[GIP-49] Extend GEAR/WETH Liquidity Mining

[ov3rkoalafied]

Proposal

Reduce the current GEAR/WETH liquidity mining program from 6.66m GEAR/month to 3.33m GEAR/month. Utilize the remaining GEAR from the currently approved liquidity mining program until gone, then utilize GEAR from the treasury to extend the program indefinitely (until modified or dictated otherwise by a future proposal).

Context

Currently there is 6.8m GEAR left in the gauge distributor rewards contract. Each week approximately 1.67m GEAR is sent to the GEAR/WETH Curve pool from the contract, or approximately 6.66m GEAR/month, meaning the current liquidity mining program would last until mid April. The current spend is about 0.8% of supply per year. This proposal would reduce the spend on GEAR/WETH liquidity to 0.4% of supply per year.

[GIP-36] Incentivizing GEAR/ETH liquidity originally began at the end of 2022 and would expire in the end of April, 2023. It approved 3.33m GEAR/month to be used to liquidity mine the GEAR/WETH Curve pool for 4 months. Cider’d rewards also began at that time, with half going to Cider’d participants and the remainder being added to the same liquidity mining pool to be distributed over 4 months, resulting in 6.67m GEAR/month of liquidity mining.

The current Curve GEAR/WETH pool holds $4.6m of liquidity (at time of writing) with fluctuating convex staking APR around 60%-80%, with 30% APR coming from liquidity mining and the rest coming from miscellaneous veCRV voters. This is on a slight downtrend (2 weeks ago it was 100%).

There are a few factors that could increase liquidity in the future:

1. An increase in GEAR/WETH price would increase the effective APR, thus attracting more liquidity
2. Tokens tend to become less volatile after launch, thus reducing the APR required to subsidize impermanent loss (also LPers can be lazy and happy to remain and collect even at a lower APR given lack of better percieved opportunities).

There are a few factors that could decrease liquidity in the future:

1. This proposal! It would reduce effective APR from 60-80% down to 45-65%,
2. As a result of this proposal, or in general, veCRV voters could stop voting for GEAR/WETH.
3. A decrease in the GEAR/WETH price would decrease the effective APR, thus potentially causing some liquidity to leave.

For reference, if all veCRV voters left and this proposal were also enacted, and APR was kept constant, the pool size would reduce to ~$1m. However, GEAR has also had listings on centralized exchanges - currently the Curve pool makes up only 20% of the volume of GEAR trading, with CEX’s making up almost the entirety of the rest of the volume.

A theoretical worst-case scenario still being a minimally viable pool size, at about 5-10% of circulating supply. Note that much of this proposal is subjective - the main point being justifying a 50% decrease in liquidity mining rewards, rather than trying to determine the ideal minimum amount of rewards (which is also subjective, and would likely require analysis of what is typically done with GEAR rewards from the diesel lending pools).

Voting

1. FOR - modify GEAR/WETH liquidity mining program to 3.33m GEAR/month indefinitely
2. AGAINST - do not change liquidity mining program (set to expire mid-April)

[andresghost]

Any pros in extending GEAR/WETH liquidity at 6.66m GEAR/month?

[RV_ivangbi]

Doesn’t seem like it. Current LPs receive decent amounts for the sake of IL (even if IL and volatility one-sided is huge, it should still cover it over a decent period of time). The liquidity is also sufficient enough for $100K size purchases or sells w/o MUCH fluctuation. Overall, doesn’t feel like extra spending is required.

With the proposal of Koala above, this would mean the APR would be about 50% or so w/o price changing. Overall, seems like the cost (0.8% per year) is a fine thing to do for now until a better move is figured out. Perhaps bribing can be even more efficient, but that is better for the later vote.

Agree @ov3rkoalafied cool!

[Citizen42]

wtf … ? you guys gonna be relying on CEXs because bots are trading volume there now ? this is the worse ive seen since slice bred … web3 ethos out the window … lets rely on CEXs… definitely against this … we shouldn’t even mention CEX… if they want to list us fare enough … otherwise enacting proposals to cut liquidity on chain because bots make volume on CEX… psyops or what ? “However, GEAR has also had listings on centralized exchanges - currently the Curve pool makes up only 20% of the volume of GEAR trading, with CEX’s making up almost the entirety of the rest of the volume.” - this such bullshit… … ill make my move it this passes … bonkers reasoning.

[ov3rkoalafied]

On-chain liquidity should be the main liquidity home of GEAR, and this proposal still maintains viable liquidity on-chain. However, there is also no need to pay for significant on chain OR off chain liquidity. Feels like you are focusing on one aspect of reasoning instead of the whole proposal. You can eliminate the CEX data from this proposal and the entire proposal would still stand.

GEAR is a gov token. We are “relying” on CEX liquidity to provide a place for traders to trade in size, which is not really necessary for the protocol to function so it’s not a service we need to provide given the current size of the protocol. The purpose of on chain liquidity is to faciliate the liquidity mining program and maintain a relatively stable price to have more predictable APRs, as well as to faciliate those that wish to enter/exit the DAO. We don’t need $6m of liquidity to achieve that. This proposal also paves the way to potentially spend some GEAR on a balancer pool, which could have some unique benefits separate from Curve.

[Citizen42]

Fare enough, thanks ov3rkoalafied … I did look into it a bit more and yes I seem a little bias … but I agree with the overall goal, aint no waves sometimes if we don’t rock the boat. Lets see where it takes us !

[RV_ivangbi]

Soooo @ov3rkoalafied us cheapskating, as to say, might or might have not led to some CRV whale stopping to vote - so now there are no CRV rewards. Which was previously more than a half of the APY. I don’t think the current proposal was really the reason, but anyway - we now have a thing to solve:

current APY is not enough to compensate for IL and the risk people take

Naturally, suggesting to fix that issue with brrr, due to the absence of other tools at hand right now. And maybe in the new proposal, if you think that idea makes sense, come back to the GEAR/USDC Balancer pool idea that was previously voted on by the DAO but was vague and never got around to being implemented.