Welcome to new gear, GEARHeads,
This is a pre-GIP to start a long term discussion on utility and what we can possibly enable with $GEAR. There are multiple approaches to how this can be done, multiple mechanisms but the goal, like we had with 0xCider, is to have something that suits Gearbox the most. I’ll start with a broader view and then narrow it down to what my initial approach to it would be.
My approach here is largely based on segregating USD(Core) Revenue through key revenue streams and GEAR Revenue through added avenues of monetisation. Core revenue then to be used for growth purposes of the protocol in a sustainable method while GEAR revenue enables to fuel any LMs or token related spends so as to not inflate the supply.
So let’s begin
Correction in revenue streams, no permanent $GEAR inflation, minimize $GEAR spends otherwise(Revenue pegged only), Create opportunities for people to spend $GEAR on, get $GEAR liquid staked for benefits. Revenue share as per core concepts of Discounts and Allowances(D&A) to push proper P&L management.
Let’s start with the first, currently Gearbox has two key revenue mechanisms
- APY spread
- Liquidation fee
APY spread is largely enabled by our liquidity pools while our focus on lowering liquidations, and overall protocol risk, means liquidation fee will never be a key focus source of revenue.
There is, though, the case of our CAs. CAs were mined for $7.3m, this wasn’t a direct DAO expenditure but with tokens going out was still an expenditure incurred to 5% of the supply. The CAs further are designed with a “Renting” out model effectively. To have no direct individual source of revenue indicates a significant risk to direct ROI from an impact assessment POV. This makes CAs enablers of revenue and part contributors.
Fee structure across protocols and CEXs follow a similar structure
- Borrow Fee
- Liquidation fee
- Account related fee
Even in terms of GMX, the positional fee to open and close an account is 0.1% of overall value, 0.2% effectively. While this is rather high given slippage with real assets, this is where CAs can effectively turn into direct revenue generators and the same should be explored. But like we have for our APYs, at the lowest possible meaningful level.
Meaningful levels are easy to determine if we model scenarios against existing data but haven’t been done for this pre-GIP as this is largely to kick off a discussion.
Now, getting down to how we can actually do it.
- GEAR as a D&A booster(eg BNB on binance)
- GEAR as Gated and Early access enabler to strategies and collaterals
- GEAR as core of a feature economy(Coins in Zynga poker etc)
This is a good read on what encapsulates D&A though execution mechanisms vary significantly: Concept And Types Of Discount And Allowances | Business-Marketing
The aim of introduction of D&A as a cost line to our existing P&L will be to help manage the spends while ensuring it doesn’t hinder growth. While a 15-20% D&A cost line might seem smol, that’s largely because the Web3.0 approach has largely been to have blanket share/discounts on all positions irrespective of size and distribution. The key goal of D&A is to optimize incentives towards growth levers and then tier them to reduce spends towards the lowest contributors.
Effectively the more you stake, the more your discounts are even though the cost line for the protocol remains in place.
- Stake GEAR for Positional Fee discount on opening CA: deducted from staked accounts in pool, won’t require gas(correct me if wrong please)
- Lowered borrow APY for your positions: Reduced Borrow rate by 15% is effectively a 45% discount. This can create massive gains as 6x equals 3% additional APY for WETH as collateral.
The fee paid here can then further be divided between base asset and GEAR, the GEAR from the generated fee can then be used to fuel an LM for stakers or to create a deflationary GEAR economy
None of it comes out as an additional from treasury
Collaterals pose a significant advantage to your leveraged positions on Gearbox. Being able to borrow an asset the same as your collateral asset effectively means you have exposure to directional assets without having to take directional exposure to your position. This is the core reason why liquidations on Gearbox have been as low as they have been.
The other side being requests to high APY strategies, adapters.
While the goal of Gearbox is to be a permissionless universal adapter, getting there would require time, multiple iterations and testing. As we move to fulfill these demands by increasing scope, we can use it to $GEARs advantage. Stakers can again gain access to these strats and collaterals earlier than others(unless it’s a security concern, in which case they might have to fulfill certain requirements to gain access). A lot of this will be up to Risk Committee but again is a suggestion that can help lock up and deflate supply.
With V2 coming in, we have seen how features can disrupt existing user behavior and enhance experience. What they can also do is increase edge.
Developing the protocol further in a way where the new features are categorized as “UX improvers: necessities” and “UX edge improvement” can help us premiumise and effectively monetise features.
Say something like
- Bots for limit orders
- Account automation bots
- Advanced positional Analytics
- Notification bots
None of these are given necessities but can provide edge to users if they wish to and this is where we can have lock up tiers or Subscription models(I am extremely Web2.0 I know)
- Staking enables locking up and should be a part if the terms are for longer time lines
- Staking should further be monetised and used to create a deflationary GEAR model
- Deflationary GEAR can otherwise be partly be used to fuel an LM for stakers, incentivising them while still keeping the economy deflationary
- The features and “premiumised” spending options can be used as GEAR spend mechanisms instead of further Dollar monetisation. This keeps core revenue streams safe(APY spreads, positional fee) and automatically creates a positive loop on D&A.