Summary
This proposal removes WBTC.axl–WBTC.osmo from the Liquidity Alliance incentive program.
The goal is to stop liquidity extraction, reduce persistent sell pressure on LUNA, and redirect incentives toward Terra-aligned liquidity pairs that strengthen the ecosystem.
Motivation
Terra’s current incentive design unintentionally subsidizes external capital through WBTC single-asset pools that bring no strategic benefit to the Terra ecosystem. This pool attracts mercenary liquidity that:
does not hold or accumulate LUNA
auto-compounds rewards then dumps them
produces little to no real trading volume
extracts value through misdirected inflation
increases sell pressure on LUNA
does not deepen Terra’s native/useful liquidity
does not support Terra’s users, apps, or stability
Problem Statement
The following issues have been identified:
Incentives leaking to non-aligned assets
Pools such as WBTC.axl – WBTC.osmo ( and possibly wstETH - wETH.axl ) receive luna rewards but produce zero economic value for Terra:
They do not support LUNA / Terra native liquidity
They do not support stablecoin liquidity
They do not generate significant real trading volume
They primarily serve external yield farmers
Most rewards are repeatedly sold and autocompounded → increasing sell pressure
This is a net-negative economic loop, aka an extraction channel
Misaligned incentives suppress LUNA price growth
When Terra pays rewards to outside capital:
LUNA supply inflates toward non-believers
Price reflexivity breaks
Native holders are diluted
Terra gains no positive liquidity or users in return
Each time LUNA gains momentum, external farmers automatically:
sell rewards
reset price action
block breakout attempts and make it hard for phoenix to fly
This is not market sentiment.
This is structural extraction.
Proposal
Remove the following pools from Liquidity Alliance:
WBTC.axl – WBTC.osmo (Astroport)
WBTC.axl – WBTC.osmo (SkeletonSwap)
These pools may remain available for trading (if liquidity providers choose), but they will no longer receive incentives funded by Terra. Phoenix Directive will execute these changes through the governance DAO if proposal passes.
Expected Outcomes
4.1. Immediate reduction in sell pressure
Ending incentives for non-aligned 1:1 external blue chip pools cuts off the largest extraction channel.
4.2. Stronger LUNA price reflexivity
Rewards remain within Terra’s aligned economic loop instead of leaking outward.
4.3. Improved capital efficiency
4.4. Deeper native stablecoin liquidity
4.5. Deeper Terra native liquidity
If you believe Terra’s incentives should strengthen LUNA, deepen aligned native liquidity and stable liquidity (Terra is fundamentally a payment layer and deep stablecoin liquidity is what Cosmos lacks and needs, but it requires a high Luna price due to the nature of the liquidity alliance), and stop subsidizing external mercenary capital.
VOTE NO
If you prefer LUNA emissions to continue flowing into a 1:1 Wrapped Bitcoin pool that provides virtually no utility (and which Osmosis already does better) and exists primarily to increase the satoshi bags of non-LUNA holders at the expense of native stakers.
(Keep in mind that opponents like to frame me as anti-bitcoin yet I am not targeting any of the Luna-WBTC pools. People who want exposure to Bitcoin on Terra can do so in those pools while receiving more rewards and such 50:50 pools I consider beneficial for Terra and Luna stakers and traders. And as far as the argument that accumulating bitcoin for the community pool due to the 10% take rate, none of that matters if it acts as a burden on the rebirth of Terra Luna. A higher price of Luna means more bitcoin in the community pool due to the liquidity pool sizes and hence the effect of the 10% take rate accumulation being directly tied to the price of Luna.
So this proposal is fully apolitical. I do not benefit from it in any special way other than the same way every LUNA holder benefits: through a healthier, more aligned incentive structure that strengthens the core asset of Terra.”)
That is up for the Phoenix Directive to decide. It is impossible for any pool which has LUNA or a LUNA derivative in it to function as an extraction channel, and hence I do not concern myself with such matters.
(In general, mercenary capital are high market cap blue chip pools with no Terra native coins on either side. They wish to take advantage of Luna emissions while being completely uninterested in Terra’s success, aka they perceive Luna as purely a farm token, which is why they avoid high APR Luna-WBTC pools over low APR 1:1 WBTC pools. While the original intent of the liquidity alliance is to incentivize liquidity that benefits Terra, not drains it. There is even evidence behind this. Because Luna was worth 10x the current price before the above pool was introduced, which was after the restoration of the Axelar relayer (a 1:1 WBTC pool requires two different WBTC coins). Before that the TLA was benefiting Luna, and after that it was draining Luna. So for me, disabling that pool is a no-brainer and is not ideological, it’s just a matter of survival.)
This is not the purpose for the pool. The pool exists primarily for the Terra chain to gain BTC via the take rate. It is in Terra’s interest to build up a reserve of strong assets other than LUNA, so there is always something “backing” Luna.
We can look at listing BTC-USDC or BTC-ETH (eureka variants) if the issue is it being a single asset pool. I don’t believe there’s much use for eureka ETH yet though, so that probably wouldn’t get much more volume than BTC-BTC.
It’s probably a good time to re-assess whcih version of BTC (and ETH) we want to focus on, in any case. Both Axelar and Osmosis seem to me to be in "maintenance mode”.
Yes, I know that argument about feeding Luna so that the community pool can gain BTC via the 10% take rate. First of all, that’s ineffective, because if the whole point of this pool is just to get more BTC in the treasury, you’re better off just buying it no? So this argument I would only consider if this pool is proven to have no detrimental effect on Luna’s price… (And why do you even need BTC in the treasury, all we need is Luna and stablecoins right? The 10% take rate also works on the stablecoin pools and they are arguably even more capital efficient and better for funding (nothing beats native stablecoins when it comes to payments). USDC-USDT will go up in size if WBTC.axl-WBTC.osmo is disabled which competes with it. And also, I assume we all expect Luna to eventually outperform BTC, otherwise why would we even be here? Therefore more Luna in the community pool would make more sense than more WBTC in the community pool, which is what you get with the 10% take rate in the Luna pools. Luna is the core growth asset on Terra people, stablecoins are for direct funding (you can immediately pay without selling anything) and all the blue chip liquidity is basically just more liquidity pathways, therefore they should primarily be bound to Luna in pools, and not to themselves or other blue chips.)
As for feeding Luna to BTC-USDC or BTC-ETH, it will end up a similar negative economic loop, especially the latter. You’re feeding Luna to external capital that offers no utility to Terra. Those pools are fine, but they shouldn’t be in the Liquidity Alliance. As a Luna hodler, why should I have to pay for people who prefer BTC or ETH or maybe both? Shouldn’t it be the other way around? Why can’t I go to the Ether network, plant my Luna bag there and autocompound it with ETH emissions? Ethereum is not feeding any emissions to outside capital. Why should Terra? (And yes, I would definately autocompound Luna on external chains if i could. I’d feed all those coins to Luna. I’d act as mercenary capital and I wouldn’t care about any of those chains I plant my bags at. I would farm those chains and then I would leave, because my loyalty is with Luna, and not with them. They’re just free lunch, aslong as they offer it me ofcourse. Unfortunately no intelligent chain is offering emissions to Luna hodlers, so I stay on Terra. So I cannot act as mercenary.)
Oh, but let’s keep the focus on this pool. Try to swap WBTC.axl to WBTC on Osmosis, you’ll lose nothing. This alone destroys all the utility that this pool was supposed to bring. Take rate I simply don’t see as a valid argument by itself.
That’s pretty irrelevant to the discussion at hand. Can people please stay on topic? This proposal is only for the removal of one pool, and I am only interested in getting the LUNA price back up. Adding more stuff won’t help if you don’t address the toxins first. The only thing we can argue about is whether this pool is a toxin or not. For me it’s pretty clear, but I can’t speak for anyone else. (And it has nothing to do with bitcoin by the way. If this pool was any other 1:1 external blue chip, I’d evaluate and treat it the exact same. I am currently evaluating wstETH-wETH.axl . I think it behaves similarly, but not to the same degree, so I’ll let it slide for now. Roar-ampRoar on the other hand has been evaluated as a beneficial agent. Mostly because it’s pure Terra native and it can’t exist without Luna. The lion is dependant on the moon.)
The WBTC.axl – WBTC.osmo pool is not simply an “extraction channel.” It serves a practical strategic role because the CP uses this route to acquire BTC efficiently. Removing the pair does not eliminate emissions or sell pressure — it simply redistributes incentives to other pools and assets.
Notably, BTC currently has one of the lowest APRs in this category, which suggests this pool is relatively capital-efficient rather than an over-subsidized mercenary farm. Liquidity providers are willing to deploy capital there at comparatively low subsidy levels.
Therefore, the claim that this pool is uniquely harmful does not hold up:
it supports a strategic objective (CP BTC acquisition)
it attracts liquidity at relatively low APR
removing it does not reduce emissions, it only reallocates them
no evidence is presented that it is a dominant source of structural sell pressure
More importantly, the proposal appears ideologically driven rather than economically grounded. Based on the author’s public posts, there seems to be a strong anti-BTC bias shaping the narrative.
This proposal also sets a bad precedent for how listed assets and incentive allocations are managed. Governance should not be making ad-hoc decisions about individual pools without a clear strategic framework.
Instead of targeting a single pool, a proper evaluation framework should first be developed, agreed upon, and passed, defining objective criteria such as:
strategic utility to Terra
cost per dollar of productive liquidity
real trading volume / usage
benefit to CP or treasury objectives
comparative APR efficiency
Until such a framework exists, the original strategy and intent defined in the initial Liquidity Alliance proposal should be upheld, rather than modifying individual pools in isolation.
For these reasons, I cannot support removing this pool based on the arguments presented here.
I have already dissected your CP take rate accumulation argument. It is simply not reason enough for its existence and it expresses an ideological attachment to bitcoin over other coins.
Notably, BTC currently has one of the lowest APRs in this category, which suggests this pool is relatively capital-efficient rather than an over-subsidized mercenary farm. Liquidity providers are willing to deploy capital there at comparatively low subsidy levels.
Yes, mercenary capital always leads to low APR over time. Because it is autocompounded aggressively. (The pool starts small with high APR, then over time grows and grows and grows because all the Luna rewards are consistently sold and sold and sold and converted into BTC. So this will always lead to low APR over time, and which is exactly what happened. Did I tell you I studied toxicology, immunology and biotechnology? Not that it’s relevant but this sounds an awful lot like a cancer cell to me…) So if you think low APR pools is a good trademark to make your decisions on which pools to favour, sorry to say, but you are playing right in the hands of mercenary capital and you have absolutely no idea. Yes, it attracts liquidity at relatively low APR. You’re correct, because such capital is hungry for anything it can grab its hands on, without ofcourse having to also invest in the chain’s native token, which is simply treated as food.
If I was mercenary capital, I’d absolutely love devs like you that continuously argue for keeping me well-fed while I dump their token. (You even made it super easy for me. I can just enable this button right here: autocompound, aka auto-dump and go AFK.) And what are you planning to do with all the bridged WBTC you accumulate in the treasury at a terribly low efficiency? I hope sell it for Luna. Buyback our coin. That would be ideal.
I agree with removal of this LP. However, not for the stated goal in the proposal.
The proposal frames the issue as liquidity extraction, but the deeper issue is asset fragmentation.
The WBTC.axl–WBTC.osmo pool primarily exists to maintain parity between two bridged BTC representations. While that serves a technical purpose, it does not meaningfully contribute to Terra’s DeFi economy.
Neither asset is widely used within the ecosystem:
They are not the primary BTC collateral used in lending markets
They are not the dominant BTC liquidity paired with LUNA
They are not deeply integrated into Terra-native strategies
In practice, Terra already appears to be converging on WBTC.atom as the canonical BTC representation:
• LUNA–WBTC.atom LP already exists within Liquidity Alliance
• Creda uses WBTC.atom as BTC collateral
Given this direction, maintaining incentive-supported liquidity between other BTC bridge variants adds little strategic value.
Based on current figures, roughly $100K is staked through TLA, receiving about $19K/year in Alliance rewards. With the 10% take rate applied to the staked capital, Terra recaptures roughly $10K/year, implying a net subsidy of around $9K/year for this pool.
The absolute cost is not large, but the incentives are directed toward bridge-parity infrastructure rather than productive BTC liquidity on Terra.
In my view the real issue here is not liquidity extraction — it is BTC liquidity fragmentation.
Removing this pool would help encourage consolidation around a single canonical BTC asset, which would ultimately strengthen BTC liquidity and make Liquidity Alliance incentives more effective.
I agree with this. Although I don’t think this precludes individual pools being removed. Indeed Phoenix Foundation has previously removed pools without framework being in place.
a proper evaluation framework should first be developed, agreed upon, and passed, defining objective criteria such as:
strategic utility to Terra
cost per dollar of productive liquidity
real trading volume / usage
benefit to CP or treasury objectives
comparative APR efficiency
strategic utility to Terra: zero
cost per dollar of productive utility: negative
real trading volume/usage: negative, only fools swap here instead of on Osmosis
benefit to CP or treasury objectives: only useful when dumped for Luna (higher growth potential) or stablecoins for payments
comparative APR efficiency: very high because it’s mercenary capital. Every Luna farmed gets auto-dumped and converted to more WBTC
“Terrans are food, just like Osmo hodlers, Elys hodlers (already eaten), Neutron hodlers. Only this PhoenixPinion T-Cell here is being annoying… Why don’t he let us consume you guys? We have to stop him before he succeeds in creating an immune response and cutting off our food source.”
Anyway, jokes aside – the economic model remains unchanged: the pool extracts Luna through continuous auto-dump mechanics. And unless that mechanism is addressed, incentives will remain misaligned with Terra’s long-term health. Excuse me for my irony, but any immunologist would quickly come to the same conclusion. What is obvious for me might not be so obvious for you. Someone with my background in crypto is extremely rare. Life sciences generally don’t overlap with computer sciences or economics. I don’t know what I’m doing here actually, unless Phoenix needed a defensive agent. I think this chain is too powerful to go down by such a weak internal threat without a fight.
If worried about the limited usecase of the pool. Why not push to get it listed on Creda? That provides a good lending pool and possibility of liquidations. I do think the BTC pool needs to be more shifted to WBTC.osmo-wBTC.atom though. I dislike .axl assets lol
Excuse me? You think I’m worried about usecase? When I have a toxin in my body that is draining my life without giving anything back, you think I am worried about it not having enough utility? No, I am worried about my life being drained by something external not aligned with the health of my organism. So your suggestion makes no difference. You replace WBTC.axl with WBTC.atom . That’s the exact same molecule and it will lead to the exact same outcome, just you’re using the IBC eureka bridge instead of the axelar bridge. Does anyone here ever think about Phoenix rather than their own yield?
Nonetheless, we’ll talk utility. Here’s the thing. Any WBTC can be instantly swapped to any other WBTC in Cosmos for no cost. Because that’s what the applayer for Bitcoin excels at, which is Osmosis and not Terra. As such, 1:1 WBTC pools should not receive any Luna rewards. And if Osmosis didn’t exist, and you wanted to create such pools, you’d do it by creating one Luna-WBTC.atom pool and one Luna-WBTC.osmo pool . So you use Luna as a bridge currency. Now why would you do that, it seems less efficient? Because we’re using Luna emissions to grow pools. These pools are not free. The above pools allow you to do the same swap, but they can never be mercenary, due to them having Luna in them. As such they are aligned with Terra’s growth. You can safely autocompound them and it will have no negative effect on Luna’s price.
Now, some people might find my writing style weird. I’m using biological terms on a blockchain space to express a concept. Because well, these DeFi chains are ecosystems. The word ecosystem did not originate from blockchain. It is borrowed from biology. I’m just adding the next layer, which is immunology. A thriving ecosystem needs defenses from external threats, who often slip in unnoticed and they always try to mark themselves as positive to bypass the white blood cells. If you didn’t have an immune system, you’d drop dead tomorrow. (Exaggerated, but you get the point…). And keep in mind I’m not attacking anyone. I only wrote this proposal because I had to, not because I wanted to. I can think of my many things I’d rather spend my time on than drafting governance proposals that don’t do anything for me except help my (and your) Luna coin.
No need to DM validators btw. They’re perfectly capable of evaluating proposals on their own. Anyway, we got Enigma. What are you gonna do against a Black Hole + Supernova combo? As I said, GG. It’s not a big deal guys, it’s just a little pool. And imagine what we get in return. We might actually go up again. (But ofcourse that’s irrelevant if your goal is to just accumulate wbtc)
TERRA IS NOT A FARM! TERRA IS NUMBER ONE!
AND I AM NOT A COW TO BE MILKED! DO NOT STAND IN THE WAY OF PHOENIX’ DESTINY!
Thank you dragon. I don’t have any other proposals on my mind no. They only come to me once every red moon. If I deem it important, I’ll be sure to post about it.
(My mind is usually occupied about liquidity. I think the liquidity alliance is a great product, but it has to be calibrated correctly, because it’s a double-edged sword. (Positive flywheel or negative flywheel depending on how you incentivize…) I first wanna see what this product is capable of when it’s actually working as intended before I wanna jump to something else.)
