Boosting locked liquidity

I propose a scheme to stabilize GTON price by boosting rewards for long-term liquidity providers. Essentially, the idea is to limit the practice of day trading of the GTON token. I imagine a more stable coin to reduce the cost incurred by arbitrage done by Pathway.

I can think of two implementations:

  • The reward goes up as the asset has been present in the pool for a longer time. Practically, everybody will be ‘by default’ included to the boosted reward as it doesn’t require any extra involvement from the liquidity providers.
  • The locking time is set by the liquidity provider. The daily reward is scaled with the locking time. Unlike the previous implementation, liquidity providers wouldn’t be able to retrieve their assets. Additionally, as this choice requires an action from liquidity providers (and some premeditation on the optimal locking period), not as many users will be included to this.

As locking away assets has a higher effect on the liquidity providers, I would imagine the second implementation to have a higher reward. Optionally, an option could be included that allows liquidity providers to retriever their locked tokens at a price. This cost could be a percentage of their locked tokens and should probably be scaled with leftover-locked time. This fee could afterwards be rewarded to other liquidity providers, or burned.

Overall, I think this idea falls in line with the goal of the graviton dev team to push graviton forward as a stable investment.

3 Likes

What sort of locking time and increase in reward percentage are you thinking? Where would the added rewards come from based on the current allocations that have been proposed?

I leave that up for the dev team to figure out based on feedback on this idea. I don’t know enough about the tokenomics of this project to figure out what would be fair.

Simply from the existing allocations. This could be implemented by reweighting the percentage-allocation of the liquidity providers in the pool. So basically, the reward given to a liquidity provider are calculated based on the liquidity provided (as percentage to total liquidity) and the locking time.

After some more careful thought, I have a proposal for the implementation of locked assets managed by graviton.one.

General implementation

The idea is focused on the creation of boosted pool tokens (BPT) alongside normal pool tokens (PT) as liquidity is locked.

To exemplify, let’s focus on boosting locked liquidity on staked GTON. The assets of a holder could be compartmentalized as follows, where both locked and non-locked assets are being held. For the sake of simplicity, let’s assume pool tokens do not auto-compound.

In this example, locking liquidity for 1 year creates additional pool tokens (i.e. BPTs) that double the share of the liquidity in the staked pool.

For this example, I work with an APY multiplier that is linear with the locking time, and reaches 100% when locking assets for 365 days. As such, the APY multiplier is calculated as APY mult. = lock time * 100 / 365 in this example. Other options such as exponential curves that model this relationship might be desirable, as they would further boost longer locking times.

Examples:

  • Arne does not want to be tempted into trading his tokens and locks 100 GTON away for one year. Staking APY is at 80%. Locking his assets for one year doubles his share in the pool, resulting in an APY of 160% (as a function of the 100 GTON). Arne holds 260 GTON by the end of the year.

  • Bert likes some flexibility and chooses to lock his assets (100 GTON) away in periods of 3 months. Assuming he re-locks his assets immediately after they are freed and he does no trades, Bert was given 2.5 additional BPT during each locking period. After one year, Bert holds 200 GTON.

Releasing locked tokens

As an optional feature, it might be desirable to have an emergency feature that allows liquidity holders to release their tokens before their lock time expires. Reasons could be varied. The main idea of implementation would be to enforce a fee on the holder as to not abuse the higher locking time rewards without actually providing liquidity for that amount of time. The fee scales as a function of the liquidity tokens, total lock time, and lock time left.

The following curve depicts the cost incurred when locked liquidity is released by the holder. This cost is represented as the distance between the green and brown curve (i.e. red area).

This curve only takes into account the rewards as a result of locking liquidity. When locking 100 GTON for 365 days, the reward received from BPT after 182.5 days is 40 GTON, or 50% of the total reward of 80 GTON. This is represented by the green curve. The curve can be described by several principles:

fee_lock

(B) The break-even point determines the point in time at which no profit or costs are made when releasing locked liquidity. In this example, that point as situated 182.5 days. The brown curve represents the net reward when releasing locked assets. as such, points on this curve are positive downstream of the break-even point and negative upstream.

  • Annie chooses to release her 100 GTON after half of the locking time (182.5 days). The fee incurred is equal to all of the GTON obtained through her BPT. After half a year Annie holds 140 GTON, where the 40 GTON is rewarded through her PT share.
    If Annie had considered better and locked her assets away for only half a year, she would have had 160 GTON.

(A) The fee incurred when releasing locked assets should be smaller when the remaining time is closer to the expiration point of the locked assets.

  • Berta locks her assets (100 GTON) away for 1 year, she really needs her GTON back after 51 weeks. The fee can be calculated as the difference between the twee curves.
    f(x): -100 + 200 / 365 * x (brown curve downstream of breaking point)
    g(x): 100/365 * x (green curve)
    g(357) - f(357) = 97.81% - 95.61% = 2.2%
    The fee is obtained by multiplying the percentage award with the total reward in the case the locked tokens expire normally: 0.022 * 80 GTON = 1.76 GTON

(C) The fee incurred on the liquidity holder should not be too large for liquidity that was only recently locked, and can be set at a set percentage (e.g. 10%).

  • After charlie locks his assets (100 GTON) away for 2 weeks, he realizes he made a mistake. He chooses to immediately unlock his assets. The fee payed equals 10% of the total reward obtained from the additional BPT received for 2 weeks . The total BPT reward would be: 0.038 (APY mult.) * 0.8 (APY) * 100 GTON * 14/365 = 0.116 GTON. Thus, the fee would be 0.0116 GTON

Note that the fee is at its maximum at the break-even point.
The fees make sure no unholy strategies can be created that try to leverage specific set-ups. Locking your liquidity for as long as possible with no interruptions is the best strategy.

The value of the break-even point and maximum initial cost incurred can be discussed:
fee_break_even
fee_break_even_min

Fees can be burned or redistributed to the liquidity providers of the pool.

4 Likes

Very interesting idea Jim. I really like the approach re the BPT and the mechanics on early termination. Key idea is locking the funds as long as possible, even longer than a year. Would it make sense to include a renewal function on an annual basis with an additional BPT premium or should we opt for longer tenors right away? Of course, also keeping the original LP rewards ratio in mind.

I think break even should be based on the GTON price in the stage of closing EB.
EX. staking phase, seem the percent is approx 3.5% payment per tatal of EB vetted.
If based on your calculating is 2.2%, if i do not wrong. seem, it will be less than staking.
for LP, if staking > LP: i think users will not like this.

Good work Jim👍. It reminds me yobit investbox with weekly, monthly, yearly locked coins. Some had even 1000% yearly earnings.

But after the lock up period the price falls sharply. To prevent this we may need yearly / 3y / 5y / 10y periods with higher rates just like Treasury bonds. This alone won’t also be enough.

There should also be another reason for demand except than “interest rate like income”. Just like some exchange coins used for fees or listings. There are also some farming coins used as fee or to be burned to list new coins to the pools.

How about creating another market for locked coins like Bond market? Waves Exchange has also something similar. For each locked USDT coins, investors get USDTLP token for representation of being able to withdraw after lock up period.

Investors also will be able to trade Gton1y, Gton3y, Gton5y or Gton10y tokens, which they know that with these tokens, they will get at the end of the period Gton + interest. And trading the representation tokens fee will be paid as Gton, either goes back to Treasury or burned.

It may also give them a chance either to withdraw early with 10% loss or sell the Gton1y at the market for 8% loss if someone is willing to buy.

1 Like

Tenor locked LPs. Might be interesting as a partnership incentive.

I do not understand this comment. The same mechanisms can work for staking or LP, as long as the funds are managed by graviton.one.

It is furthermore important to notice that the GTON reward per block for a pool is set and does not change. The BPT simply increases your share in that pool. However, if everybody locks their rewards for the maximum amount of time, it would nullify any boost. This has the same effect as if nobody had locked their rewards. The examples written out above are calculated from the assumption you are the only one locking liquidity. As locking liquidity has an effect on the reward of other liquidity holders in the pool, I am strongly of the opinion that fees from withdrawing locked funds should therefore be redistributed to holders within the pool, as they were negatively impacted.

The break-even point is fairly interesting and is defined as a percentage of total-time locked. I do not see a relation with EB prices.
Consider the following:

  • Alex locks his liquidity (100 GTON) for 1 year. He withdraws his funds after 3/4ths of this time (~273.75 days). Alex holds 200 GTON

    • (1) Initial liquidity: 100 GTON
    • (2) reward from PT: 0.8 * 3/4 * 100 GTON = 60 GTON
    • (3) reward from BPT: 0.8 * 1 * 3/4 * 100 GTON = 60 GTON
    • (4) fee: g(x) - f(x) = 25%, 0.25 * 80 GTON = 20 GTON
  • Another scenario would be if Alex locked his rewards for 273.75 days to start of with. Alex would hold only 5 GTONs more after this time expires:

    • (1) Initial liquidity: 100 GTON
    • (2) reward from PT: 0.8 * 3/4 * 100 GTON = 60 GTON
    • (5) reward from BPT: 0.8 * 3/4 * 3/4 * 100 GTON = 45 GTON

We can determine the function that sets out the difference in rewards as a function of fraction time.

(1) + (2) + (3) - (4) = (1) + (2) + (5)

0.8 * 100 * t - (t - (-1 + 2*t) * 0.8 * 100 = 0.8 * 100 * t * t
t + t - 1 = t^2
t^2 - 2*t + 1 = 0

image
On this curve, we can see that the difference between rewards in the scenario of locking your liquidity for half a year and the scenario of locking it for a year but withdrawing it after half a year (x: 0.5) equals 0.25 of the total reward (20 GTON). See (B) of the previous post for the calculations.

We can chose different break-even points which would result in different characteristics.

Break even point at 25% of total time. The f(x) function as percentage total time equals
f(x) = 3/2 * t - 1/3.
Therefore, the curve equals
t - (t - (-1/3 + 3/2*t)) = t^2
t^2 - 3/2 * t +1/3

image

This curve implies that the extra reward from locking liquidity supersedes the fee for withdrawing liquidity after 1/3 of the time has exceed.

This can be easily verified with an example.

Break even point at 75% of total time. The f(x) function as percentage total time equals
f(x) = 4 * t - 3.
Therefore, the curve displaying the %-difference in rewards is represented by
t - (t - (-3 + 4*t)) = t^2
t^2 - 4 * t +3

image

The curve is as expected from a more stringent fee.

Note that the behavior of the curves before the break-even point is not shown, as these adhere to different rules.

It is clear from the curves that the characteristics of break-even point on the rewards should be carefully considered. For the examples used in my posts, this point should never be before 50% of the total lock time. Otherwise, it would be more profitable to lock liquidity three times longer than you aim for, as the added reward supersedes the fee incurred after 33% of the lock time (in case of the example where the break-even point is at 25% of the lock time).

3 Likes

If the reward can be withdrawn during the farming period (as the PT are not auto-compounding), I would imagine a lower impact of prices dropping once assets are unlocked. Additionally, While there will be a large amount of users locking tokens at the same time once the feature is unlocked, a more even spread of the locked assets can be expected after the first spike.

Thanks for your feedback. Maybe i wrong to understand the points.

@alexp How shall we progress this?

Based on the elements that are important for Graviton as a project I am convinced that locking liquidity for an additional boost in rewards is beneficial for Pathway and overall liquidity shortages. Also, it is clear that this can be done for both staking and LP.

Although not necessary, I put a lot of thought into the ‘unlock’ mechanism that does allow people to get their funds back if needed, reducing rewards or even reducing their assets based on the timepoint tokens are retracted.

From a technical point of view, I am wondering whether there are any of the people working on the code present on the forums, their input might be valuable.

I want to turn this into a proposal at this point, as I have not seen many arguments against this idea. Shall I proceed?