Stopping ETH/AVAX yield to esGMX stakers

I am just writing this to get the community’s feedback. I have been in GMX/GLP since January 2022 and have been a big supporter of the project. I believe I have been one of the biggest public advocates for the platform through my YouTube channel - actively covering the merits of GMX/GLP in 2022 and creating a 47 minute Fundamental Analysis video with 16k views: GMX Deep Dive & Research Report - June 2022 - YouTube

This is just to say that I am both a shareholder and a liquidity provider for the platform and only want what’s best for the protocol long-term. I hold a substantial amount of GMX, GLP, and esGMX on both Arbitrum and Avalanche.

One of the biggest reasons for GMX’s success can be attributed to the tokenomics. I think the 70/30 fee split to GLP/GMX is great and creates real value accrual to the token unlike a lot of the other DeFi tokens out there. GLP holders bear the biggest risk and they are compensated for it. GMX stakers bear the price risk, and they are incentivized to be long-term stakers due to the Multiplier Points.

I think that should stay that way. The one idea I want to throw out there is with esGMX. Currently, people can stake esGMX to receive yield in AVAX/ETH. However, you can argue that esGMX stakers add zero value to the protocol and it dilutes the yield for GLP/GMX stakers. Of course, you can argue a few things:

  • To farm esGMX, someone had to either stake GMX or GLP in the past, which did create some(?) value to the protocol in the past.
  • If someone stakes esGMX, that means new GMX isn’t entering supply

I mean, sure. But if you think about effective tokenomic models, it’s one in which the tokenholder receives upside while also taking some downside risk. And you can easily argue that esGMX stakers are not providing any value to the protocol. The second argument above is weak as well.

In fact, if AVAX/ETH emissions that currently go to esGMX stakers were redirected to GLP/GMX holders, you can argue that it’ll create deeper liquidity for the platform (more reasons to buy GLP) and more value accrual to the token (higher yield means more demand).

This might get pushback from those with a lot of esGMX, but do we care about them? What economic value are they adding to the platform anyways if all they’re doing is staking esGMX to receive their AVAX/ETH rewards? If the only purpose for esGMX was to vest it for GMX over a 1 year period, it creates an economic incentive to provide value back to the protocol. Isn’t that what we want? And I say this from a person that has esGMX.

Happy to hear everyone’s feedback. Cheers!

8 Likes

esGMX rewards is similar to multiplier points in that it incentivises people who have been staking GMX or holding GLP for longer periods of time the most. It’s a compounding yield tool.

So to simplify your proposal, you’re asking to tweak the incentive to give slightly more yield to people in the short term.

Outside of that it also gives partners who received esGMX less reward.

Not sure how i’d vote on this

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mulitplier points has no relationship with glp yield

and I’m not sure why you think this is short-term. It’s in perpetuity.

Hi Taiki,

Thanks for the proposal. Always a good thing to discuss ideas that could benefit the protocol.

Personally I feel the positive impact of this proposal would be very limited (esGMX/GMX proportion is roughly 1:4) so GMX holders yield would only increase 25% which is not that much considering we have more than 100% yield variation between weeks.

GLP holders would not receive more yield, as their 70% would not change, so liquidity would not benefit from this change.

Moreover, I feel it is not a good idea to change things that work, specially when people have taken financial decisions according to that and the backslash could potentially be as big as this one. Does not give the best look to a protocol changing the rules after the game has started without a good reason.

If rewards for esGMX go to 0. esGMX effectively will lose most of its value. Do not really see a scenario where burning to ashes 140M$ of investors and partners (several swaps have taken place in the last few months with other projects using esGMX) could be good to the project tbh.

So in short, I see little benefit & lot of potential issues.

I am saying this as someone who migrated from XVIX & Gambit and staked up to this date.

Thanks for the proposal anyways, I have seen your content several times and I know you only have the best interest of the protocol in mind. Good to have you here

9 Likes

Thanks for the thoughtful response.

I agree this will get backlash from other DAOs like Redacted/Rage Trade/etc since they did a treasury swap for esGMX, which they thought would be yield-generating. And any change will get backlash from those with different economic incentives.

I will pushback and say a 25% increase is a huge increase in the grand scheme of things. How much would a price of a security (AAPL, MSFT) increase if the dividend went up 25% and it came from trimming some fat? I argue esGMX stakers are extracting rent at this point without adding any value.

I just know esGMX staker whales with zero motive to vest and it’s bleeding value for everyone else. I’m also open to things like halving the yield to esGMX stakers so that GMX stakers receive a 12.5% boost in the yield. I wouldn’t assume a 25% increase is a nothingburger. 8% yield versus 10% is a big deal.

1 Like

Hi Taiki and others,
Great read but I have a few large points which I dont agree with I have created a counterproposal to this and posted it as it was too long to write in replies and implore anyone to check it out if they’d like to, Here is the link if you guys would like to check it out! Counter-Proposal to "Stopping ETH/AVAX yield to esGMX stakers"

1 Like

Hi guys,

Thanks for your proposal Taiki. It’s true that it’s currently hard to understand esGMX value to the community instead of redirecting the yield to GMX Stakers. Giving perpetual value to people who have been useful in the past but are no more may burden the protocol.

But I have one question, don’t you think that with more GMX staked instead of esGMX selling pressure will be higher on days when things are collapsing like the fall of FTX?

I think — it’s a speculation on my part — the team created esGMX to remove those GMX from supply but still give them the advantage of GMX(fees + multiplier points) without the impact on volatility(selling). But maybe % of fees doesn’t need to be the same as staking GMX to have the same effect that they are searching for.

2 Likes

Completely removing the Yield on staked esGMX would be an unreasonably sudden and significant change.

It would vastly change the game theory underlying the tokenomics. And introduce uncertainty in an area where users have made highly consequential financial decisions, based on what were assumed to be certainties.

So, yes, it would provoke understandable anger on the part of stakers, LP’s as well as partners.

Even worse, it would in a way signal that GMX’s promises cannot be counted on. And that is a death knell, for a protocol built on community trust and long-term thinking.

That said, it’s fair criticism that esGMX stakers don’t add much value to the protocol. Particularly esGMX-only holders, like your whales.

But that issue should be addressed differently. And if reduced yield for esGMX is the solution, then that decrease should be along a predictable, longterm, gentle curve. Nothing sudden.

4 Likes

I can’t help but think that making a significant change such as this to a token rewarded to individuals who have either staked their GMX or provided liquidity to the GLP pool would be a massive breach of trust between the community and protocol. I also don’t understand how someone holding and staking esGMX is any different than someone normal staking GMX other than one can sell their version of the token and the other can’t. Would be a no from me.

2 Likes

Im not in favour of this proposal, as for reasons mentioned above. However, I would be in favour for an optional swap from esGMX to GMX with the GMX DAO treasury at a significant hearcut. This way esGMX holders whom want to get rid of their esGMX holdings can do so, increasing yield for other GMX/esGMX stakers and increasing DAO treasury.

Potential ratio could be 10 esGMX : 2 GMX or something along that line…

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First of all thank you for sharing your ideas with the community!

We’ve had this discussion before earlier this year and the way I view this situation it is that the people who have esGMX bags have contributed to the platform by staking / providing liq, thus the esGMX has been fairly earned. This is why I’m also not in favour of this proposal.

Also, changing the rules in the middle of the game would give the core contributors a bad look, if anything has to change, it has to be done through a vote but this proposal is not worth setting that up imo.

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In my opinion it’s hard to say esGMX stakers are here rent free because they either had to provide liquidity or stake GMX not sure I follow how you came to the conclusion they are rent free??

Thanks Taiki, I appreciate your willingness to put your ideas out there, even if they may not be received as you may have hoped. I generally agree with everything that’s been said in opposition to this proposal, and will add only my points which may seem small, but should drive home why it would be unwise to change the game theoretical structure so significantly after the fact. I am mainly focusing on esGMX earned through GMX staking, as GLPers yield has almost completely eliminated esGMX emissions over the last few months, meaning most esGMX now and through the end of the incentive period was likely earned by GMX stakers.

First, I need to give some historical background, and will take us back to August/September of 2021. Funding for the protocol development work / contributer(s), and liquidity for the GLP was entirely bootstrapped without any traditional VC investment. To do so, when the GLP pool was virtually at zero, a number of GMX supporters took a rather outsize amount of risk to contribute to fund GLP for an initial period of time, and were rewarded with a modest esGMX drop. This was at a time when negative memories of the farm-dumpy dynamics involving the predecessor protocol were fresh. Particularly in the face of a prior less successful attempt (with Gambit) to raise/maintain liquidity in a more traditional farming model with (now) better understood tokenomic shortcomings doing so was a massive gamble. In short, we are talking about a protocol that had new code, launched on an untested layer 2 with laughable TVL, used a new tokenomic model, relatively unproven smart contracts and keeper bots, led by an anonymous dev, and little in the way of assurance other than the shared belief in the vision and integrity of the lead dev/contributer. Fast forward a year and change, and the team / platform is about to launch synthetics. We do not yet know what the market’s appetite is for synth LP risk, but devaluing esGMX by removing its yield, besides violating trust in the integrity of the model/dev/community, would also hamper GMX’s ability to back and incentivize liquidity for synthetics through a similar indirect yield token model in the future, if necessary, without causing direct dilution of GMX or outright spending from the treasury. The value of the trust by those early investors and LPers, even those who sold their GMX or GLP holdings since, is worth more than any extra yield boost to either GLP or GMX stakers (which seems comparably more gratuitous in my opinion), whether 25 or 30% or more.

Second, the assertion that orphaned esGMX provides no value is also flawed. As already mentioned, the price stability created by the vesting scheme is obvious and has significantly reduced dilution in the short- and long-term, part of the reason for the god-coin-like performance during close to a year of down-only markets. Significantly, anyone vesting esGMX in a vault also gives back some of their yield to the remaining GMX/esGMX stakers by taking those out of circulation temporarily, and by burning any MP’s upon unstaking. The value accruing to esGMX clearly influenced (in the past) and will influence (going forward) the decision whether to unstake/lose MPs and vest them in the first place. Without yield, there is higher incentives for every single esGMX in existence to be vested, because the opportunity cost to do so is closer to zero (MPs aside). As the protocol continues to grow and the token price appreciates, it becomes costlier for someone who already sold some of his GMX holdings to come back into the market and buy back the GMX required (or take much longer) to vest the orphaned esGMX, but the net benefit increases proportionately. Therefore, (regardless of the going market price of GMX) the cost/ benefit analysis would be in an equilibrium, but for the value derived from the yield earned by the esGMX and the MP’s which would need to be burned to unstake and vest esGMX. It is evident that a significant share of GLP and GMX holders and sellers have opted to forego any potential upside on esGMX through unstaking/vesting, or even direct sales / transfers to a third party in significant part due to the risk-free nature of the yield that was promised by the platform in exchange for their support when yields were insufficient to compensate their risk while growth of the platform was feeble and uncertain. Even if you said - screw those people in the past - the incentives would clearly affect the behavior of esGMX stakers (GMX holders) in the future and cause additional and more aggressive dilution of GMX in circulation.

Lastly, it is not an unfair assumption to make that the community continues to grow, in part because of many wallets earning small but growing amounts of real yield on the platform from orphaned esGMX. The growth of a user base/network of supporters and people knowledgeable about the features, stability and value of GMX as a platform, and the intangible marketing benefits that come with this self-sustained interest in its growth should not be underestimated. Each esGMX staker benefits from more people knowing about and trading or LPing on GMX, and anyone receiving yield will also continue to present a favorable opinion to the world about GMX as they continue to be rewarded for their past and present involvement in the project. As a platform which wants to attract more users, paying some yield to reap those intrinsic marketing benefits is worth it in my opinion.

4 Likes

Ya, hard no on this one here.
Regardless of any tokenomics impact, this is a full-on rug to folks that contributed early on in the project. They took a calculated risk on a nascent project, incorporating the esGMX yield (and it’s downstream revenue potential) into their calculus. Many (including myself) never intend to vest/sell their esGMX, because it is ownership in the protocol that they’ve earned through their contributions (GLP or staked GMX). MASSIVE damage to reputation and trust of the project and it’s developers if this went through, and would blow a wide open hole for competition (who have held to their promises) to leapfrog GMX in terms of attracting liquidity.

4 Likes

Personally I feel the positive impact of this proposal would be very limited (esGMX/GMX proportion is roughly 1:4)

This made me realize that I’d vote for the opposite of this proposal: more rewards to esGMX stakers.