As the title says I think instead of any sort of burn mechanism, it would be wiser to use the floor price fund to buy back GMX and convert it back to esGMX which can then be redistributed to GMX stakers.
Not only does this incentivize long term holding continually! It also continues to reward long term holders.
One of the key attributes of protocols that are valuable long term and that can maintain their pricing power is managing risk, because risk always have fair market price. Overall protocols have very little per unit cost once deployed so they need something to leverage as pricing power.
For example Uniswap will have hard time maintaining / charging fees over time because in the absence of cost, there’s also little / no risk in actually being managed by the protocol, and so it’s pricing power is rather weak. MakerDAO by contrast does manage risk (of protocol solvency), and MKR does benefit from fees that the protocol charges its users. In exchange, MKR will print and be sold to cover any bad debt should it arise. This market-priced transfer of risk makes MKR defensible against fee compression.
GMX, like other protocols that offer leverage, does manage risk.
I wonder if it’s possible to use floor price fund as collateral against bad debt in case of unexpected event. And also, enable staking of GMX from just collecting fees (like it does today) to actually earnings fees from owning that risk.
Rather than MKR system which mints, or AAVE system which requires gov votes and market sells (tokens are likely correlated in black swan event when bad debt appears), maybe system here could be structured like sort of call option that stakers are selling to protocol, collecting premiums in form of GMX fees.
execution would be only in case of bad debt, and in this case staked GMX would move into floor price fund, and assets from floor price fund used to cover bad debt. Then fund can begin to replenish from fees collected by new GMX it has.
Something like this would create value for GMX users who benefit from added security, and also could make market for GMX fee collection more efficient.
Well I think in our case the value proposition is about revenu paid per staked GMX token that’s the pricing power!
In all honesty I am not sure what you meant in this paragraph ( I wonder if it’s possible to use floor price fund as collateral against bad debt in case of unexpected event. And also, enable staking of GMX from just collecting fees (like it does today) to actually earnings fees from owning that risk.)
The floor price fund is supposed to be used to buy back GMX tokens if the floor price / circulating supply is greater then the current market price essentially meaning the floor price fund is over colateralized in a sense!!
I’m pretty sure those GMX tokens would then be burned which is fine in my opinion
I however think that it makes more sense to convert them back to esGMX tokens and redistribute to GMX stakers as in this case it functions more as a dividend/giving back ti the share holders I know that makes it sound like a stock but idk how else to describe it
Instead of taking the money and throwing it away (yes you reduce the circulating supply but imo that doesn’t directly credit the holders yes it might pump the price but I think we need to look beyond that)
When you consider the multiplier points and how early adopters get the lions share I think having another aspect to incentivize new comers is wise
I believe a buy back/ continuation of esGMX with out dilution of supply is a more investor friendly incentive and it makes the APR more lucrative with out dilution of GMX which after the last bull run I think not diluting the supply is a great metric it shows the team knows what they are doin from financial perspective
Yeah was just an idea on how to potentially utilize floor price fund a bit differently. I do see what you mean now - thanks for clarifying and gotcha on intended purpose. Does seem like math tho provides pretty huge range for how large floor price fund can be without actual decision on when to use the funds is actually made. Like floor price fund can be 5x it’s current size and still hard to know exactly when funds are best to be used.
That aside, I definitely agree with you on not burning GMX whenever these funds are used. Makes way more sense to be able to (re)invest the capital asset than destroy it all together. The first option creates compounding value while burning just destroys value.
So idk if pool right now (~$2m) is big enough to do something with now or better to wait until it gets bigger. Idk what parameters we use to decide that. But when we do I’m definitely with you that we should use those assets to invest and create more value and not just burn them.
Yes, but consider where else that capital could go. You could fund a few extra devs for a few years. You could contract a specialist to handle risk management and parameter setting (a la Gauntlet). You could launch a bespoke marketing campaign. You could devote it to dev and research resources for a 3rd chain launch (on a ZKR). You could deploy it as a treasury strategy via GLP + hedges. There are infinitely more compelling ways to spend it to grow the protocol long-term.
Another compelling option is also do nothing and conserve capital.
In hindsight I look at GMX as something that could potentially be apart of a nice yield earning portfolio
Some of the top dividend stocks do a buy back which helps their price multiple!
Don’t we already have a marketing wallet??
Launching on other chains is a plus! I do have concerns of them wanting to dilute the supply in order to put liquidity on to a new chain which is why I think early adopters should be incentivized to stay before that happens
Nothing needs to be immediate but open discussion about that is wise early on imo
Agree with you on discussing all available options. Just wanted to raise the point that there’s always an opportunity cost and it strikes me that the opportunity cost feels quite high here, especially given how early-stage GMX still is (compared to those dividend-yielding stocks that you referenced…this is not Altria for example)
I’m game for everything you guys are more of the professional than I am when it comes to this. It seems like it’s going well looking good and staying secure as long as we don’t expose ourselves to losing assets and everybody profits it’s a win-win and if we have stuff for backup great