Background/motivation
This consultation aims to improve liquidity for GYFI markets. We are looking to engage another market maker, and launch a protocol owner liquidity pool with some GYFI supply to start off, which can be increased if needed.
This will enable more comfortable trading, especially for people who want to execute larger orders. And also should create better conditions for proper price discovery.
Summary of proposal
It is proposed that a GYFI budget of up to 68,500 (0.5% of GYFI supply) be made available to engage another market maker.
It is also proposed that up to 1% of supply is initially allocated to establish a protocol owned GYFI/GYD liquidity pool. Gyroscope Foundation should calibrate the pool, it should generally aim to provide upwards liquidity with lower bound near market prices at the time of deployment and upper bound ~100M FDV.
We believe that it is crucial to build on TGEs momentum by making sure that proper liquidity is provided for trading. With approval of this proposal, we authorize the Gyroscope Foundation to set up this infrastructure on behalf of governance.
Backing and editing from flamingskin.
Risk assessment
A protocol owned liquidity pool would take on the risks of the given pool E-CLPs | Gyroscope Protocol
The PoL (Protocol Owned Liquidity) is very important for boosting protocol revenues (swap fees). We can set up hooks, dynamic fees, and more thanks to BalancerV3. Additionally, we can improve liquidity via $GYD owned by the DAO and unlock some $GYFI to put into the PoL.
Regarding market makers, I’m not very supportive of the idea, but please do not work with Wintermute
Liquidity indeed is important for a healthy token economy. Something to consider; OGs still tend to like Ethereum mainnet so getting liquidity out there can help attract bigger holders. Imo it should be a few $100k at minimum.
Is this meant as a market making fee or a token loan to the market maker? Since there is already a firm engaged on a loan basis perhaps its worth investigating if another firm can work on another chain and on a fee basis. Different incentive structures lead to different strategies and outcomes
Does the Gyroscope DAO publish a Treasury overview and does it have stablecoin holdings?
I partially disagree with the proposal, as there is insufficient information provided for another market maker agreement.
I raised this concern initially, but unfortunately, neither those in favor of the proposal nor @FTL Labs provided sufficient information. As a result, the proposal was executed, and it has now failed.
From my perspective, given the current market cap and liquidity, we do not need additional market makers. Instead, FTL Labs should focus on incentivizing liquidity provision for GYFI/GYD, while market participants handle liquidity provision themselves.
Adding another market maker without sufficient information—such as the exact terms of the agreement, similar to the Cowswap Agreement—does not help deepen the liquidity of $GYFI. Instead, it is merely a waste of resources and time.
Finally, regarding the failure of the market makers, someone must take responsibility to prevent such actions from happening again.
Agreeing with @Mehdi here. In addition this his comments about the market making terms, it’s important to know the market making goals (CEX versus DEX for example) and the state of the DAO Treasury to make an informed decision.
And restating what was said on Discord in #price-discussion; I would even suggest that having no market maker at this stage, just two DAO self managed pools (volatile and stable) per chain of ~$400k TVL would be a viable solution.
If I had to choose, I’d pick PoL because of the reasons you mentioned and others. But most important, this approach would enable us to have more control over the liquidity. Allowing either party to provide liquidity ensures that larger buy orders have sufficient depth, reducing slippage and stabilizing price action.
I think this is a great proposal with some great discussion points, and thanks to @PanCake for getting this discussion started.
There is an update here on liquidity strategy currently in play. In particular, a shift is underway to a pools-based strategy for the main source of GYFI liquidity. A market making firm was originally engaged to fill this role, which hasn’t performed as promised. It may still make sense to continue in an auxiliary role. But it’s clear that the liquidity strategy needs to change quickly.
We, at FTL Labs, suggest the following slight modifications to the proposal:
allocate up to 2% of GYFI supply for the protocol-owned liquidity pool. This gives a little more flexibility to tailor it to a good calibration given how the market looks at deployment
On the market maker side, we suggest not expanding the GYFI allocation but instead allowing the existing market making budget from GIP-3 to remain allocatable for another quarter. This leaves some further flexibility in case market makers have to be changed or a better arrangement can be found. It also reduces frictions for potential CEX listings, should they develop.
Lastly, I want to add that we understand that many people are unhappy with the liquidity situation for GYFI. We are unhappy as well. There was a plan in place, and had it been known it wasn’t going to be lived up to, an alternative would have been advised from the beginning. As it is, we think a new pools-based strategy in combination with this proposal can set GYFI liquidity on a better path in time for the next major product release (dynamic pools and 3-CLPs).
I fully agree with @Mehdi’s comments on the importance of transparency in our operations. As we’ve previously discussed, insufficient transparency can hinder collective progress and erode trust within the community!
On another note, addressing GYFI’s liquidity challenges requires a multifaceted approach. A key factor is expanding the utility of the GYFI token. Currently, GYFI functions solely as the governance token of the Gyroscope protocol but lacks broader utility! (and surely enhancing its utility could significantly improve liquidity too)
One potential initiative is introducing voting power incentives for users who lock their airdropped GYFI tokens, promoting active participation and long-term commitment.
Beyond utility expansion, establishing Protocol-Owned Liquidity (PoL) is a strategic move to strengthen liquidity while reducing reliance on external market makers and mitigating associated risks!
Additionally, adopting mechanisms akin to the Hyperliquid Assistance Fund could offer a more dynamic liquidity management strategy. This system leverages protocol revenues—generated from trading fees and other sources—to automatically repurchase HYPE tokens from the open market, thereby supporting token value and liquidity. Implementing a similar framework for GYFI could enhance price stability and contribute to a more sustainable market environment.
GM @aklamun A pool-based strategy should have been implemented since the early days of TGE. Unfortunately, it seems a bit late now, and I’m concerned about the chicken-and-egg problem here.
TL;DR: The incentives in Gyroscope are broken.
After further consideration, I find it difficult to deepen GYFI’s liquidity solely through incentives, especially given the severe market decline of the $GYFI token. With GYFI hitting all-time lows daily, liquidity providers (LPs) may not be motivated to provide liquidity—even with significant incentives—due to the risks involved. Ask yourself: would you be willing to risk your capital for impermanent loss while your rewards continuously lose value?
The continuous decline of $GYFI will also negatively impact S2 of the Spin Program.
So How Do We Fix This?
Currently, the GYFI token has no real utility. Even with the full launch of the GYFI Vault, it only partially contributes to governance power. Therefore, the first priority should be launching the Governance Vault, enabling users to stake their tokens to either gain governance power or earn staking rewards—ideally both.
On the governance delegation side, we see 15 listed delegates selected by the core team. However, only a few have actively participated in discussions, and post-TGE engagement remains unclear. As an independent delegate, I lost my voting and delegation power after TGE, leaving me with little conviction to engage in governance.
I won’t reiterate the lack of transparency in certain decisions and proposals, which have damaged community trust and negatively impacted the $GYFI price.
Conclusion
To address this situation, relying solely on incentives is not enough. Instead, we should focus on completing the governance module, as mentioned. We need to create incentives for holding and staking $GYFI while also directing emissions to GYFI LPs.
I am in Favor of the Idea but Could you clarify exactly where you propose sourcing the other side of the $GYFI liquidity pool? Who will be providing the opposing side of the $GYFI pair? Will it come from DAO-generated revenue?
I second this. Hence the request to have a Treasury overview. Main question is if there is liquid GYD (or any other non GYFI tokens) available in the Treasury to seed these pools…
I would advise against using GYFI to engage market makers at this stage. GYFI liquidity should be available on a single chain in one (or maybe two) ECLPs maximum. There’s no need for a market maker. CEX listings, at least ones that matter, are likely a ways off but when they become more feasible then MMs can be considered.
I would also advise against using spin/GYFI to incentivize GYFI liquidity. This is simply selling GYFI for no reason. 2% of GYFI supply in protocol owned liquidity ECLP should be sufficient to allow reasonable trading to take place. Focus should be on upside liquidity, downside liquidity can remain thin at current valuations.
It could turn into a very good thing long term to allow people to enter GYFI at cheap prices. Don’t create even more issues by feeling the need to build deep liquidity via wasteful liquidity incentives.
Several good points raised here, and forming a liquid market definitely hasn’t gone as planned. Of course, it would have been ideal to do something else originally. We don’t think it’s too late to do it now though. We think @PanCake’s proposal here will be a good step toward forming a better liquidity structure and can get it in line well ahead of the next big product release (dynamic E-CLPs and 3-CLPs).
For sourcing the other side of the liquidity pool: our understanding of the proposal is that it provides upside liquidity for GYFI, in which case the other side doesn’t need to be sourced. Downside liquidity from POL would be realistically limited by treasury assets, which are not large at this stage of the project and thus far exist within the scope of incentivising further growth. It might also not be the best use of hard assets. Simply providing a clear trajectory on upwards liquidity is likely the biggest improvement that POL can provide at this stage (agree with @solarcurve on this).
In terms of incentivising GYFI pools with GYFI, we think this is still possibly useful. The way we see it is that many people who want to LP for GYFI also want exposure to GYFI, which they lose if price increases. And so GYFI incentives may serve as the counterbalance here as opposed to resulting in large selling. Makes sense to evaluate how this goes though and whether it’s worth continuing.
In any case, FTL Labs will support whatever is the governance consensus here.
