[GIP-49] Extend GEAR/WETH Liquidity Mining

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.

Therefore, with with 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)
1 Like

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

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!