[GIP-135]: GEAR incentives in Idle's Gearbox Yield Tranches

Author: Biaf from Idle (Posted by amplice on behalf of Idle)

Summary

A proposal to discuss and approve a GEAR incentives program for the Idle's Yield Tranches on top of the USDC and WETH passive yield markets.

Motivation

Idle has deployed two Yield Tranches (YTs) on top of the Gearbox’s USDC and WETH markets. The Yield Tranche primitive offers a risk-adjusted lending experience with its Senior and Junior mechanisms:

• Senior LPs can benefit from funds coverage by withholding and routing part of the base yield to the Junior counterparty
• Junior LPs can enjoy boosted yield, but give exit priority to Senior LPs in case any loss affects the lending pool

This solution lets users pick their preferred side based on their risk appetite and offers a more risk-tailored investment.

Gearbox and Idle have been in discussions about ways to collaborate and get the most out of this product launch. One idea that has emerged is to incentivize LPs by distributing on-top rewards to the Senior side of each tranche during the liquidity formation phase (LFP).

To have a fair distribution, Gearbox DAO will distribute GEAR incentives, while Idle DAO will match the incentives in either USDC or WETH (depending on the pool). The rewards campaign will have different tiers and will be distributed in the form of weekly airdrops to the LPs’ wallet addresses. This way the distribution won’t be blind, but conditional to the liquidity collected. Specifically:

• Tier 1: Up to $500,000 in Senior liquidity, with a target Senior net yield of 10%
• Tier 2: Up to $1,000,000 in Senior liquidity, with a target Senior net yield of 9%
• Tier 3: Up to $2,000,000 in Senior liquidity, with a target Senior net yield of 8%

As of today, with GEAR at $0.02, Gearbox DAO monthly budget should be at most ~200k GEAR (the equivalent of ~$4k). The full rewards simulation can be found in this file.

Specification

• USDC Yield Tranches contract 0xdd4D030A4337CE492B55bc5169F6A9568242C0Bc
• WETH Yield Tranches contract 0xbc48967C34d129a2ef25DD4dc693Cc7364d02eb9
• The rewards campaign should last for 1 month and can later be extended for 2 months more depending on Gearbox DAO preferences. The maximum length of the rewards campaign thus will be 3 months.
• Weekly airdrop to LPs’ wallets.
• Gearbox DAO can transfer the GEAR budget to the Idle’s Treasury League multisig which will manage the weekly distribution with a disperse call.
• The weekly distribution will be reported in the file shared above.

From a security perspective, the Yield Tranche codebase has been live on mainnet since September 2021 and never suffered any hack or unexpected loss for LPs. It was audited 4 times. Most recently in October 2023.