Overview
Following Gains Network’s revamped tokenomics with the Buyback and Distribute model (BB&D) in July, this proposal suggest a temporary one-month change in the Single Sided Staking (SSS) reward distribution (which is currently 54% of the protocol’s revenue).
The current distribution allocates 90% of SSS rewards to stakers, 10% to the governance fund, and 0% to burning $GNS tokens.
Under this proposal, the distribution would shift to 0% to stakers, 10% to the governance fund, and 90% to $GNS burns — for one month.
To be initiated immediately after the Snapshot vote closes. After this one month period, Gains Network will return to the current distribution for the community and team to reassess the impact and consider the next steps forward.
Justification and Rationale
1. Maximizing Burn Impact at Low Prices
- Current Price Opportunity: At the current $GNS price of approximately $1.60—near a two-year low—the quantity of tokens that can be removed per dollar spent is maximized. This temporary adjustment is an opportunity to permanently remove a larger volume of $GNS from the total supply, maximizing the impact of buybacks due to the price-to-burn potential.
- Historical Context: Burning $GNS at this price leverages a unique position to effectively increase scarcity without sacrificing as much staker reward value compared to burns at higher price levels.
2. Long-Term Benefits of Reduced Supply
- Support for Protocol Stability: As $GNS serves as a backstop for the gTrade protocol, a lower circulating supply strengthens the token’s future resilience in the event of substantial trader profits. This burn aligns with long-term protocol health, potentially lowering volatility risks and providing additional value to the remaining token supply.
- Scarcity and Market Confidence: With the circulating supply reduced, market confidence in $GNS could improve, potentially leading to price appreciation. A scarcity-driven price increase would ultimately benefit the community and stakers when regular reward distributions resume.
3. Polling Results Indicate Community Support
- Community Sentiment: A recent Telegram poll of the Gains Network community showed strong support for a similar burn-focused initiative. Implementing this change for a short, defined period will enable Gains Network to respond to the community’s feedback in a meaningful way.
- Trial Period to Gauge Impact: By implementing the burn for a one-month period, Gains Network can observe and measure the effects of this strategy without a long-term commitment. This allows the protocol and community to assess the potential impacts on both market dynamics and community sentiment.
Screenshot captured on November 5th, 2024
Potential Implications on $GNS Supply and Market Dynamics
1. Estimated Burn Impact on Market Cap and Circulating Supply
- With $GNS currently trading at $1.60 and a market cap of $55 million, directing 90% of the usual SSS rewards to burns could result in a significant reduction in supply within this month. This burn is expected to create consistent buy pressure due to gTrade’s daily revenue, while increasing the token’s scarcity.
- A reduced supply often correlates with improved value retention, which is a compelling incentive for stakeholders and prospective investors.
2. Potential Improvement in Token Liquidity
- Without SSS rewards, stakers may seek yield by providing liquidity in DEX pools, which could increase $GNS liquidity depth and trading volume. This added liquidity reduces price slippage, making $GNS more attractive for larger trades and improving token accessibility. Additionally, this temporary shift encourages stakers to explore LP opportunities, potentially creating a long-term base of liquidity providers that supports healthier price dynamics and stability in the $GNS market.
Risks and Mitigations
- Temporary Loss of Staking Rewards: While stakers will forgo rewards temporarily, the potential increase in $GNS value could offset this short-term loss, particularly if the burn results in a favorable price adjustment.
- Market Sentiment on Reduced Rewards: To address concerns from stakers about lost rewards, this proposal emphasizes that the burn period is limited to one month, after which the standard reward distribution can be reinstated. Communication around the long-term benefits of this approach should be prioritized to align stakeholder expectations.
By implementing this burn-focused strategy, Gains Network can capitalize on $GNS’s low price, enhance token scarcity, and potentially improve long-term value. This trial period also allows the protocol to assess the effects of the burn mechanism on token stability and market response, contributing to a data-driven decision-making process for future tokenomics strategies.