[OGP-DRAFT]: Ethos Reserve Monitoring System & Redemption/Liquidation Bot Proposal

Proposal Title: Ethos Reserve Monitoring System & Redemption/Liquidation Bot Proposal Chain: Optimism
Type: Token Grant Proposal
Author: MacePapa
Date: 1/17/2024

Executive Summary
This proposal will outline the objectives and budget behind building an Ethos Reserve monitoring system for redemptions and liquidations, a frontend to display the monitoring system data, as well as a bot that will execute liquidations and redemptions. This bot and monitoring system will aid in keeping the protocol healthy and will provide transparent metrics. Overall the goal of this proposal is to build infrastructure to keep the Ethos System healthy and aid keeping ERN around $1.00.

Proposal Motivation
As a long-time Byte Mason product user, I want to help contribute to the ecosystem and provide access to data and tools to aid in product system health, dApp transparency, and build an automated system to liquidate troves based on ERN health.

Team Experience
This is a one-person team so the development budget can stay lean. MacePapa, the author of this proposal, will complete all development work and maintenance. I am a Full Stack Software Engineer who has been working in the blockchain space doing development for two and a half years. I have worked in a variety of projects across the space, mostly working on the Fantom blockchain. I also spent a short time as a Byte Masons team member as a Full Stack Software Engineer.

Key Objectives & Success Metrics Key Objectives
Successful Development and deployment of:

  1. Backend Monitoring Service
  2. Frontend Data Display
  3. Smart Contracts/Backend Integration
    a. Redemption Bot
    b. Liquidation Bot

Success Metrics

  1. Backend Monitoring Service
    a. Successfully pull redemption fee metrics/analytics from chain data
    b. Successfully pull redemption hints from available chain data
    c. Successfully monitor on-chain events and trove MCR to identify viable redemption/liquidation scenarios
    d. Successfully pull gas compensation for liquidation from chain data
    e. Successfully pull collateral and ern price data from on-chain oracles/TWAP
  2. Frontend Data Display
    a. NextJS Single Page Application successfully displays all relevant data for redemptions and liquidations
  3. Smart Contracts/Backend Integration
    a. Monitoring service successfully identifies redemption/liquidation scenario and passes helper variables to smart contract
    b. Successfully deploy smart contracts to carry out redemption of ERN for collateral
    c. Successfully deploy smart contract to carry out liquidation of undercollateralized trove

Length of Engagement & Budget Breakdown
Development Time Summary Estimation
Development - 3 months
Backend Monitoring System
Front End Data Display
Smart Contracts
Audits, Reviews, Testing - 1 month
Integration - 1 week
Total - 4.25 months

Budget Considerations

Project Budget Breakdown: $9,800

  1. Total Project Development Costs - $8,000
  2. One Year Active Developer Maintenance / Monitoring - $1200
  3. Cloud Infrastructure Budget (Yearly) - $600

Community Support
N/A

Partnerships
N/A

Risk Assessment
The main risk of this project is to the owner of the funds that the redemption/liquidation bot uses. Failed attempts at liquidation could cause the bot to lose money in a transaction, and redemptions can sometimes be a net loss after the transaction is complete. Because of this, the main risk, even in the case of a smart contract vulnerability and/or failure, or downtime in the monitoring system and/or frontend, result in no loss of funds to the greater public; only downtime on publicly available data on the frontend.

Additional Details
N/A

6 Likes

Happy to see you around Mace, even better making a proposal. I am in favor but I have 2 questions:

1- IF the system is made in a way to make profitable to redeem under 0.995, why is it necessary to invest on it? I understand that the funding you are asking is to develop the bot, but my question is: why do you think this is necessary while it could be done for people trying to profit from it?

2- It is a 1 man job, but is there anyone you can request support to fix any possible problem with the bot? Where will updates be provided (regarding developing and after implemented, updates about the performance)

3- the profit made by the bot will go towards you (developer) or is it going somewhere else?

4 Likes

Hey Mace! Glad to see you here, thanks for the proposal!

I think this is a great idea and given the redemption challenges we’ve faced and it would likely be a huge value-add. One preliminary question comes to mind:
I assume the bot wouldn’t prioritize any type of collateral in particular and would target the lowest CR across all troves, is that true?

The fact you’re after a token grant also makes it a much easier decision, super happy spending OATH for a project like this. A win as far as I’m concerned!

Eager to see some more comments here from those possibly more knowledgeable than I regarding redemption bots

2 Likes

Hey NauL! Thanks for the insightful comments. Hopefully these answer your questions:

1- IF the system is made in a way to make profitable to redeem under 0.995, why is it necessary to invest on it? I understand that the funding you are asking is to develop the bot, but my question is: why do you think this is necessary while it could be done for people trying to profit from it?

The investment from the community is mostly for the frontend that is being built. Providing a plethora of data about Ethos Reserve to people that isn’t currently offered anywhere will be a net benefit to Ethos Reserve users. Yes, there could and hopefully will be profit from the bot. That will be addressed below.

2- It is a 1 man job, but is there anyone you can request support to fix any possible problem with the bot? Where will updates be provided (regarding developing and after implemented, updates about the performance)

What do you mean by anyone I can request for support? You mean if the bot stops working and I can’t solve the problem? Depending on the problem, I would likely reach out to the Byte Masons team for assistance. There is also a plethora of information online in regards to the Liquity Protocol that would likely be applicable information to the bot as well that I could reference. Updates can be provided in github for the frontend, as that will be a public repo. As for the backend monitoring system and the bots/smart contracts themselves, I am open for suggestions.

3- the profit made by the bot will go towards you (developer) or is it going somewhere else?

Since the development of the bot is being subsidized by the foundation, I don’t think it would be fair to pocket 100% of the profit the bot makes for myself. I propose a 50/50 split of profits to myself and the OATH foundation to manage as they see fit.

3 Likes

I assume the bot wouldn’t prioritize any type of collateral in particular and would target the lowest CR across all troves, is that true?

Yes, that is correct. The bot would be constantly looking for opportunities for redemptions and/or liquidations with any collateral type and applicable trove.

1 Like

Thanks Mace. You have my approval. Good luck

2 Likes

Great to see people building in the OATH ecosystem.

The Budget / Time estimates look solid to me.

I support this effort!

2 Likes

I like this, will get stuff clearer for a lot of folks. will support it.

2 Likes

I read through this proposal and I agree with the responses that a redemption bot and a monitoring system can add value to the Ethos ecosystem. I’m in support of it. Best of luck.

2 Likes

I like this proposal and great to see someone like Mace putting this forward as he was actually a bytemason when I first got involved I believe, so that gives me extra confidence in supporting him for this. I do have a few questions though.

Please correct me if I’m wrong, but as I understand it, this proposal is asking for a token grant to cover the full cost of developing a liquidation/redemption bot and monitoring system for ethos reserve. This includes one year of maintenance and monitoring and one year of the cloud infrastructure costs. The revenue from this bot generates will be directed 50% to the foundation and 50% to Mace.

What happens after the first year? Who pays for the approx. $1200 maintenance and monitoring? And who pays for the approx. $600 yearly cloud infrastructure costs?

4 Likes

After the first year, I plan to write another proposal for long-term maintenance of the bot and monitoring system. This proposal will include a multi-year plan and be based on data collected during the first year of running the bot, such as amount of actual dev time going to maintenance, adjusted cloud infrastructure costs, etc.

2 Likes

Ok thanks for clarifying Mace. So basically oath foundation would be paying the full yearly costs for cloud fees and for you to maintain this bot going forward through grants. The oath foundation would also be paying you the full cost to develop all this through grants. And who would own this bot after it is finished?

I guess I’m just not sure why 100% of the revenue from the bot shouldn’t go to the oath foundation here. Foundation will be paying for literally everything, development and maintenance costs, but revenue from bot is split 50/50? Doesn’t seem like a great deal for foundation unless I’m missing something.

I have absolutely no idea what kind of revenue a bot like this would generate but i don’t think it matters really, even if it’s minimal. If the foundation is paying for everything then the bot should be owned by the foundation and all revenue should go to the foundation imo…with you being paid handsomely for your time to develop and maintain it all through the grants.

Otherwise all costs should be split 50/50 between Mace and foundation imo. But I don’t like this idea it’s messy. Would prefer a proposal where foundation is simply paying for all this to be built for foundation and owned by foundation. The official oath foundation liquidation and redemption bot with front end display. And pay Mace whatever he deserves and is fair for the effort. Even if grant needs to be upped a bit in lieu of the revenue, I would prefer that over splitting of revenue. Cleaner and less baggage.

3 Likes

The price Mace has suggested, to be paid in OATH, is an extremely good deal for the Foundation imo.
As for profits, we are paying the sum upfront for a long term source of revenue (even if it is 50%). Perhaps some revenue projection can be calculated but it is not an uncommon arrangement. Some yield aggregator protocols send a % of fees to strategists as incentive to ensure performance. Think of it this way; the better the bot performs, the more Mace gets paid, and the more the Foundation gets paid.
I’ll let others weigh in but I think it’s reasonable for the upfront cost and net effect.

3 Likes

Great proposal and well thought-out.

I would love to see some analysis into the expected revenue based on historical redemptions to understand ROI and duration.

Regardless I think the net effect of this development is worth the investment.

Supported and ready for GPRC.

2 Likes

Marking ready for GPRC review.

I do think the follow on proposal will be interesting as we will have more data to work with and use to make an informed decision.

1 Like

Yeah I mean you would definitely know better than me. I admittedly have no idea how most of these things work in the crypto world. I just know I wouldn’t give away 50% revenue in perpetuity for a product I fully fronted the cost for if it was my own business. But if those that know better say it’s a common arrangement and a good deal for the foundation I’m all for it. Nice to know it’s in the hands of a familiar face like Mace and wish him all the best on it. Will be very cool to have an in-house liq/red bot with front end display to look at the data.

2 Likes

I also have some concerns that come to mind.

Firstly, I was thinking the same what @NauLxD asked above, if it’s supposed to be profitable to redeem when under peg, why is there a need to pay for building a redemption bot? I’d imagine there is always some competition and the risk someone else builds a more advanced redemption bot.

The proposal also included a liquidation bot, is there something wrong with the current liquidation system?

@MacePapa , you said in an earlier reply that most of the proposal is providing new data for users. While some might appreciate that, I feel like most users won’t understand what it is or just don’t care. There’s already so much going on the website that when the average new defi user opens the app they’ll just run away scared.

With these concerns in mind, I’m having hard time supporting the proposal. If the foundation is tight on money, I feel like we should focus what we have on polishing up the front end rather than building a redemption bot.

If, however, we decide to go this route. I don’t see why the developer of the bot should get 50% of the revenue. That’s assuming the cost of building it isn’t severely downplayed in the proposal. If I pay someone to build me a house, I don’t expect the guy building it moving in with me. I don’t say the revenue couldn’t be used for maintenance of the system, but in the first place it should be going to the foundation.

And I know we’re going for the funds and institutions approach, but I still feel a good UI that even the retail can understand is important. Looking at the MC of $ERN the current approach hasn’t worked too well thus far, while inferior products with better UI pull in hundreds of millions in TVL. Overall, I think we should prioritize how we spend our resources and focus on the more urgent matters.

4 Likes

in my mind when we first discussed this idea, I was thinking that we work to create an MIT version of the bot with good documentation to get people started quickly.

I think there are a lot of people in the community who would be willing to collaborate on this for some grant in OATH in an effort to grow their position. I think cash payments and ongoing service wouldn’t be that great because the highly motivated MEVoor would probably outcompete every time & we are trying to keep spending to a bare minimum while we get these first few Chapters launched.

Does this make sense? I would opt for a less competitive, open source bot that we don’t have to host for people to build on / work from.

2 Likes

I think in this case the focus shouldn’t be on the profits, unless it was very huge (which I don’t think it will be the case, otherwise the peg would be easily maintained without the need of this proposal.

I think giving 50% (or any considerable % of profits) to the maintainer of the bot would give him a better incentive to keep it running. That is exactly what I think that happens when you have a company that share the profits, you get move incentives to be productive.

agree with @bebis that a Open source could help others to use the bot and make it more likely to keep the peg. The question is if it will be good enough regarding time invested / rewards.

agree with @mpo that the main concern should be UI/UX of all the systems. But considering @MacePapa isn’t part of the team and wouldn’t be allocating him to this bot instead of working on UI/UX I don’t see any conflict here. Could be the budget, but if that is the concern, the Foundation could open the books and tell what is the budget and/or consider a locked bOath (like we will have on oTokens) so we are sure that the rewards would not be dumped. If I ever had an opportunity to receive a grant from Oath Foundation I would be very happy on receiving it as locked bOath, good for me and good for other holders.

1 Like

This is my thought:

  1. Why we need our own redemption bot in the first place?
  • Not to keep Ern peg stability because there are already other bots running already.
  • To keep the profit for the ecosystem? That could be a good answer. But then come the 2nd question
  1. Who should be beneficial for having the bot?
  • Currently the biggest pain point of using Ethos is the fear of being redeemed. Low MCR means nothing if users need to keep a stupidly high CR to avoid redemption (I saw ppl with ~200% CR being redeemed). So my suggestion is: we divide the profit from the bot into 3 parts instead of 2: the Foundation keep 30%, in order to cover maintenance fees, Mace keep 30% for himself, and 40% will be share between users whom being redeemed. We can thing of this as an incentive to encourage more ppl deposit into Ethos and being more aggressive with their CR because now being redeemed is not any more a curse, it’s a gift. Ethos gets more TVL and also minting fees. It’s a win-win for both our users and the Foundation.

Open for discussion, gents.

1 Like