[Pre GIP] Gearbox V2 Liquidity Mining Programs

1. Intro

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. So…

2. Incentive Aligned LM for passive LPs (ONLY?)

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.

To put it differently, this proposal is to only brrr LM to the passive LP side, as to make Credit Accounts usage fully organic and test what strategies & pools have the best PMF.

WEN? By mid October.

Slightly before the launch of Leverage Ninja mode to ensure the ninjas have enough liquidity when the protocol does open up. Likely timeline to begin is by mid of October.

So how does it work? The usual good LM.

Similar to most LM programs, the DAO will use 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. TLDR, that is the old goodie yam snx distribution logic. We didn’t find a reason yet to make any different complex program before GEAR token economics are revamped.

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.

Gib Numbers: 10% GEAR APY extra.

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.

Since the LM happens after significant developments post the last round, the FDV is taken at a smol increase to the 150M$ FDV for strategic rounds. The spends are calculated to produce a 10% APY on what we have determined to be an expected TVL (70m$).

The calculations at a monthly level translate to 0.29% GEAR emissions / Month.

Total Spends? 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 0.58% of the supply. Or does the DAO run it for a full year? In that case we spend 3.52% of the supply. This is for the DAO to decide, it’s an open-ended program.

3. Retrospective 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 retrospective LM rewards the people for the staying and helping the protocol with the above with a smol 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

4. Summary

The LM will cost 0.29% Monthly to ensure CAs get the funds required to function while the retrospective LM will have a one time 0.54% spend for a course of the last 9 months. 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 Wallet while the retrospective is to be funded through the sybil recovery funds. 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!



Maybe I have my numbers wrong, but assuming the following APR’s (at time of writing) of Convex related pools, wouldn’t stable-asset farmers just provide liquidity if they can get 10% without risk of liquidation?

Net APR = Farming APR * xLeverage -(xLeverage - 1) * Lending APR

Lending APR 1.5% APR (assumed)

Convex 3pool
0.2% APR @ 5.5x Lev = Negative 5.65%

Convex Curve LUSD+3CRV
2.31% APR @ 5.5x Lev = 5.95%

3.66% APR @ 5.5x Lev = 13.38%

Convex Curve gUSD+3CRV
2.96% @ 5.5x Lev = 9.53%

Convex Curve FRAX+3CRV
2.93% @ 5.5x Lev = 9.365%

One consideration to the above;
If Gearbox DAO borrow rate equals that of sUSD on Aave (3.48%) then the above 13.38% APR is obliterated down to 4.47%

If the Leverage rate is increased to 7x you get;

Convex Curve LUSD+3CRV
2.31% APR @ 7x Lev = 7.17%

3.66% APR @ 7x Lev = 4.74%

Convex Curve gUSD+3CRV
2.96% @ 7x Lev = 11.72%

Convex Curve FRAX+3CRV
2.93% @ 7x Lev = 11.5%

Obviously, the returns are based on the value of the reward tokens (CRV and CVX) and prevailing market conditions will dictate this, but I don’t think we should be planning to incentivise lenders more than the borrowers can achieve using leverage. Otherwise, prospective borrowers will just plop their $$ into the lending side and sit tight to collect the ~10%APR in $GEAR.

Do we need to consider incentivising borrowers as well if ROI of stablecoin farms @ a specific leverage is < 10% APR?

This can be achieved through reallocating existing Lender directed $GEAR to borrowers as I think 10% APR $GEAR LM-ing is overly generous so maybe a reduction to ~7.5% APR in $GEAR?

ETH farming looks good though as is;

Convex Curve ETH + stETH
7.3% APR @ 5.5x Lev = 33.4% or 42.1% @ 7x Lev.

Just my two cents but thought I’d throw it out there.


GM! Amazing proposal and also the comment by koala.

  1. Retroactive: the amounts and logic make sense. It’s not too large but it’s honouring early users regardless. Especially because the system ended up being low-risk after all due to tiny limits. Since the program was clearly communicated from early days, there was no sybilling possible also due to the fact that liquidity was the factor for GEAR distribution, and not a sheer number of accounts. Disclaimer: I had some LP to support the protocol.
  2. Future LM for V2: makes sense. I think it’s quite subjective whether it should be 7.5% or 10%. I would be on the side of 10% though, because it’s better to have over-supply problem than to have less supply. This wasn’t the case for DeFi protocols which optimized for TVL previously, but for Gearbox it is. And here is where this point 2 is also a reply to koala’s worry above:

If there is 50M or 200M in the passive pools, ALL will be utilized. The reason for that is that Credit Accounts offer true organic PMF [assumption though]. That means, if you can borrow at 2% rate or so (with the suppressed utilization curve optimal level) - it is a no-brainer carry trade almost. Like, you can just be an arbitrage bot even. That can service more users, more protocols, etc.

But why allow for someone to make money, if the protocol obviously makes less? The usual answer honestly grow liquidity, use that to go to larger players and institutions, get protocol integrations done quicker. No one wants to build together with a $5M TVL protocol after all.

So if we have this “problem” of over-filled TVL pools, that’s totally fine.

But it makes sense to LM just a tiny bit for Credit Accounts side, let’s say in the 1% range. Not as an interest rate game at all, but to align users and have users have ownership of the protocol. It doesn’t add much to spending, but it aligns both sides then.

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The market will set the rate. Ie, we can’t just “reduce to 7.5%” APR. We offer up an amount of GEAR, and we think we will get 70m for that, but we could get less or more. We don’t really control it. So if CA strategies are meh, then more ppl will deposit to the LPing side, thus making CA strats better. The only way this doesn’t happen is if there’s just not enough capital at any level. In that scenario (limited total capital available/interested in gearbox as a whole), you could end up with a majority of ppl depositing to the LP side and no one using CA’s. For that reason I (the writer of this proposal according to Ivan - mugglsect, that’s me :wink: ) agree with Ivan that we should use 10% of the funds to LM on the credit accounts side of things.

Yup yup, I understand we can’t ‘reduce to 7.5%’ APR as it’s all about actual deposits and protocol usage by participants. I probably should have phrased it differently, i.e.;

“Propose we reallocate 25% of LM incentives initially earmarked for Lenders to Borrowers (CA users).”

This would, assuming assumptions in Mugglesect’s calc’s held true in practice/deployment, reduce APY from 10% to 7.5% for Lenders in $GEAR.

Anyway; we’re all thinking along the same lines and seem to be in agreement, which is good.

I am supportive of a 10% reallocation of incentives from Lenders to Borrowers as proposed by @ivangbi (assuming you meant reallocation? Or did you mean an additional $GEAR allocation?) to align users with long term goals of protocol.

Either or I’m easy. Just think CA farmers need something considering the depressed returns in this bera market. I wouldn’t want to see everyone sitting on the Lender side and see the $GEAR go to waste from under utilisation of credit as the protocol wouldn’t be earning any revenue then.

I was suggesting a 1-2% on CA side extra. Doesn’t move the needle for the spending that much, but makes everyone aligned. Move the LP APY to 9% then maybe? Idk, it’s fairly same same. We are really just spitting in the wind and seeing how it goes. There is no data? Or maybe I am just not looking

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  1. I would adjust market expectations and plan TVL for $50M. The markets are so rough, that expecting more is a bit hard now. If it happens, the DAO can always adjust. But it would not make sense to print 20% APY if we target a 75M TVL and only get 40M TVL. 10% on $50M sounds good.

  2. Please help: if there is 1-1.5% of LM on the CA side, how does it work? I assume same as for retroactive rewards for CA suggested? Basically, depends on your time-horizon of borrowed capital (excluding your collateral). Targeting the 100 CA * $100K collateral * x5 leverage - 100 CA * $100K.