Distribute fees to only USDG and xGMT that are not in LP tokens

As pointed out by a few community members, the xGMT rewards are much larger than the BNB fee rewards currently.

Assuming a price of $131 for xGMT and $80,000 in fees, each week, GMT-USDG earns a total of 1000 xGMT ($131,000) and around 19.1 BNB ($6483) while xGMT-USDG earns a total of 2000 xGMT ($262,000) and around 45.6 BNB ($15,476).

Splitting xGMT and USDG holders into two groups, i.e. a group that stakes to earn xGMT and a group that holds USDG or xGMT to earn BNB could be a more capital efficient use of rewards, it could lead to the following outcomes:

  • Encouraging holding of xGMT, this would reduce the sell-pressure of the token, and allow LP tokens to more effectively compound if desired, xGMT that is not in the LP would give a higher APR to xGMT that is in LP

  • Encouraging holding of USDG through additional rewards helps to maintain its peg to 1 USD

The change would lead to a slightly reduced APR for GMT-USDG and xGMT-USDG stakers, but a corresponding increase in price from increased xGMT holding should offset this reduction.

Increasing APRs for USDG could also lead to more USDG being minted and further increase the fees earned by the protocol.

Even with the locking proposed in Update xGMT Emissions - #5 by p1no, the change should still be beneficial overall, since a portion of xGMT rewards are still distributed upfront even to locked LP tokens.

8 Likes

I support this idea!

Excited to see the APR of USDG :slight_smile:

Right now USDG is the liquidity lifeblood of the platform, but the APR is a bit low. Also since it has less speculative purpose, it is not as enticing to new users

I think we can extend the lockup idea to USDG as well, in order to encourage persistent liquidity to the platform

I agree with the proposal, incentivizing USDG holding by higher APR will cater to people that just want to hold a stablecoin and are not interested in farming or the other tokens. Also providing fee rewards only to xGMT holders makes sense when paired with the emission changes also proposed, since after those changes, rewards are skewed towards long term holders, but not everyone is willing to lock their tokens, this helps offset the distribution and gives a reason to just hold xGMT.

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yea I think that could work, was also thinking of having a small additional negative fee for burning USDG when it is under-collaterised, e.g. an additional 0.8% fee. The funds from this fee can then be used as a positive rebate for minting of USDG when the system is under-collaterised.

I don’t like this idea. You are effectively breaking the peg by 0.8% as soon as the system is under-collateralized. Breaking the peg to maintain the peg is a flawed concept. You could go further and tax a 50% (FEI tried this approach at launch and couldn’t maintain the peg) or even prohibit redemption all together, which would hold the peg, but makes for a crappy stablecoin. The fact that 0.8% is just around 4 days of soft-staking at current APR is a weak counter argument, since that is equivalent to having a 4 day wait period to redeem at peg price, again, unacceptable. The closer the system is to being under-collateralized, the more reason to sell USDG, otherwise you risk losing 0.8% immediately.
The rebate would eventually just go to a bot that buys under peg and sells when collateralized, which drains money from users and is not retained by the system (any timelock would just delay it). It would make for a bad experience, i doubt users that have to pay that fee would give USDG another try.
I think we should keep looking for ways to incentivize minting-holding and only penalize the peg when imperative (the protocol does this quite well already). Charging a fee when providing assets that are “overweight” in the vaults and a bonus when providing assets low in the vaults could help maintain a better equilibrium of vault assets and encourages depositing stables when the system is undercollateralized, which strengthens the peg. The fee could be waived (returned on withdrawal) if the collatel is held for x ammount of time and the bonus could be removed on withdrawal if the same conditions are not met. The bonus could come from the 50% fee distribution if not covered by the fees. I think this doesn’t work so well when applying it to USDG burning, for the reasons i stated previously. “Same-same, but different… but still same.” The peg shouldn’t be subject to certain conditions and incentives shouldn’t be given at the cost of the peg.
P.S. Keep the ideas coming! I still need to analyse the emission change.

3 Likes

This proposal absolutely need to be passed!

Good points, I agree with the analysis, will continue thinking about the mechanisms, have some other ideas so will propose them next week

2 Likes

We have implemented this for the fee distribution on 26 May 2021, the USDG APR was 96% at the time and is now 84%, the xGMT APR was 217%, now 210%. The USDG APR’s decrease is due to an increase in USDG supply.

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There shouldn’t be any xGMT rewards for xGMT or USDG staking or there will be too much sell pressure from inflation. This would only work with locked staking.

I’m not sure what you mean, you mean the rewards for the xGMT-USDG LP tokens staking that we currently have?