I shared an alternative in the discord to having an orderbook, I do think there’s a good equilibrium somewhere here where we avoid the orderbook which is in all honesty a crude solution, but also don’t oversimplify it or bring in actual longing/shorting as @coinflipcanda was suggesting (because funding fee decay is not preferable or a feasible long term strategy for GLP holders).
Let me reformulate it below, do let me know if this is less development-resource intensive @xdev_10 !
Modified Proposal:
Features of the Orderbook Model that this modification aims to solve/retain
- Orderbooks can lack liquidity or have spread.
- Orderbooks are complicated to develop and use
- Orderbooks allow prices to accurately reflect demand and supply since orders can be limit orders as opposed to market orders
Modified Version
-
Some notes: (1) Anyone who wants to customize their GLP constituent weightage still has to lock their GLP; (2) even though this requires no orderbook, it still has the advantage of accurately reflecting demand and supply; (3) but by getting rid of the orderbook, this model will concentrate liquidity and ensure the strategy has high utilization rather than an orderbook with many orders but little activity.
-
Premise: Simpler alternative to orderbook is to limit people’s choices to a few strategies, which I will call
Strategy Vaults. E.g have a page that looks similar to Dopex SSOV vaults or the Francium farming strategies page on Solana which really simplify the decision-making for GLP users. Users deposit GLP in strategy vaults so that their GLP takes on that constituent-ratio. -
Where does the liquidity for the strategy come from? There is no AMM involved, therefore strategies must provide liquidity for each other, similar to an orderbook but without the explicit orderbook structure. E.g, in a world with two GLP holders and where GLP is 50-50 stables to crypto-assets, if one wants to open a 100% stables position, the other has to open a 0% stables position to provide liquidity. How to ensure that strategies vaults are balanced without a complex and full-featured orderbook? And how does the simplified version maintain the advantage of accurately reflecting demand/supply?
-
Proposed solution: Vaults rebalance every x number of epochs (pick your number) whereby, the vaults accumulate GLP deposits and every x hours (I think 24 hours is ideal) they balance strategies against each other. This balancing works in a very particular way. All deposits in each strategy vault are queued according to time of deposit. Assuming the stableasset-cryptoasset ratio within GLP is 50-50, if there are 100 GLP of deposits in the stable-strategy and 50 GLP of deposits in a crypto-asset strategy, only the first 50 GLP in the stable-strategy will execute while all 50 GLP in the crypto-asset strategy will execute. The remaining GLP is left claimable by the depositors whose deposits failed.
-
In order to incentivise liquidity provided to strategies, depositors are allowed to indicate a premium they are willing to pay. The premium has two effects. First, the premium is paid out to the counter-strategy vault, thereby incentivising more deposits until the premium is no longer attractive. Second, depositors who pay a premium have their position in the queue bumped up according to the size of their premium.
-
If depositors anticipate that their preferred strategy will be oversubscribed relative to the counterstrategy, they are incentivised to indicate a premium they are willing to pay to obtain their desired strategy, both by increasing liquidity in the counterstrategy and by increasing your position in queue.
-
I considered 2 other non-orderbook models but in my view this model creates the best incentives, liquidity and simplicity. It’s also very clear how GMX can earn deposit fees in this model.
-
The major drawback here is that, unlike a more actively traded orderbook based market, there are fewer opportunities for users to withdraw, rebalance, and actively trade. Fees from active trading are potentially greater than a one-off deposit fee and depositors simply HODLing.
-
One solution is, rather than charging any deposit fee, a percentage of the APR going to each strategy vault’s locked GLP can be taken as a fee instead. This has a few benefits – first, it facilitates active depositing/withdrawal because the user does not need to wait to break even on the deposit fee; second, it allows the protocol to continually earn fees on strategies in the vault, and those fees can increase in proportion to trading volume in GMX (since APR increases with trading volume).
Thanks for taking the time to read through this alternative proposal, I hope its more workable/resolves liquidity issues/maintains the benefits of the orderbook based model that I teased out in the original proposal.