Buyback GMX: A Proposal for Reward Distribution Optimization

Proposals
1
  1. Introduction

If a token consistently has a constant buying pressure, long-term holding of such a token will be highly attractive to token holders.

  1. Current Distribution Mechanism

After the cancellation of esGMX reward emission, according to the current plan, all revenues from gmx are distributed to GMX-GLP holders at a 30%-70% ratio, in the form of ETH or AVAX.

  1. Proposed

Solution To minimally change the token economics, I propose the following possible solution for discussion: regardless of whether you stake GMX or GLP, the rewards will no longer be in ETH or AVAX. Instead, we add a step to the reward distribution process where the contract automatically converts any received ETH and AVAX into GMX via a DEX, and then distributes the GMX rewards at a 30%-70% ratio between GMX and GLP stakers.

  1. Benefits

This approach would pool all idle ETH and AVAX rewards from users without causing GMX inflation or altering the original token economic model. It would continuously gather small buy orders to support GMX, and users can still exchange their GMX rewards for USDC, ETH, AVAX, or any other assets they desire. We can envision GMX becoming an asset that is constantly being bought, making its circulating supply scarce and its price high. This would attract greater attention and influence in the cryptocurrency ecosystem, giving it more prominence and encouraging more users to use the excellent gmx products. Moreover, you would be highly unlikely to have the motivation to sell such an asset, as you would contribute to the GMX ecosystem in the long term.

  1. Potential Drawbacks

Currently, no apparent drawbacks have been identified for this proposal. However, if you have any concerns or suggestions, please do not hesitate to share your insights. Your wisdom is highly appreciated and essential for refining this proposal.

4 Likes
2

I definitely like your proposal and would support it. However, how much sense does it make to let the smart contract buy and then redistribute? the token will still be part of the float.

I would iterate on your proposal by just recommending a Buy & Burn mechanism, as follows:

  1. BUY: contract automatically converts any received ETH and AVAX into GMX via a DEX
  2. BURN: and then sends it to a known burn address like: 0x0…dEaD

this way you are decreasing supply long-term and make the token more valuable

I guess major argument against it, is the concern of being classified as Security / Security-like. However, I think as long as you never legally promise to buy&burn but word it in a way of “we may purchase back tokens” this seems fine.

Curious on any further thoughts.

1 Like
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  1. Concerns about Burn and Buyback Strategy

Thank you for your response. To be honest, my initial thought was to implement a buy and burn strategy. However, there are apparent issues with this approach. A simple question arises: if all staking rewards are canceled and we only create a deflationary system by burning tokens, why would anyone need to stake GMX? This method would actually remove the constraint mechanism, instantly releasing all GMX tokens, and causing a fatal blow to GMX’s price and ecosystem.

  1. Caution with Changes to Token Economics

Therefore, deflation is not a panacea. We already have an excellent token economic model, and we should be extremely cautious about any changes. We should aim to achieve a more optimal effect while minimizing changes to the existing system.

4 Likes
4

against.ETH more popular than gmx token

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  1. Disagreement with the Claim of Zero Impact

Some time ago, I shared this proposal in a Telegram group chat to see everyone’s reactions. One viewpoint was that the proposal would be ineffective, as all users would immediately sell their GMX rewards for ETH or AVAX, causing zero impact on GMX. I do not agree with this perspective. Let’s switch back to our current situation, where our rewards are in ETH. Most users prefer to hold ETH rather than immediately exchanging it for a more stable asset like USDC. The reason for this is likely that ETH itself is a relatively stable token with significant potential, and users are more inclined to hold it rather than sell it.

  1. Positive Impact on GMX

If we empower GMX in this way, the points I have always emphasized are: 1) you know that gmx.io is constantly generating transaction fees; 2) you know that transaction fees are continuously being used to buy GMX; and 3) if you are willing, you can freely obtain and sell your GMX rewards. Based on these three points, I believe that some users will still exchange their GMX rewards for ETH or even USDC, which is supported and a matter of personal choice. However, I also believe that this would represent a smaller proportion, and more users would tend to hold GMX until they have a compelling reason to sell.

Therefore, from my perspective, I think this would have a positive impact on GMX, rather than zero impact.

2 Likes
6

In some aspects, I agree with your viewpoint. According to my proposal, it may give new users an intuitive impression that GMX is inflationary, or the rewards are somehow “fake,” which could lead to a misunderstanding. This would require some educational effort to clarify. However, users can freely exchange GMX for ETH, right? This flexibility allows users to choose their desired assets while still benefiting from the rewards system.

1 Like
7

I would not recommend doing this as it could disrupt existing balance and undermine the confidence of major holders in holding the asset long-term. However, it is a promising direction and I suggest modifying it to add an option in the claim and compound pop-up windows to easily convert to GMX, which should be more popular and strike a balance between achieving project goals and user demand.

5 Likes
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  1. Comparison of Proposals

It’s undeniable that your proposal is a more moderate approach with minimal changes, but it may not achieve the desired effect of automatically consolidating small buy forces. In your proposal, users receive ETH and can freely convert it to GMX. In my proposal, users receive GMX and can freely convert it to ETH. The actual value users gain from either proposal is equivalent.

  1. Seeking Clarification on Destroying User Confidence

As a result, I don’t quite understand your point about destroying user confidence. I would appreciate it if you could generously provide more detailed clarification when you have the time. It is essential to address any concerns to ensure the proposal is well-understood and beneficial to the community as a whole.

2 Likes
9

@gmsolq

I understand your premise to optimize for illiquidity and have higher price impact for the incremental buyer. However, where is this gotten the industry? into a pump and dump cycle of cascades of buying and cascades of selling.

The main reason why I’m attracted to GMX is, that its fee structure enables it to be a though leader in sustainable tokenomics that reflect the underlying usage. GMX has made more fees (5.1m vs 4.6M over the last 30 days) than LIDO. And LIDO has a TVL of 10 Bn to continually charge.

Just imaging how many people want to hold GMX for the longterm if they understand the sound fundamentals. Also, I think this is a way to get great strategic longterm partners. That are incentivized to drive more volume.

But seems like I’m a boomer in trying to make this work longterm.

2 Likes
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  1. Agreement and Focus on Long-term Strategy

    Overall, I agree with your perspective. GMX is a long-term game, and I also want to play it as such. Currently, GMX’s tokenomics provides a solid foundation for steady growth. Therefore, any proposal to modify this successful tokenomics model should be made with caution, leaning towards minimal changes. My proposal doesn’t alter the current tokenomics fundamentally; it remains the same as before. The only difference is that, without changing the mechanics, the conversion process shifts from “anything to ETH” to “anything to GMX,” creating a consistent system operation.

  2. The Impact of Continuous Buy Pressure

    In the short term, the daily buy pressure of around $150,000 from the total $500,000 fees may not significantly impact GMX’s price. However, as this is a long-term game, the continuous buy pressure on a quarterly or yearly basis can substantially contribute to GMX’s overall market cap growth. Currently, the circulating supply of GMX in the secondary market is approximately 800,000 to 1,000,000 tokens. Based on my observations (my buy orders and 0x636 sell orders), a purchase of around 50,000 GMX can increase GMX’s short-term average price by about 5%, while a sale of the same amount can suppress it by 5%. Although I haven’t tested larger quantities, a daily buy pressure of $150,000, equivalent to 2,000 GMX, could raise GMX’s average price by around 5% in nearly a month, which would be a substantial impact.

  3. Spreading the Value of GMX

    At the same time, in this volatile market, GMX’s impressive and rational long-term alpha against BTC and ETH has been gaining increasing attention. All we need to do is maximize our belief in GMX’s value, promote its worth, and help more people understand GMX’s operating system. By doing so, we can continue to build a strong and thriving community around GMX.

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A strong NO, the business proposition is super simple, we build an on-chain derivative house where fee is distributed to owner in form of internet money (ETH) which everyone here agree.
There is no need to turn it into second tier protocol relying on a money game, trying to overly complicate the process, hopium for mooing the coin.
“Buying pressure” is last thing I wanna see, I am in here because of the simple mechanism not the getting rick quick scheme infact I can even hold on to GMX forever because I look at my invest here as serious as I am doint with my business in real world.

5 Likes
12

Big NO from me. The buyback and burn would be a protocol killing change as you would be dictating how individuals spend their staking rewards. Changing from ETH to GMX comes off as tacky and yield farmy. I think one of the things that draws people to GMX the tokenomics seem to be very well thought out and professional.

GMX recognizes GLP is what drives the protocol(currently) and therefore rewards it with much higher % allocation of rewards.

GMX recognizes people want rewards for staking but don’t like a diluted token supply and therefore rewards in esGMX.

Finally, GMX recognizes that ETH has effectively become the universal crypto money and therefore rewards it’s stakers in ETH.

4 Likes
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I respect your opinion, but if you take a closer look at my proposal, you would not have such a strong reaction. From the beginning, I never intended to turn GMX into a money game. Even if my proposal were implemented, it would not have any significant impact on the price in the short term. We need to adopt an ultra-long-term perspective to understand the power of accumulating small streams to form a mighty river.

Moreover, do you know what the biggest difference is between you and me? You contradict yourself by saying on one hand that you can hold GMX forever and on the other hand that ETH is the universal currency of the universe. For me, I can hold GMX forever, and GMX is my universal currency. At the same time, I do not oppose anyone exchanging GMX for ETH; that’s everyone’s freedom. Ethereum is just one of the chains on which GMX is deployed. From GMX’s perspective, if your universe is Ethereum, then your world is a subset of mine.

1 Like
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If Etheruem is the whole universe, why is GMX itself also deployed in Avalanche?

If only ETH is gold everything else are shits, and setting GMX as rewards sounds ridiculous, what about AVAX?

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I feel that providing protocol rewards in the native token of the blockchain on which GMX is deployed, has been a wise choice.

It suggested seriousness, and offered a robust alternative narrative to the highly inflationary degen-farming staking rewards crypto had become used to. What you may gain in terms of small-scale consistent additional buying pressure, you may lose in ‘real yield’ narrative strength. That’s why I’m somewhat skeptical about the proposal.

An easier path to reach the same goal, would be to include a ‘compound earned rewards to GMX/GLP’ selection box in the reward claim UI. Wouldn’t it…?

5 Likes
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“What you may gain in terms of small-scale consistent additional buying pressure, you may lose in ‘real yield’ narrative strength.” => agree and thank you Jonezee, that’s the exact logic I am waiting for.

2 Likes
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NO. We can’t change rewards assets and mechanics because too many third party protocols integrated us and are dependent on current flow scheme.

2 Likes
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NO from me as well. Forcing scarcity blurs the lines of organic (ie. user activity) growth. GMX price today reflects activity (people would want 5-10% yield in ETH or AVAX as a baseline). Creating this buy & redistribute loop seems as an attempt to increase price quicker than adoption…

19

@nulos Have you ever considered this scenario: as the price increases and the market capitalization ranking rises, the project gains more attention, which implies that more people will adopt the protocol. Price and adoption levels are always in the same trend, either rising or falling together. When you increase the price, the adoption rate will rise, and the increase in adoption will naturally lead to a higher price. There is no contradiction in this.

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@Saulius You are right that the dependence of third-party protocols on GMX is indeed a factor worth considering. However, from another perspective, if they rely on GMX, they have the necessity and motivation to adapt to any changes in the ecosystem. To clarify, my proposal is to change the reward form from ETH/AVAX to GMX, while the reward mechanism itself remains unchanged. This may encourage adaptation by third-party protocols as they continue to rely on GMX and its benefits.

1 Like