Summary

This proposal aims to create a Liqwid DAO Core Team loan of $3,000,000 with ADA being borrowed against an LQ collateral position. These funds will serve to further develop and improve the Liqwid protocol as outlined in our 12 month roadmap article 16.

The DAO revenues will be used monthly to gradually repay the loan interest and principal.

The LQ tokens locked as collateral to originate the ADA loan will be transferred from the Liqwid DAO treasury wallet.

Description

Liqwid DAO requires financing for the Liqwid Labs Core Team for the next 12 months to fund protocol development, operations and maintenance. With these funds the goal is to complete the Liqwid 12-month development roadmap of new features, products and improvements 16.

The Liqwid DAO Association executive team will also work to complete a fundraising round from external investors during this 12 months to secure years of future runway to fund protocol development, operations and maintenance.

Financing of the loan position

With the acceptance of this proposal, it is planned to borrow $3,000,000 worth of ADA, secured by a corresponding amount of LQ with a health factor of 3x, considering a 70% Loan-to-Value (LTV) ratio.

The amount of $3M will be borrowed over time. The total collateral will be supplied at once and the borrowed amount will be done monthly (250,000 USD) in ADA, and then they will be sold instantly. By doing so, the DAO can keep a very high Health Factor, which minimizes the liquidation risk over time.

At the current price of $~1.3 of LQ, this represents an amount of ~9,890,109 LQ tokens. See Note 1.

Health Factor = (weighted $collateral / $debt) = 9,890,109 LQ * $1.3 * 70% / $3,000,000 = 3.0

Note 1: The calculation above is an approximation. The final amount of LQ will be determined based on the $LQ price at the time of the loan opening following the approval of this vote.

Note 2: In the scenario that a major stablecoin / or similar assets with low volatility and enough supply emerge on Cardano, then we could consider borrowing desired USD amounts in these assets.

If the loan’s health factor falls below 2, the Core Team can add up to 2 million additional LQ tokens to the loan. If this is insufficient to achieve a health factor of 2, a new vote should be organized as soon as possible to add more collateral or to repay the loan, either partially or fully.

Usage of the ADA

The borrowed ADA will serve to finance at a minimum the next 12 months of Liqwid protocol development, operations, and maintenance. Working with professional market makers contracted by the Liqwid DAO Association the borrowed ADA will be converted into USD over time.

Loan Repayment

All revenue earned by the DAO treasury will be used exclusively to repay the loan and interests over time. Once the loan is fully repaid, a new vote will be conducted regarding the usage of future DAO revenues.

The loan operations are done by the Liqwid DAO Association executive team which are responsible to pay Liqwid Labs software engineers for the current and future development, operations and maintenance of the Liqwid protocol.

Proposed Market Parameters

The proposed LQ token risk parameters for the Liqwid DAO POL loan are:

• Liquidation threshold: 70%
• Liquidation discount: 15%

The supply cap for LQ will be set to $3.0M and a corresponding number of tokens will be calculated at the Liqwid’s listing date to match this value. LQ token borrow cap will be set to 0% of the total LQ supplied, forbidding any borrowing.

The loan will be opened on Mainnet via a specific market, only accessible to the Liqwid Core Team. The ADA borrow transaction hash will be shared with the Liqwid community on Discord and Twitter once completed.

Update on the LQ issuance and allocation

Following a successful vote on this proposal, the LQ allocation will be as follows:

LQ allocation	% of LQ supply	LQ Amount
Issued (in circulation)	26.48%	5,560,800
DAO Treasury 1, 2	19.20%	4,031,400
Collateral - POL Loan	6.38%	1,339,286
Collateral - Core Team Loan	38.27%	8,035,714
Seed Round Investors	3.08%	646,800
Core Team, Founders, Advisors	6.60%	1,386,000
Total	100.00%	21,000,000

Current DAO treasury issuance:

1. Suppliers reward update proposal - Governance proposal 46
2. LQ stakers reward update proposal - Governance proposal 48

For more details about the data included within the table, please see this.

Conclusion

The Core Team recommends adopting this proposal and authorizing the loan of $3,000,000 worth of ADA, backed by sufficient LQ to achieve a health factor of 3, based on the proposed market parameters for the LQ tokens supplied by the Liqwid DAO treasury wallet.