a liquidity pool of $652,301 on ICPSwap, dwarfing the capacity of most ICP pools. GLDT similarly supports robust trading volumes, ensuring efficient market operations compared to ICP’s constrained liquid supply, much of which is locked in staking. -
Interoperability:
ckBTC and ckUSDC tap into ICP’s cross-chain capabilities, drawing liquidity from Bitcoin and Ethereum ecosystems. This external integration enhances their utility on DEXes, a feature ICP pools lack due to their native confinement. GLDT and USDG, while ICP-native, benefit from their inherent stability, making them attractive for cross-ecosystem adoption.
These advantages make GLDT, USDG, ckBTC, and ckUSDC superior tools for liquidity provision and trading, outclassing ICP pools in both performance and reliability.
Conclusion: A Transformative Win for the Ecosystem
Embracing GLDT, USDG, ckBTC, and ckUSDC for project denomination and liquidity provision promises profound benefits for the ICP ecosystem:
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Price Stability for Projects:
Denominating in stable assets like GLDT and ckUSDC insulates projects from ICP’s volatility. This consistency ensures reliable funding and token valuations, fostering investor confidence and enabling sustainable development. -
Stabilizing ICP Itself:
By reducing the need for projects to sell ICP to cover costs, this shift alleviates selling pressure on ICP. A more stable ICP price benefits developers, investors, and the broader community, creating a predictable market environment. -
Attracting Market Makers and Investors:
The enhanced liquidity and stability of these tokens lower the risks for market makers and liquidity providers. This makes the ICP ecosystem more appealing, drawing in participants who can operate confidently with dependable assets. -
Pivoting from ICP Native Denomination:
Moving away from an ICP-centric model to a diversified asset base unlocks new opportunities in DeFi, project funding, and cross-chain collaboration. This pivot enhances the ecosystem’s resilience and adaptability. -
A Huge Win with Greater Exposure:
If this movement gains broader exposure, it could catalyze a transformative shift for ICP. Positioning the platform as a leader in decentralized computing, it would support a vibrant, stable, and investor-friendly ecosystem, driving long-term growth and innovation.
This evolution towards stable assets like GLDT is a critical step forward. With community support and wider adoption, it’s an opportunity to redefine ICP’s future for the better.
The Genius Strategy: A Community Initiative on ICP
A Community-Led Beginning
Within the Internet Computer Protocol (ICP) community, a group of innovative members has already kickstarted an exciting initiative known as the Genius strategy. This approach is designed to tackle some of the ecosystem’s pressing challenges, such as liquidity and volatility, by shifting project denomination and liquidity provision to assets like GLDT, ckUSDC, and ckBTC. What started as discussions among passionate developers and advocates has now taken root, with several projects actively implementing this strategy to stabilize their operations.
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Early Steps:
Pioneering projects have begun denominating their tokens in stable assets like GLDT or ckUSDC, reducing their reliance on ICP’s fluctuating price. This practical shift is already showing promising results, offering a glimpse into how the broader ecosystem could benefit. -
Grassroots Momentum:
The strategy is spreading organically through community channels—think forum threads, social media buzz, and lively community calls. It’s a true bottom-up effort driven by those who believe in ICP’s potential and want to see it thrive.
A Serious Proposal Worth Exploring
I see the Genius strategy as more than just an experiment—it’s a serious consideration for the future of ICP. It’s already proving its worth with early adopters who report better stability and investor trust. I’d love to present this as a topic for wider discussion, not just among community members but also with input from key players like Dfinity, if they happen to catch wind of this.
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Why It Matters:
By creating a more predictable and resilient environment, this strategy could make ICP a stronger platform for decentralized projects. It’s practical, scalable, and aligns with the vision of a robust DeFi ecosystem. -
Let’s Talk:
What do you think? I’d welcome thoughts from fellow community members, developers, or even Dfinity themselves. How can we refine this idea and make it a cornerstone of ICP’s growth? Let’s hash it out together!
Best, Dexter
