UPDATE: changes are here:
UPDATE: all the details and explanations + how to claim, are here:
The final numbers have been adjusted to reflect the discussions.
Summary
The purpose of this proposal is to put in motion conversation regarding:
- An incentive-aligned LM (liquidity mining program) that enables CA (Credit Accounts) to function
- And a retrospective LM drop for the LPs & CAs that have been present till date
Before we begin, let’s answer the question on why LM?
Because V2 is about to give off fireworks! If you missed some snippets of the upcoming products, check out some of the latest medium Alpha series. To recap, the liquidity in the passive pools enables the CA (Credit Accounts, aka leverage takers) to function. With the upcoming Leverage Ninja mode, the demand side of liquidity has over 100 high collateral size (100K$ or $150K min borrow, to be voted on) users that’ll require liquidity for leverage. That leads to a sudden requirement in pool values which will be multiples of what we currently have. That is a great “problem” to have though, and such utilization without major incentives for the CA side will prove strong PMF. But to enable it, we need to bootstrap the other side.
1. Incentive aligned LM for passive LPs + ninjas CAs
The incentive aligned Liquidity Mining program (we can come up with a fancy name later) for passive LPs is designed to incentivize depositing funds in passive Earn pools regardless of the organic APY on the said pool. Given the upcoming Curve/Convex/Lido integrations, due to the bad market, farming yields have been compressed to as low as 3-4% for stablecoins. As such, the utilization curve is planned to be adjusted to have rates fluctuate on the Aave-like formula but in the range of 1-2%. In a bull market or as DeFi grows slowly, these rates can be adjusted to a higher benchmark as yields will also go up, say 3-5%. Compressing the curve will help ensure that the borrow-APYs don’t render the strategies added to V2 unusable. The LM will be passive in nature with no liquidation and thus will be a low risk play for the LPs.
NEW: prospective Leverage Ninjas have asked for small LM for CA side too, not as a financial incentive but just as an alignment for users to be able to get a piece of the protocol governance. That didn’t seem too unfair, and the spending required for it is extrmeely small too.
WEN & how? Logistics & claims.
LPs start on Oct 24.
LP LM will begin before the launch of Leverage Ninja mode to ensure that ninjas have enough liquidity when the protocol does open up. That is, with votes to be taking place by October 23, the LM for LPs will start on Monday October 24th at a block to be announced earlier on that day. But if you don’t want to wait, you can already LP at any time, it’s just that the clock will start ticking on Monday.
Similar to most LM programs, the DAO will vote on a certain number of tokens per block which will be divided between the LPers based on the share of value they have in the pool. The same can be looked at as a variable APY. As the overall pool value grows, the APY will drop which could lead to some LPers dropping and GEAR APY going back up again. So while the incentive is pushed by the DAO, the APY on the GEAR LM is decided organically by the participants. We didn’t find a reason yet to make any different complex program before GEAR token economics are revamped.
CAs start on Nov 4.
LM for CAs will start after multisig executes all transactions and re-connects the V2 protocol in mainnet. That is expected to start on approximately October 27. Exact block TBA.
As for “how”, the new interface will reflect the APY LM numbers based on the [your share of liquidity in a given pool / total liquidity in that pool * tokens per block allocated]. The usual simple LM really. Every 3-4 weeks, DAO devs (or any external dev) can deploy a new merkle contract claim and allow for $GEAR claims. Meanwhile, participants shall be able to check their accrued rewards & APYs in the interface, to keep track of it 24/7 even if the claims are not 24/7. As GEAR (when & if) becomes transferable, this operational overhead can be replaced with a regular farming distributor.
Numbers: 10% GEAR APY extra for LPs; 1% for CAs * IF optimal level
We have estimated an LP value requirement for Lev Ninja mode and have curated the LM structure in order to yield 10% APY at what we expect our ideal value to be: at approx $55M TVL.
Below is the table that outlines the exact details for the LM program.
You can find the link here, and just copy the sheet for yourself to play with the numbers.
Please gib feedback or your inputs after going through it.
The logic for such allocations is as follows:
- ETH strategies are higher in APY and are more organic in external protocols, hence larger % total. It’s easier to source Ethereum yields these days rather than stablecoins.
- WBTC not having that much demand or external farming APY (although can be used for shorting/hedging then). All can be adjusted in the next stages anyway.
Since the LM happens after significant developments post the last round, the FDV is taken at a smol increase to the 200M$ FDV for strategic rounds. The spends are calculated to produce a 10% APY on what we have determined to be an expected TVL of the pools (55m$).
The calculations at a monthly level translate to 0.24% GEAR emissions / Month.
Total Spend? Duration?
The total spend depends on the duration for which the DAO decides to run the program. Do we do it for 2 months till V2 is launched and then focus on balancing APYs organically? In that case we spend 0.48% of the supply. Or does the DAO run it for a full year? In that case we spend 2.91% of the supply. This is for the DAO to decide, it’s an open-ended program.
2. Small retroactive LM for early LPs
The early LPs are the addresses that provided liquidity to the pools between the DAO launch in December 2021 to the 13th September pre-merge period. These LPs have helped us bootstrap initial liquidity, test out the security of the pools and helped the CAs become functional.
In return, the APYs on the pools have constantly been less than 1% while the fee on withdrawal was 1% and thus made exiting a hassle. That is about to go away in a few weeks, the roadmap for that will be posted in about a day or two. Stay tuned to confirm this.
The retroactive LM rewards the people for the staying and helping the protocol with the above with a small 5% APY in GEAR pro rated to the time they were in the pool. You can also see a smaller part being dedicated to Credit Accounts users, on a liquidity-borrowed-over-time basis. So there was no way to sybil as it all depended on the liquidity or your borrowed amounts.
You can find the link here, and just copy the sheet for yourself to play with the numbers.
What are the expenses?
Well, none! The entire supply here comes from the savings from the bot and sybil detection that took place so nothing new or additional to come from the DAO wallet. So it’s coming from saved GEARs and repurposed for this cause! See more in the token part of the docs: GEAR Overview - Gearbox Protocol
Conclusion
The LM will cost 0.24% monthly to ensure CAs get the funds required to function while the retrospective LM will have a one time 0.5% spend for a course of the last 9 months - that come from early tester tokens, and are not (!) a new DAO expenditure. As CA demand either goes up or down, this can be adjusted by the subsequent DAO votes. The tokens for future LM come from the DAO reserves. In order to proceed, the DAO will discuss:
- Whether or not to do LM
- Both LMs to be done or not
- The parameters for the LM
- The duration for the LM
Let’s go
) agree with Ivan that we should use 10% of the funds to LM on the credit accounts side of things.
