Gmx v2: sustainable development

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  1. PROPOSAL SUMMARY

This proposal seeks the approval of the GMX DAO for establishing a framework for the allocation of a portion of protocol fees from V2 towards sustainable modular development, maintenance and growth of GMX including ensuring the DAOs treasury is funded to support itself in all market conditions.

It is proposed that 10% of the protocol fees from select activities on upcoming GMX V2 be allocated toward the GMX Treasury and/or the further sub-allocation of a portion of these fees towards various areas of operation and development including a proposed collaboration with Chainlink that has been under development between core contributors and Chainlink since last year.

  1. GMX V2 FEE SPLIT

It is proposed that 10% of the fees paid by users in GMX V2, including (a) increasing / decreasing of positions, (b) borrow fees and (c) swaps be allocated between the DAO Treasury and/or purposes as designated by the DAO Treasury.

This proposal does not establish the share of fees for liquidity providers in the V2 markets, which will separately need to be approved by governance. Funding fees which pass directly between within the market between long / shorts are not part of this proposal.

Below are proposed key areas of further allocation of the fees collected by the DAO, which will need to be confirmed by the DAO prior to making these allocations.

  1. Through Labs pay for the already provided and ongoing protocol development, maintenance, infrastructure and marketing activities including the addition of more contributors
  2. Development and maintenance of the decentralized oracle and keeper network
  3. Establish and fund a DAO Risk committee to oversee parameter setting within V2 and subsequent markets with support of Risk Managers
  4. Funding a legal reserve
  5. Fund ecosystem activities including ImmuneFi bounties and V2 protocol grant programs
  6. Treasury activities that support the DAOs objective

The proposed allocation to the GMX Treasury will ensure sustained support for the ongoing development, maintenance, security and growth of the protocol through a robust funding model for the DAO and development.

  1. PROPOSALS

It is the intention of the proposers to put forward proposals to the DAO for consideration of sub allocation of items 1 - 4 above from the DAO Treasuries share of fees as part of the move towards sustainable development, starting with the proposed Chainlink collaboration being posted shortly after this post.

  1. DISCLAIMER

The information, content, and materials provided in this proposal or associated governance discussion are for general informational purposes only and do not constitute financial or investment advice, nor a legally binding agreement.

Note that discussions and voting involving contributors may occur on GMX DAO social media platforms, but contributors are independent actors, and nothing discussed or proposed should be understood as an obligation for an individual contributor to act.

Please conduct your own research and consult with appropriate professionals before making any decisions based on the information provided in this proposal or any associated discussions.

17 Likes
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Reserved for Proposal updates

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Full support from my side. Contributors their allocation was way too low anyway so would love to see a part of the fees going to them to hire new contributors and support other protocols building on v2 markets.

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Absolutely needed and good time to get this started with the deployment of V2. Full support from my side

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Support the proposal on my side as well, seems like the perfect timing with v2.

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Excellent, understood, full support

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full support, this is a no brainer to maintain ecosystem growth

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Full support.

A strong project needs a strong treasury. Onwards

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I am strongly against this proposal in its current implementation.
I support the idea of sustainable development, but every proposal like this should contain the math. The current proposal looks like “let’s pay the tithe for the greater good.”

Math:

  1. How much money is required for sustainable development? One-time and annual expenses.

  2. How much money will be required in the future? GMX most certainly has plans to grow.

  3. How much money do we have now? Floor Price Fund + Arbitrum airdrop, ~13 million $ in total.

  4. What if we allocate a portion of it to GLP v2?
    Say, Floor Price Fund stays in cash for ImmuneFi bounties and other black swan events, while $10 million of ARB airdrop is deposited into GLP, allocated 50/50 in crypto/stables, earning ~20% APR.

  5. Will this yield of $2 million per year be enough to fund all GMX expenditures completely? If not, what allocation of fees is needed to accomplish that?

I am asking all these questions because 10% of the fees is about $20 million per year in current market conditions, given that all the trading activity has migrated to v2.
It looks like an unnecessarily large portion of fees (again, in current conditions)

I am not a GLP maxi, but $20 mil/year extracted without strong need will negatively impact GMX liquidity.
Keeping GLP yield 20%+ long term is important for GMX growth. It’s easy to say that GLP holders should get a lower yield for taking fewer risks in v2, but in reality, liquidity providers perceptions of risk won’t change too much.
And there is an additional risk of depositing assets into a new contract, that has not been time-tested yet.

Crypto itself is very risky, and while we know that 20%+ APR is enough for long-term GMX liquidity growth, we can’t know the possible output of 10% or 15% GLP APR.
I remember December 2022, when we got a week of 8% APR and $50 million of GLP were burned.

So let’s appreciate the core edge of GMX, its robust liquidity, and don’t fuck up.

We can allocate a portion of fees to build GMX Treasury, earning and compounding fees, but this is subject to another discussion.

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Man, I agree with you.@jaoda

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I am generally supportive, and have no issue with the percentage itself, however, I agree to some extent with the comment of Joada above who raises legitimate concerns around the planning and specifics of the proposal. If sufficient thought has gone into the proposed percentage then there likely exist at least a couple of models (aka math) for what these fee revenues will roughly amount to in a couple of scenarios under certain market conditions and to what extent costs can be covered and what ideal conditions would be. These disclosures should ideally also make note of other sources of revenue and how they are currently used and how they could be used going forward (FPF, LP revenue, other protocol owned liquidity).

While I recognize this exceeds existing DAO industry practices, I would strongly encourage a rough budget that can be summarized and then shared publicly and reviewed periodically / annually to determine adequacy of treasury resources for the following fiscal year. This will allow for longer term planning and provide stakeholders with a more transparent accounting of where resources are to be directed. Gmx can and should be a leader in this area as well, and should set higher standards for DAO accountability given its strong performance and likely continued growth and market dominance. I know that core contributors already have the professionalism and integrity required to meet these lofty standards and they can count on the community‘s and my full support as well. To the extent not yet retained, I would suggest engaging bookkeeping services or tools, and maintaining some level of anonymized expense and income records which will allow for accurate planning/building models to be used moving forward.

The plan should also consider/formalize how unused treasury resources should be invested or held in order to maximize returns to the treasury, possibly reducing future fee allocations, or demonstrating responsible fiscal management to stakeholders. Separate proposals on the subject would be welcome - to provide allocations / overviews of how funds are currently distributed - GLP/liquidity provision on other chains/bridges, liquid staking?, etc. and how they may be allocated in the future. The historical record of bond sale proceeds provides limited insight in the burn rate, but a more detailed accounting will be needed in time. Thanks team.

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Agree with Micnation. While the integrity of X and other core contributors is undisputed, projecting future growth without a rough budget makes various vectors of attack possible:

  1. Questionable spending. E.g., the community of Polkadot (8 bil FDV) recently found out interesting expenses like conferences (WEF - $1.2 mil per 2 days, Polkadot decoded - €1.4 mil per 2 days) or $39,000 on sign language tutorials (not just subtitles). 9 videos with 10 views average.
    In other words, success and growth attract unscrupulous people, and some day they may show up among GMX employees.

  2. Legal claims. When American and European regulators make a claim, they know exactly what amount of cash to demand for a settlement. They rob you with extreme efficiency.

  3. Hackers.

With all that said, sustainable funding that creates a runway for bear market or low liquidity periods is a good thing to have.
GMX has a very well-turned and profitable economic model, that has proven to survive with a low budget in harsh market conditions.
GMX is already big enough and has a large safety margin for economic sustainability.

So, maybe, our funding approach should stay as sharp and tailored with all the growth to come.

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Agree with Micnation and Jaoda. Funds for sustainable development are necessary and a very good thing. But would like to see projections on how much would be raised and approximately how it would be spent.

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Before redirecting any new fees to treasure first we need transparency and accountability for past period. After many complains in the past we still don’t have any clear understanding and report of current treasury state. Just few random questions from my mind:

  • How many GMX/esGMX was already issued/left from total 13.25M in all tranches from tokenomics?
  • What it state and valuation of “price floor fund”? (value in UI is still just static figures)
  • How many GMX and ETH we gained from uniswap v3 LP and how we will spend them? ( ~$5M)
  • How many GMX bonds sales left and how proceeds (~$6.3M) from past sales were spent?
  • What is state of esGMX swaps with partner protocols and how many rewards we are generating from staking they tokens?
  • What is official stance about future use of 8M aidroped ARB tokens from treasure?
  • Etc, etc…

So my wish is not to rush with such proposals and not to fail like Arbitrum with it’s AIP-1. It’s better to be late than sorry.

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Overall have the most faith in the GMX team and contributors.

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Jaoda, thank you for your feedback; your posts as always, help to move our collective discussion forward. I’ll apologize if poor proposal structuring led to a misinterpretation of what this proposal is seeing to approve.

This proposal is actually seeking what you felt in your post was a subject for another discussion: “We can allocate a portion of fees to build GMX Treasury, earning and compounding fees, but this is subject to another discussion.”

This proposal is to put into the DAOs control 10% of a set of the future fee streams from V2 (not from GLP/V1) and then discuss allocating to specific purposes, retained or distributed as the DAO sees fit; this proposal doesn’t spend any funds and is not remotely a proposal to allocate 20m towards just development.

Why allocate to the DAO?

You asked how much money will be required for sustainable development or in the future. This depends to a great extent on the DAO having a desired direction and the ability to fund those specific activities. Do we want to focus on integration on v2? feature iteration on v2? Build out a new product? Multiple products? Create our product within an app chain? Add more groups of contributors? Or maybe some or all of the above? These are the questions the DAO needs to engage in.

Contributors had visibility when the DAO voted on the current direction that brought us to the product now called V2 and have maintained operations through Labs utilizing the approved funding from the bonding program. What this proposal does is set out that we need to start investing in ourselves to have the resources to back these.

In terms of your idea of allocating the ARB airdrop into GLP to earn a 20% APR, governance can weigh in on how this airdrop or other treasury assets (POL, former floor fund, etc…) are utilized. For reference with a view of conservatism, currently, much of the protocol assets have been kept either within POL, held as stables & ETH (partially backing the immunify bounty program), and some amounts of GLP accumulated as part of the earlier floor fund program.

GLP Returns

Rather than cover this content again will ask the community to look at the posts in the forum related to V2 Protocol Fees, to address the point raised about return levels for GLP.

Why 10%

Previously, the DAO was retaining 20% of protocol fees towards building its treasury, before deciding to allocate these amounts to help bootstrap additional liquidity in GLP. Today the protocol has delivered on the product, achieving product market fit and has deep integrations making GMX a key protocol and partner in the ecosystems we are present in.

The launch of V2 was and is a natural point to reassess and determine what allocation should be applied for those new markets, and 10% is not a number with an exact science. There is no visibility on how quickly V2 markets will be adopted or their fee earning potential, it is possible that over time if V2 does or does not achieve the type of market fit that GLP has. The DAO may decide to change both the amount it retains or simply allocate them to a single use as it did with GLP and fund development in a different fashion.

Do i believe some of these funds should be allocated to support development and/or earmarked for specific reserves and uses, absolutely but it will be the DAO that has the responsibility for determining the best allocation of resources toward growing the platform and securing its future, this proposal simply starts the process.

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Thank you for the detailed explanation @coinflipcanda
I think we can bring this to a vote, deciding:

  • what to do with ARB airdrop, whether the DAO wants to keep it conservatively or put it into GLP
  • what portion of fees should be allocated to the DAO.

before voting, we need to know more about current finances, including the questions raised by Saulis, as well as current annual expenses.

so we could compare the numbers: what surplus, if any, the DAO will have if 5% of fees were allocated, or 10%, or 20%.

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Agree with @Saulius on need for some initial figures around budget to support contributors and other DAO expenses, which is likely based on what the team is comfortable sharing re: historical expenses @coinflipcanada

10% as a level seems reasonable to me, knowing that these funds are controlled by the DAO and that any expenses will come from a (future) approved budget.

To start the thought process - any excess DAO profit from this 10% (less retaining a reserve) could also be used for buyback/burn. This creates an important tool in the DAO’s capital allocation and may be more important as the DAO sees operating leverage and less of that 10% is needed to cover opex as we scale.

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the treasury should definitely be expanded if GMX wants to reach its goals. also, the fees that the dao rakes in should be determined by what the roadmap is, not a broad want and list of possibilities or at the very least enable oversight to veto if the dao believes that there lacks cohesive strategy in the use of the funds (i’m an advocate for variable fees based on roadmap needs - which would require more transparency regarding use of funds which is understandable bc GMX is a $683m project now).

without oversight and conversation around strategy there’s a much higher risk of mismanagement of funds. with blanket fees, we’re assuming that the dao will be able to utilize those funds effectively as it grows. there will come a time when that number is not well managed. we need to know what that is because we shouldn’t be expanding past that. there’s something to be said about a “rainy day” fund for dark times, but even that can be estimated.

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Seems pretty reasonable what @jaoda is requesting.
In order to request funding, one needs to justify either with past expenses or well reasonable projections.

I agree it’s fair to allocate a portion of the fees to the DAO, but we have the be careful as any sustained drop in yield on GLP could result in big draws in locked value.

Even more considering has been a while since the P&L of the traders have been more often positive than negative.

2 Likes