DS10 Knine defi etf (DeFi Standard 10)

Development
1

Development Proposal: Creation of a Blockchain ETF for DeFi on Ethereum with Rewards in Shibarium**

Summary

This document proposes the development of a blockchain-based Exchange-Traded Fund (ETF) that will aggregate the top 10 DeFi protocols on the Ethereum network. This ETF will distribute the generated dividends to participants and will specifically benefit the K9 community by distributing rewards in the form of $knine on the Shibarium network. Additionally, a mechanism will be implemented to burn 1% of the dividends in $K9, reducing its supply and increasing its long-term value.

Furthermore, the ETF will be launched in a liquidity pair with $knine, with a 0.5% sell fee applied to every sale transaction. The $knine collected from this fee will be automatically burned, creating a deflationary effect that benefits holders over time.

A) How Does It Work?

  1. Selection of Protocols: The 10 most relevant DeFi protocols on the Ethereum network will be selected based on factors such as liquidity, trading volume, and stability.

  2. ETF Tokenization: A representative token of the ETF will be created, allowing users to buy and sell shares in the fund.

  3. Liquidity Pair with $knine: The ETF will be launched with a trading pair against $knine, increasing its liquidity and market presence.

  4. 0.5% Sell Fee for Burns: Every sale transaction of the ETF token will include a 0.5% fee, which will be used to buy and burn $knine, reducing its circulating supply.

  5. Dividend Distribution: The revenues generated by the selected protocols will be periodically distributed to participants in the form of $knine on the Shibarium network.

  6. K9 Participation: K9 will hold a minimum 20% stake in the ETF, ensuring its influence in governance and the ecosystem.

  7. Burn Mechanism: In addition to the 0.5% sell fee burn, 1% of the dividends generated by the ETF will be used to buy and burn $K9, further supporting price stability and value appreciation.

B) Why Is It Necessary?

Innovation in Decentralized Finance: The creation of this ETF will facilitate diversified exposure to DeFi without the need to manage multiple assets.

Integration Between Ecosystems: By using Shibarium for reward distribution and K9 as a key component of the fund, a synergy between Ethereum and Shibarium will be created.
Incentives for the Community: Participants will not only receive dividends but will also actively contribute to strengthening K9.
Deflationary Mechanism: The combination of the **sell fee burn and the 1% dividend burn will significantly reduce the $K9 supply, benefiting holders in the long run.

Increased Liquidity for $knine**: Launching the ETF in a liquidity pair with $knine** will create deeper liquidity, improving market efficiency and accessibility.

C) Challenges to Overcome

  1. Smart Contract Security: Ensuring that the ETF’s smart contract is secure, audited, and resistant to exploits.

  2. Liquidity Management: Balancing liquidity pools effectively to prevent excessive volatility and ensure smooth trading.

  3. Regulatory Compliance**: Addressing legal considerations in different jurisdictions to avoid regulatory hurdles.

  4. Cross-Chain Bridge Efficiency: Implementing a reliable mechanism to convert and bridge dividends from Ethereum to Shibarium without excessive fees or delays.

  5. Adoption and Awareness: Educating users on the benefits of the ETF and incentivizing participation through strategic marketing.

  6. Governance Implementation: Ensuring fair and decentralized governance, particularly regarding K9’s 20% stake in the ETF.

  7. Automated Burning Mechanism: Developing and testing a robust system to execute the 0.5% sell fee burn and 1% dividend burn seamlessly.

D) Long-Term Impact

  • Growth of the DeFi Ecosystem: Facilitating access to diversified investments will attract new participants.
  • Strengthening of K9 and Shibarium: Integrating this ETF will increase visibility and adoption of these ecosystems.
  • Financial Sustainability: By generating recurring dividends, a sustainable revenue source will be created for participants and the K9 community.
  • Increased Adoption and Liquidity: Implementing this model could encourage other projects to adopt similar strategies, driving sector growth.
  • Continuous Deflation of $knine: The dual burn mechanism (sell fee + dividend burn) will consistently reduce the circulating supply of $knine, supporting its long-term value.

E) What Is Needed to Implement It?

  1. Smart Contract Development: Creation of secure smart contracts for ETF management, liquidity pairing, sell fee automation, and reward distribution.
  2. Selection of DeFi Protocols: Identification and evaluation of the protocols to be included in the fund.
  3. Liquidity Pairing with $knine: Establishment of the ETF trading pair against $knine and liquidity pool creation.
  4. Exchange of Dividends Generated by the Knine Token, Bridging to Shibarium for Distribution: Implementation of an efficient mechanism to convert the generated dividends into $knine and bridge them to the Shibarium network for participant distribution.
  5. Sell Fee and Burn Mechanism: Development of an automated process to collect and burn 0.5% of $knine from every sale transaction of the ETF token.
  6. K9 Governance and Participation: Establishment of governance mechanisms to ensure K9’s 20% participation in the ETF.
  7. Regulation and Compliance: Legal analysis and adjustments to ensure the ETF complies with relevant regulations.
  8. Marketing and Adoption: Strategic campaigns to promote the ETF and onboard investors.

F) Conclusion

This blockchain ETF based on Ethereum, with reward distribution on Shibarium, will not only provide an attractive DeFi investment option but will also strengthen the K9 ecosystem through its active participation and dual deflationary mechanism. The sell fee burn and dividend burn will continuously reduce the supply of $knine, making it a deflationary asset with increasing scarcity.

Additionally, launching the ETF in a liquidity pair with $knine will enhance its trading volume and liquidity, improving market efficiency. Overcoming key challenges such as smart contract security, cross-chain bridging, and regulatory compliance will be crucial for the project’s success. If executed properly, this ETF has the potential to revolutionize DeFi investments while strengthening the K9 and Shibarium ecosystems in a sustainable and deflationary manner.

Neutral Impact on $knine Price

One of the key considerations in the design of this ETF is ensuring that the impact on the price of $knine remains neutral while still benefiting the ecosystem. This is achieved through a mechanism where any sale of dividends in $ESknine occurs only after an effective purchase, ensuring pure trading volume rather than net sell pressure.

How Does This Work?

  1. Dividends Are Earned in $ESknine: Participants receive their ETF dividends in $ESknine, meaning they do not originate from existing market liquidity but rather from the profits generated by the ETF itself.

  2. If Sold, They First Require a Buy Order: In order for $ESknine dividends to be sold, they must first be converted into $knine, which requires a buy transaction on the market. This means that every sale is preceded by a purchase, maintaining a neutral price impact on $knine.

  3. Pure Volume Generation: Since every sale is counterbalanced by a buy, this creates pure volume rather than downward price pressure. Increased trading volume leads to higher rewards and more dividends being generated within the $knine ecosystem.

  4. More Trading, More Dividends: As a result of this cycle, the ecosystem benefits from higher transaction fees, increased liquidity, and additional dividend generation, further reinforcing the sustainability of the ETF and $knine’s economic model.

Why Is This Important?

No Net Sell Pressure: Since each sale is preceded by a buy, there is no net negative impact on $knine’s price.

Increased Market Activity: More trading volume results in more fees and rewards for participants.

Self-Sustaining Growth: The ETF mechanism ensures continuous value creation within the $knine ecosystem.

This approach ensures that $knine remains stable while still benefiting from the ETF’s success, creating a sustainable and high-volume trading environment that enhances long-term value.

The reward token can be considered to be ESknine.

5 Likes
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I also propose to create liquidity pairs of rewards/knine in shibaswap to generate even more commissions to buy back and burn more knine and really have a possible balance in the volume.
Thus positively affecting the price of knine in the long term.

4 Likes
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Here are the key roadblocks, challenges, and potential flaws in the proposal:

1. Regulatory & Legal Risks

  • SEC & ETF Classification: Calling this product an “ETF” may trigger regulatory scrutiny from the SEC or other global regulators. ETFs are typically highly regulated financial instruments, and using the term might lead to compliance issues.
  • Securities Concerns: If the ETF token represents a portfolio of DeFi assets and distributes dividends, regulators might classify it as a security, which could create major legal hurdles.
  • Jurisdictional Issues: Different jurisdictions have varying laws around DeFi, staking rewards, and tokenized funds. Without legal clarity, the project could face unexpected roadblocks.

2. Smart Contract & Security Risks

  • Cross-Chain Risk: Moving dividends from Ethereum to Shibarium requires a secure and efficient bridge, which introduces additional smart contract vulnerabilities and potential exploits.
  • Liquidity Management Risks:
    • If too much liquidity is tied up in the ETF, it could create instability in the $knine market.
    • Low liquidity might also cause large ETF trades to create price slippage, harming investors.
  • Automated Burn System: The contract must handle multiple processes simultaneously (sell fee burn, dividend burn, buy order for ESknine) without introducing bugs or vulnerabilities.

3. Economic & Market Risks

  • Sell Fee & Burn Mechanics Could Be Counterproductive:
    • The 0.5% sell fee might discourage ETF trading, leading to lower adoption.
    • The burn mechanism assumes that reducing supply will always increase demand. However, if the ETF fails to generate enough activity, the burn won’t have a meaningful impact.
  • Potential Liquidity Drain from $knine: If too much of $knine’s liquidity is tied up in the ETF, this could lead to weaker price action for $knine.
  • Reward Model Complexity: The “buy first, sell later” mechanism for ESknine could confuse investors. If users don’t understand how it works, they may be hesitant to participate.

4. Governance & Centralization Issues

  • K9’s 20% Stake in ETF:
    • Who controls this stake? Will the community have a say, or will a core team manage it?
    • If governance is centralized, it might deter DeFi investors who prefer decentralized models.
  • Decision-Making on ETF Components:
    • How often will the ETF rebalance?
    • What criteria will be used for adding or removing DeFi protocols?
    • Who decides on these changes?

5. Adoption & Awareness Hurdles

  • Convincing Users to Hold ETF Tokens: Since the ETF is a novel concept, education will be needed to onboard investors.
  • Liquidity for ETF Token: A successful ETF needs deep liquidity, but it’s unclear where this liquidity will come from initially.
  • Marketing & Adoption Risks: A strategic rollout is required, and it may take time before the ETF gains traction.

6. Execution Challenges

  • Development & Deployment Timeline: This is a complex multi-layered product requiring multiple smart contracts, secure cross-chain integration, and governance frameworks. Without a detailed roadmap, execution could face delays.
  • Sustainability of Reward Mechanisms: If ETF revenues are too low, rewards in ESknine might be insignificant, leading to weak investor interest.

Key Questions That Need Answers

  1. Regulation: Has a legal expert reviewed the feasibility of calling this an ETF? What jurisdictions will be targeted?
  2. Security: How will the team ensure smart contracts are fully audited and resistant to exploits?
  3. Liquidity Risks: What mechanisms will prevent liquidity drain from $knine?
  4. Governance: Who controls the 20% K9 stake in the ETF? How will governance be handled?
  5. Adoption Strategy: How will liquidity for the ETF token be sourced? What incentives will drive adoption?
  6. Sustainability: What happens if the ETF fails to generate meaningful returns? Will rewards still be distributed?

Final Verdict

While the idea is innovative, it carries significant regulatory, security, and liquidity risks. Several aspects need further clarification, particularly regarding governance, ETF liquidity, and long-term sustainability. If these concerns aren’t addressed, the proposal could struggle to gain traction or face legal/regulatory issues down the road.

3 Likes
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Addressing Key Concerns About the ETF Proposal

The concerns raised about our ETF proposal are valid and demonstrate the need for careful planning and execution. As a financial and technological “company”, we must be able to tackle these challenges head-on. Otherwise, how could we call ourselves an innovative financial entity if we are unable to navigate the very obstacles that define this industry?

We are not just a community-driven initiative—we are building a structured, professional-grade financial product that adheres to best practices in DeFi, smart contract security, liquidity management, and regulatory compliance. Below, we address the primary concerns in detail.

1. Regulatory & Legal Risks

SEC & ETF Classification

We acknowledge that calling this product an ETF could trigger regulatory scrutiny. To mitigate this:

  • We will rename the product to avoid using the term “ETF” directly while maintaining its core functionality.
  • A legal expert will review the framework to ensure it does not qualify as a security under SEC or other financial regulations.
  • The product will be structured in a way that does not require central management, aligning with DeFi principles to avoid regulatory pitfalls.

Securities Concerns

To prevent the ETF from being classified as a security:

  • The token will not grant ownership rights over the underlying assets but will instead function as a yield-generating DeFi index.
  • Dividends will be distributed as protocol rewards, not direct financial returns, further distancing it from traditional security structures.

Jurisdictional Issues

We will conduct jurisdictional assessments to identify regions where DeFi regulations are favorable and where we can legally operate without compliance risks.

2. Smart Contract & Security Risks

Cross-Chain Risk

Bridging between Ethereum and Shibarium introduces potential vulnerabilities. To mitigate this:

  • We will only use battle-tested and audited cross-chain solutions for dividend transfers.
  • A security review will be conducted by external auditors to ensure there are no bridge-related attack vectors.

Liquidity Management Risks

Concerns about excessive liquidity being tied up in the ETF are valid. We will address this by:

  • Implementing adaptive liquidity allocation, ensuring that no single pool is over-concentrated.
  • Using an automated liquidity balancing mechanism to prevent large ETF trades from causing excessive price slippage.

Automated Burn System

Managing multiple functions (sell fee burn, dividend burn, ESknine buybacks) requires precision. To address this:

  • The smart contract will undergo multiple security audits before deployment.
  • We will implement phased rollouts to ensure smooth operation before full-scale implementation.

3. Economic & Market Risks

Sell Fee & Burn Mechanics

  • The 0.5% sell fee is designed to create a sustainable burn mechanism while remaining low enough to encourage trading.
  • Burning assumes that reducing supply increases demand, but our approach does not rely solely on scarcity. We will also:
    • Ensure continuous liquidity inflows.
    • Provide additional incentives for long-term holders.
    • Encourage active trading through reward mechanisms.

Potential Liquidity Drain from $knine

To prevent a liquidity drain from $knine:

  • We will limit the percentage of $knine allocated to the ETF, ensuring that a healthy portion remains in circulation.
  • A liquidity balancing mechanism will be implemented to adjust weightings dynamically based on market conditions.

Reward Model Complexity

We recognize that the buy-first, sell-later mechanism for ESknine may seem complex. To address this:

  • A clear and transparent educational campaign will be launched to explain how rewards work.
  • A user-friendly dashboard will provide real-time insights into ETF performance, rewards, and liquidity.

4. Governance & Centralization Issues

K9’s 20% Stake in the ETF

  • It is important to clarify that this 20% stake does not refer to centralized ownership, but rather to the composition of the ETF itself.
  • The ETF is structured as 20% $knine and 80% the top 9 DeFi protocols on Ethereum. This means that $knine is a key participant in the index but does not control the governance of the ETF.
  • Additionally, this presents an opportunity for sponsored partnerships with the other DeFi protocols included in the index, ensuring mutual benefits and co-branding opportunities.

Decision-Making on ETF Components

  • Rebalancing will occur at set intervals based on transparent, predefined criteria.
  • Governance will decide on any changes, ensuring that the community has a say in protocol selection.

5. Adoption & Awareness Hurdles

Convincing Users to Hold ETF Tokens

  • A strong incentive structure will be put in place, rewarding long-term holders with compounding benefits.
  • Staking options will be introduced, allowing ETF holders to earn additional yield beyond dividend rewards.

Liquidity for the ETF Token

  • Initial liquidity will be sourced through a combination of treasury funds, strategic partners, and community incentives.
  • Market-making strategies will be implemented to ensure deep liquidity from day one.

Marketing & Adoption Risks

  • A phased rollout strategy will allow for incremental adoption.
  • High-profile DeFi partnerships will drive awareness and attract institutional investors.

6. Execution Challenges

Development & Deployment Timeline

  • A detailed roadmap will be shared with the community, ensuring full transparency on development milestones.
  • The smart contract development will follow a testnet-first approach, allowing real-time testing before full deployment.

Sustainability of Reward Mechanisms

  • ETF revenues will be diversified across multiple yield-generating DeFi protocols, ensuring consistent income.
  • Even if some revenue streams underperform, the diversified nature of the ETF will minimize downside risk.

Conclusion
The concerns raised are legitimate and highlight the complexity of the proposal. However, through a decentralized governance framework, rigorous security audits, and a strategic focus on liquidity, we can mitigate these risks and build a sustainable and innovative financial product.

Additionally, by structuring the ETF as 20% $knine and 80% the top 9 DeFi protocols, we ensure that $knine remains a fundamental part of the ecosystem while creating opportunities for sponsored partnerships with the other DeFi protocols, fostering long-term collaboration and shared growth.

If we are not capable of addressing these challenges, we cannot call ourselves a financial and technological “company”. But since we are an entity committed to innovation and excellence, we face these challenges with clear and executable solutions.

2 Likes
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Here is a possible roadmap for the proposal:

Roadmap for the Implementation of the DeFi Index

This roadmap outlines the key steps for the creation, development, and implementation of the DeFi index, ensuring that each phase is completed efficiently and transparently.

Phase 1: Research and Planning (1-2 months)

Objective: Define the index parameters, evaluate regulations, and establish a solid foundation for development.

  1. Feasibility and regulatory analysis

Consult legal experts to define the optimal regulatory framework.

Determine whether the index can operate without being classified as a security.

Evaluate the most favorable jurisdiction for its launch.

  1. Definition of the index and its composition

Select the top 9 DeFi protocols on Ethereum to be included.

Confirm the 20% knine participation in the index composition.

Establish criteria for rebalancing and portfolio adjustments.

  1. Design of the economic model and reward mechanics

Define the distribution of dividends in ESknine.

Set up the dividend bridge to Shibarium.

Configure the 0.5% sell fee burn mechanism.

  1. Strategic partnerships and sponsorships

Negotiate potential partnerships with the DeFi protocols included in the index.

Explore initial funding through investors or allied communities.

Phase 2: Development and Initial Testing (2-3 months)

Objective: Build smart contracts, conduct testnet trials, and perform security audits.

  1. Development of the index smart contract

Program the asset allocation mechanics.

Implement the dividend distribution system.

Integrate the burn mechanism and the 0.5% sell fee.

  1. Testnet deployment and security audit

Implement on test networks to verify proper functionality.

Conduct external audits to identify and fix vulnerabilities.

Perform stress tests under high volatility scenarios.

  1. Development of the Ethereum-Shibarium bridge for reward distribution

Evaluate secure bridging solutions.

Implement and test the dividend conversion system.

Phase 3: Deployment and Launch (1-2 months)

Objective: Deploy the index on the main network and ensure proper adoption.

  1. Mainnet deployment of the index

Official implementation on mainnet.

Set up the ETF liquidity market on Shibaswap paired with knine.

Enable reward distribution and burn mechanisms.

  1. Liquidity strategy and adoption

Incentives for initial liquidity providers.

Creation of reward/knine liquidity pairs on Shibaswap to increase volume and generate more fees for knine buybacks.

Integration with other DEXs and DeFi platforms.

  1. User education and adoption

Launch an educational campaign on how the index works.

Implement an interactive dashboard for the community.

Partner with influencers and DeFi communities to drive adoption.

Phase 4: Expansion and Optimization (Ongoing)

Objective: Enhance functionality and expand the index ecosystem.

  1. Monitoring and performance optimization

Track key metrics such as volume, liquidity, and distributed rewards.

Adjust the index composition based on market performance.

  1. Governance and progressive decentralization

Establish a DAO to allow the community to vote on index changes.

Gradually decentralize the management process.

  1. Exploration of new integrations

Connect with new DeFi protocols to improve index performance.

Evaluate expansion to other Ethereum-compatible networks.

Timeline Summary

Research and planning: 1-2 months

Development and testing: 2-3 months

Implementation and launch: 1-2 months

Expansion and optimization: Ongoing

Total estimated time: 4-7 months until mainnet launch, with continuous optimization.

This roadmap establishes a clear plan for the success of the index, prioritizing security, economic sustainability, and adoption within the DeFi ecosystem.

2 Likes
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Advantages and Opportunities of Using the CCIP Standard as a Bridge Between Ethereum and Shibarium

Integrating CCIP (Cross-Chain Interoperability Protocol) as the bridge between Ethereum and Shibarium offers several strategic advantages, reducing costs and complexity in implementing the DeFi index with Knine.

  1. Enhanced Security and Reliability
    CCIP is developed by Chainlink, one of the most trusted infrastructures in the blockchain space. Using this standard instead of developing a custom bridge helps avoid security vulnerabilities because:

It minimizes the risk of exploits and hacks that have affected many custom DeFi bridges.

It uses a decentralized architecture with reliable validators, reducing the risk of 51% attacks.

It incorporates modular security, allowing future upgrades without compromising bridge functionality.

  1. Reduction of Costs and Technical Complexity
    Creating and maintaining a custom bridge between Ethereum and Shibarium would involve high development and maintenance costs, as well as implementation risks. Using CCIP offers:

Lower audit costs, as a custom bridge would require expensive security reviews and extensive testing, while CCIP uses a pre-validated infrastructure.

Faster development by leveraging an existing communication system instead of designing one from scratch, reducing implementation time.

Less maintenance, as CCIP is continuously updated, eliminating the need for manual bridge upgrades.

  1. Greater Compatibility and Scalability
    Using an interoperable standard like CCIP makes it easier for the Knine DeFi index to expand into other ecosystems without major modifications.

Native compatibility with multiple blockchains, not just Ethereum and Shibarium, but also networks like Polygon or Arbitrum in the future.

Easy integration with existing DeFi protocols, ensuring better adoption within the ecosystem.

Support for advanced features like programmable payments or automatic cross-chain swaps.

  1. Optimization of ESknine Dividend Distribution
    Bridging rewards generated on Ethereum to Shibarium via CCIP becomes more efficient by reducing:

Transaction costs by avoiding centralized bridges with hidden fees.

Distribution time, ensuring a smooth delivery of ESknine rewards without congestion.

Additionally, it maintains transparency and traceability, facilitating real-time audits of dividends and the burning of Knine.

  1. Conclusion
    Adopting CCIP as the bridge between Ethereum and Shibarium simplifies the proposal significantly, eliminating the need to develop custom infrastructure and reducing operational risks.

Greater security is achieved by avoiding common vulnerabilities in custom bridges.

Development, audit, and maintenance costs are reduced, optimizing project sustainability.

Expansion to other ecosystems becomes easier, ensuring Knine and its DeFi index can evolve in the future.

Using a proven standard like CCIP adds credibility to the project and increases confidence among the community and investors, strengthening the proposal’s viability within the K9 ecosystem.

2 Likes
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This is an interesting proposal with a lot of potential for strengthening the K9 ecosystem and increasing $knine adoption. However, I have some concerns about the burn mechanism.

While reducing supply can create scarcity, we need to consider the long-term effects on governance and decentralization. Since $knine is the governance token of K9 Finance, excessive burns could gradually concentrate power in the hands of early adopters and large holders, making it harder for new participants to join and influence the DAO.

Instead of a direct burn, an alternative could be to redirect those funds into incentives for ecosystem growth, such as liquidity incentives, staking rewards, or funding new developments that drive demand for $knine. This way, the token still benefits from increased utility and value appreciation without restricting future participation.

Long-term decentralization! <3

2 Likes
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I think that’s a very good point. Taking into account what you say, I would perhaps modify it to distribute those rewards in the ecosystem. Maybe if we turn it into bone (instead of k9) and distribute it among users who have locked their tokens for more than 6 months could help incentivize the ecosystem without addressing the concerns you mention.

1 Like
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This proposal is well thought out but has a few challenges - there is no clear scope on cost or who would be responsible for managing this new product. There are significant legal challenges to operating something like this that pays dividends and is likely outside the scope of what the DAO can accommodate at this time.

If serious about pursuing this idea, I would suggesting finding a way to structure this as a smart contract based / permissionless protocol that K9 could contribute to or partner with, keeping the operation and risk outside of K9 DAO.

4 Likes
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That’s the idea, it should work entirely with smart contracts without human intervention, pure defi, I have difficulties when structuring the ideas,create realistic budgets and design action plans, I just throw out ideas at will.

If you think this is an interesting proposal, can you help me with the tasks that are too big for me or help me find people who can help us?

I really think it would stimulate the economy of the ecosystem a lot to bring dividends from other protocols and introduce them into ours.

Remember the Ccip standard for interoperability between chains in case bridges are required in the action plan.