Authors: 0xAstolfo, 0xBlueberry and edit from Mikey Milken
Note we recognize this is a period of immense market volatility, thus implementation will be dependent on conditions in the near future.
As the only platform that collateralizes GMX, our collateral reserves represent a huge pool of untapped potential. Currently, the capital sits idle in the pool, doing nothing of worth. While we stand by the service we provide by giving you on-chain utility with vaults, we believe that it is still possible to make your assets work for you even when they’re in a Vault.
This RFC suggests the depositing of idle GMX in the associated Vault into the native staking contracts offered by GMX. These contracts are well-audited, well-maintained, and well-known throughout users across Arbitrum and beyond. For GMX, this strategy has historically offered returns north of 25% per annum, maintained for many months. Thus, we expect that this first asset mobilization will grant high yields for all who have or will have collateral in our vaults.
We are proposing this strategy to enable maximum capital efficiency for users such as yourself. While current strategies provided by Vesta enable you to gain greater utility with your assets, there is an implication that collateral in these vaults will remain static regardless of attractive yield, even when provided by the tokenized protocol itself. We believe that this should not be the case. The collateral in your own Vault ultimately belongs to you, and thus the yields you can receive with those assets should also belong to you.
We are moving forward with GMX first precisely because of the secure nature of the staking environment associated with this asset. There is no risk of liquidation on the staked assets, and there is no risk of depegging as no wrapped or synthetic assets are exchanged for any deposited collateral. As such, users can remain assured that these funds will remain safu, as long as the extremely reasonable assumption that GMX’s contracts remain secure hold true. Audits and frequent use lend credence to this fact.
Mobilizing GMX itself, however, presents multiple questions that the community should have a part in answering. These questions necessarily arise from the nature of staking GMX on its native platform, as unlike many other staking strategies, this one produces multiple disparate outputs with their own qualities. Staking GMX generally produces 4 outputs: WETH, GMX, Escrowed GMX (esGMX), and multiplier points (MP). While this RFC will gauge community sentiment on staking the collateral itself, it will also gather opinions on dealing with these outputs.
Unlike with ETH or BTC, there may be no single mathematically optimal or even close-to-optimal staking solution for GMX. Based on different value assumptions on these 4 outputs, different scenarios become optimal. This is not to say that this introduces any additional risk, as staking GMX in general will always result in an increase in value without considering price fluctuations of GMX itself. Below we will outline a simple strategy for GMX.
- Vest the esGMX reward we immediately back into GMX tokens every day (or at whatever frequency)
- Stake the multiplier points every day (or at whatever frequency)
- Protocol fee will be distributed directly to users, with Vesta taking a 20% performance fee.
- In Vesta v2, user can choose direct this yield to
- Pay off interest of the vault position
- Convert to GMX and stake
- Take profit immediately
This strategy will be one that we will most likely implement, which ensures the best tradeoff between maximum liquidity and reward.
A second strategy which may require greater effort and time in implementation involves a time-lock mechanism which will absolve the user from actively managing many aspects of the strategy. Given that we now know how long the GMX will be staying in the system we could autocompound the esGMX rewards instead of vesting them immediately, increasing the user’s share in the system. The effective yield would be higher, and users would accrue more multiplier points from staking as less are burned (some proportion of multiplier points are burned when vesting esGMX into GMX).
In the time-lock strategy, given that the staking period makes sense, the APR may be substantially higher compared to a constantly-taking-profit strategy.
These strategies provide a diversity of options for those wishing to gain greater utility on their GMX assets. We are confident that starting with GMX, we can eventually mobilize all of our assets and provide users with a lending experience that does not compromise on value or efficiency for our users. Vesta should remain the optimal platform to store your assets in, and that can only be achieved through providing the optimal experience for our users.
We aim to be the first L2 lending protocol that takes advantage of idle collateral to generate fees back to token holders. By taking advantage of relatively low risk strategies and a high degree of native support, we expect to substantially increase the capital efficiency of held GMX assets.
Upon release of Vesta v2, Vesta will most likely release Strategy 1. Strategy 2 will need further research to find the optimal time for locking and subsequently structuring of the products.
Depending on the final strategy chosen, implementation can range from a few weeks to multiple months.
As such, the community and the team may decide to implement stop-gap collateral strategies to enable greater yield for users as more efficient and attractive strategies are set up.
After sufficient community discussion on this RFC, the authors of this proposal will open a poll and decide whether to move forward with execution, and which strategy is to be executed.