[GIP-120]: Gearbox Passive Lending Referral Program

Objective

Establish a referral fee structure that generously rewards Gearbox's referral partners for driving TVL growth, while maintaining long-term sustainability for the protocol.

Background

The concept of integrating a referral program within DeFi protocols has proven to be a successful strategy for fostering growth and securing valuable partnerships. Our analysis of various models reveals a common practice of sharing between 10% and 50% of protocol revenue with referrers, often structured in tiers based on the amount of TVL referred.

A survey of industry comparables shows:

• Yearn offers tiered 10%-50% of performance fees to referrers - higher tiers are probably aspirational (50% if >1b referred), almost all referrers probably in the first 3 buckets (10%-20%) given Yearn total TVL.
• Lido referrers earn 30% of Lido's fee share for referrals of up to 50k ETH (which is 185m). Scales up to 50% share for 700k ETH or higher (2.5b, so very high bar).
• dYdX has a tiered structure from 20-40% of fees based on referrer's staked DYDX amount
• Synthetix has a simple flat rate of 20% of protocol fees
• Lyra has 3 tiers 10%, 20%, and 50%, but likely that most referrers fall into 20% bucket
• GMX 5%-20% (with some tokenomics stuff)

The goal is to have an extremely competitive referral program whilst simultaneously minimising spend. Gearbox's current DAO revenues are very strong at 4-5% per year of TVL (~15m per year on ~$300M TVL) - because of the way Gearbox works, in current market conditions it has better “profit margins” than many other protocols.

This presents an opportunity to offer industry-leading referral incentives to accelerate growth by removing the current bottleneck, which is on the passive ending side.

Some Numbers

Yearn

Refer to https://docs.yearn.fi/partners/introduction for details

If you referred 10m TVL to Yearn, according to their example:

If the Yearn strategy earned 10%, then the total gross yield was 1m

20% performance fee = 200k

45% goes to Yearn operational cost

55% is shared between Yearn protocol and referrer/partner

10m referred falls into the 20% tier.

So referrer would get 200k * 55% * 20% = 22k

Lido

Refer to https://lido.fi/rewards-share for details

Lido fee structure is as follows:

Lido charges a 10% total fee on yield

Half goes to node operator, half to Lido, so 5%

Eth staking yield is ~4% right now.

On 10m worth of ETH

400k yield

40k split between node operator and Lido

20k goes to Lido → 30% goes to referrer → referrer gets 6k

These two protocols are the most directly comparable to Gearbox, as they are places where you can simply deposit funds (as opposed to the other protocols shared above, where in order to generate referral fees, the referred users need to be active traders).

Proposal

Implement a tiered referral fee structure that is attractive even at the lower levels, but also has higher tiers for any potential “super-referrers” (i.e other protocols or external businesses) that might be able to drive 8 figures of passive depositor funds to Gearbox.

The idea is that we are competitive with other referral programs for individual referrers who might drive mid-size depositors (1m-5m) to Gearbox.

On top of that, protocols, projects, and businesses that have the ability to drive large amounts of TVL should be very well rewarded for their efforts, as large deposits are much more impactful for Gearbox and also take potential referral partners a lot more work. For example, another DeFi protocol might need to build an entire vault strategy in order to attract 50m to Gearbox - this is more labor intensive than an individual referring to a friend who’s a whale.

Rationale

20% base rate for projects is in-line with industry standards and sustainable for the protocol, and in dollar terms is extremely competitive with the closest comparables (5x Yearn, 10x Lido)

40% referral fees are at the high end of industry range, and Gearbox’s natural profitability makes this very attractive for any entities that can refer large amounts of deposit funds

It is also likely that any 100m+ deposits that are referred would not have otherwise come to Gearbox if not for the referrer, whereas smaller depositors are likely substantially more nimble, and many of them might have ended up in Gearbox anyways thanks to the market-leading passive lending yields available there.

Math

5m referred → 5% fee spread = 250k per year → 20% * 250k = $50k paid in referral 30m referred → 5% fee spread = 1.5m per year → 30% * 1.5m = $450k paid in referral 100m referred → 5% fee spread = 5m per year → 40% * 5000000 = $2m paid in referral

Implementation

This program would not be open to all - in order to avoid abuse, potential double counting, and other complications, from the protocol’s perspective it makes the most sense to limit the referral program to known entities.

Prospective referrers would need to ask for access to the program - once granted, they will receive a special referral link or code. For depositors to be tracked back to the referrer, they must use the link or code provided to the referrer by Gearbox DAO contributors. The full list of accepted referrers will be stored on a publicly available google sheets for full transparency (linked below)

https://docs.google.com/spreadsheets/d/1kQ0ul-GubV7FDOKKLzDcaMsP4FK6XRThT0hPmmpQXsU/edit#gid=0

The method of calculation is as follows:

• Regardless of what pool is used and what quotas are used, the lending pool’s revenue will be split between the DAO and the referrer
• TVL will be calculated based on a moving average - for example, if payments are monthly (its likely they will either be monthly or quarterly), then we would calculate the referral TVL based on the average over the whole month, then use this figure to calculate the fee tier. This helps prevent gaming of the system (e.g referred user deposits 100m for 1 day and then withdraws).
• Tiers will be based on total sum by referral code - meaning, if one referral partner refers 10 different users at 1m TVL each, and another referral partner refers a single user who deposits 10m, the two referral partners (ceteris paribus) would be treated exactly the same.
• This program only applies to Gearbox’s passive lending pools (this is currently the primary bottleneck to growth), and applies on all chains where Gearbox is currently deployed.

Future Considerations

DYDX and Lyra both have an interesting model of boosting the % of protocol revenue shared in cases where the referrer is staking the native token of the protocol. This is a potentially interesting addition to GEAR tokenomics, but in the short run is probably overly complex and not worth pursuing at the moment. In the future, perhaps we should re-explore this idea.

It’s also worth noting that the “spread” that the protocol earns can and will change over time depending on market conditions and the demand for leverage.

It’s also important for the protocol to be mindful of any feedback from existing and prospective referral partners. The DAO should ensure there is continual evaluation of the program's success and adjustments should be made to ensure it remains attractive to current and potential partners.