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
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