Starting a discussion post for us to discuss current pain-points and improvements we’d like to see. An overview of the shortcomings of our current tokenomics:
Users have no requirement to lock, making it easy to unstake and sell, bringing down the price and reducing the strength of our long-term backstop against traders
Staking rewards are distributed to stakers in $DAI, $USDC, and $WETH, which makes it easy for recipients to divert those funds elsewhere, leading to leakage of protocol revenue to outside protocols
It looks like soon we’ll be adopting a new model, as these shortcomings have caused our token to decline in price despite supporting large volume. Ideally we’d like to see the price of our backstop appreciate with the performance/increased usage of the protocol.
It’s likely that the new model will require some sort of locking mechanism and the protocol will use revenues to automatically buy $GNS and distribute it to stakers. This ensures that the entirety of what is currently diverted toward stakers will remain in the ecosystem.
I’m wondering what other’s thoughts are on diverting a proportion of what’s currently diverted toward stakers to a buyback and burn as well as $GNS distribution. As an example, currently GNS stakers earn about 60% of the protocol’s revenues. What if 40% went toward a buyback and distribution and 20% went toward an automated burn, on top of the burning mechanism present in the vaults?
They’re pretty similar, but with a bit of a psychological nuance. In both cases, the revenue is directed toward buying the tokens, directly increasing the market cap. In the distribute case, however, all revenue is directed toward the stakers with no effect on the total supply. Stakers could very well just take their $GNS rewards and sell on the market, effectively bringing us to where we are now, with a bit of extra friction.
With a partial burn, the proportion of revenue directed toward the burn is used to decrease the supply. This is effectively the same as spreading out all rewards to everyone, regardless of whether they’re staking or not. Stakers will receive a smaller amount of $GNS than if we only distributed GNS, which could reduce their willingness to sell.
If anyone has thoughts on this I’d love to hear from you
Agree this will in theory prevent swinging and strengthen token + volatility. However the incentives and penalties for early withdrawal would need to be sufficiently high in order to prevent swinging opportunities still being viable to the average investor.
This would also need to be a fair locking system which allows any new investor to receive the same incentivised rewards as any other investor. To remove any “unfair advantage” to early stakers which would then discourage new entrants.
Staking Rewards
Buy back and distribute in theory will allow for significantly more revenue to accrue within the token value as opposed to now, due to the psychology behind using current rewards to buy GNS, vs. unstaking and selling your newly distributed GNS.
I agree that a level of burn is required due to the increased hype it creates and the value it instantly adds to the token. While described in telegram as slightly more complicated to understand how this value is accrued, it was one of the reason I originally invested in GNS and it is clear that high APY to SSS isn’t causing GNS to catch a bid.
Therefore I actually propose what might be a better solution is capping the amount of GNS to be distributed through buy back, and using anything over that to buy and burn. This will allow a constant high APY (say 15-20%), while creating a bonus (marketable) event when we have significantly large volume for burning tokens and creating further deflation.
The same thought process could also be potentially applied to gLP pools (sending more to OC, which in turn would burn), to regulate the amount of APY, as it is clear from our pools that even 35% APY does not attract more liquidity, nor is the TVL even required in a lot of cases.
If implemented with easy to change parameters, the above can easily be tweaked throughout to reflect current market conditions and to find the right equilibrium too.
I really like your proposal, it caps the selling pressure in $GNS terms and allows for high burn on high volume days, meaning the token price would reflect the protocol usage.
It may be a little more nuanced to implement but I think it’s an improvement from what I suggested!
I’m glad to see people agreeing on the necessity of some sort of locking mechanism to increase friction and keep investors in the ecosystem more, any type of locking will help the token price, I would leave the details to the team to iron out.
However, I would like to add a comment about the buyback and burns, as they are certainly good optically but a consequence to them is illiquidity in markets which in itself will hurt prices as whales will be reluctant to buy the token, that’s why I suggest a buyback, LP and burn. this way will have practically the same effect on price as a buyback and burn but with the added benefit of high liquidity which is needed at high FDVs.
The current liquidity of GNS makes buyback and burn really inefficient. I think a much better approach is towards buying LP or setting up one sided LP on uniswap, along with sending some portion of the fees towards creating protocol owned collateral liquidity (gDAI, gETH, gUSDC).
This can allow us to cap the APY on collaterals and use the excess for the protocol. Because we have seen how even having very high APY on stables doesn’t seem to attract as much liquidity as we thought before.
Burning has the sole benefit of increasing the value of the remaining coins over time. If the protocol buys GNS and puts it towards a LP instead then we get the same benefit of increased value (coins removed from circulation) coupled with the benefit of better liquidity for the token (allows whales to buy in, makes downward price movements less severe).
In addition, the protocol would be stacking a huge amount of GNS which can one day be used for purposes other than in an LP position, if the token holders decide it’s appropriate.
I think this gets more value / use from the GNS compared to simply burning it, but while still getting the benefit of removing the coins from the market.
Since passing it the protocol has taken 3.11% of MKR off the open market and has turned it from being notorious for having poor liquidity into one of the most liquid tokens on dexes.
Well with Univ2 LP it basically means that for every 10000 DAI we are currently using to buy GNS and burn them, we will only use 5000 DAI to buy GNS and use that with the other 5000 DAI to symmetrically LP.
I would prefer to use Univ3 single sided liquidity and use the entire 10000 DAI to establish a UNIv3 LP slightly below the current price and then once/if the LP gets transformed into GNS (because the price dipped), remove the LP and then burn the GNS.
e.g. Price is $3, LP 10000 DAI and 0 GNS between $2.85 and $2.97.
When/if the price dips below $2.85, remove the LP with about 3440 GNS and burn them.
Basically doing the same thing as today but simply creating an extra step that will asymmetrically improve the liquidity.
This way you do not halve the deflation but you do improve the liquidity.
Seems like a win/win.
I think I would have to disagree with your proposal for single-sided liquidity. My main issues with this proposal (correct me if anything I say here is wrong) are that single-sided liquidity seems to be short-term (price range is exceeded, team pulls from LP position and burns GNS), and there’s no real guarantee that these price ranges set by the team will be breached, meaning that the amount of $GNS burned in this scenario could be smaller than if we made explicit allocations for a burn and UniV2 LP.
Also, imagining the difficulty of implementation for algorithmically deciding the price range to choose for a single-sided liquidity deposit makes me think that we might be better off keeping it simple.
As @blapm mentioned, MKR has implemented a similar regimen and is seeing hugely improved liquidity. Why venture for something novel when we see another protocol benefiting in a way that addresses our own pain-points? This is developer time that could be used for improving the platform and attracting traders.
I think we can all agree that the liquidity of the token has harmed us and it would be great to see the team address this in the rework that’s soon to come.
Great points here, I would like to add another example of FXS singularity tokenomics revamp where team has created a Frax Liquidity Engine (FLE):
The amount allocated to the FLE is based on the trailing price of FXS. If FXS 30-day trailing price is lower than the prior month, then 25% of protocol revenue is allocated to the FXS Liquidity Engine instead of veFXS. If the 30-day trailing price is higher than the prior month, then 25% more of protocol revenue is distributed to veFXS instead.
I also agree that we need more GNS liquidity. The idea is to move from the current SSS approach to a 80/20 or 90/10 ETH/USDC/DAI pools, with locking. For example 90% of the staking rewards will be used to buy GNS and pair it with the 10% left of DAI/USDC/ETH rewards in the corresponding pool. In that way, GNS holders are providing LQ and security to the protocol, earning both staking and swap fees. The price of GNS will have less volatility but it will steadily increase. Whales will have an easier entry/exit. Also the fact that we have such a huge liquidity means that whenever we will have to mint, minting price will not be gamed by GNS holders, who will sell GNS to buy more later on when the price will be lower (if they buy again).
In the same manner, we could also use part of the staking rewards for supporting the gVaults, paired with GNS for liquidity. In that case we will support liquidity of gTokens, using GNS as a intermediary, increasing the vaults collateralization.