[GIP-107] Inflation Reduction + LM Reallocation

Note: no new supply is being proposed to release, just reallocating. And, reducing inflation! The organic rates are doing their job well, making GEAR LM obsolete, so why overspend…

First Part: ETH pool

First part is to remove a half of (W)ETH GEAR liquidity mining rewards. At current utilization, rates are 25% organic + ~1% in GEAR. There are also ezPoints of Renzo on the passive side. It feels unnecessary to have extra GEAR: the extra rate is too small to matter, but removing any inflation possible is always good when it doesn’t serve a strong purpose.

Keep (W)ETH LM as 30M GEAR per year. That is $500K in GEAR per year at current price, resulting in +0.5% GEAR at 100M TVL of ETH pool, or +5% of GEAR at 10M TVL. Good for alignment with uses who want to have some GEAR exposure, no need to fully cut it now.

That means out of 63M GEAR a year, 33M can be reallocated for other purposes.

Second Part: Stable Pools

In light of new passive pools launching for USDT, DAI, and GHO [GIP-103], some incentives for bootstrapping would make sense. However, there will NOT be new supply! Instead, it is being proposed to use some of the USDC pool GEAR rewards and ETH pool rewards. For USDC, organic rates are sufficient at this point anyway: 27% organic rates + 3% GEAR. The ~3% doesn’t move the needle for passive capital providers, so a half of it can be reused.

As [GIP-85] specified, currently 52M GEAR per year is given to the USDC pool, or $840K at current market price. A half can be taken and given to those new pools, or ~$420K. That still leaves the USDC pool with +1.5% of GEAR on top of organic USDC APY at current TVL.

Reallocation to new pools

So 33M from (W)ETH pool and 26M from USDC pool can then unite into 59M of GEAR of rewards which can be reallocated. Now let’s see how much is needed for what.

The expected TVL for DAI and USDT to start with could be $5M, while for GHO $2M. That means, to satisfy 5% additional APY on each pool, it would require $250K of GEAR for DAI and USDT, and ~$100K of GEAR for the GHO pool per annum. The organic rates kicking in from Ethena USDe utilization will be able to drive organic rates much higher into the 25%+ territory, see the current state of USDC pool: https://app.gearbox.fi/pools/.

To put the numbers more clear: USDT: 5.71 GEAR/block (~15M GEAR/year) DAI: 5.71 GEAR/block (~15M GEAR/year) GHO: 2.47 GEAR/block (~6.5M GEAR/year) USDC: 9.89 GEAR/block (~26M GEAR/year) ETH: 11.41 GEAR/block (~30M GEAR per annum)

Rewards Buffer

In total, ~22.5M of GEAR per year saved, ~$350K emissions reduction. To avoid further possible new allocation into the new passive pools, this amount is proposed to be set aside for any new pool if the DAO votes one in. It would be enough for 5% APY at $7M TVL.

Let’s recap what the changes could look like: USDC LM remains, just slightly reduced: 27% organic + 1.5% GEAR. ETH LM remains, just slightly reduced: 25% organic + 0.5% GEAR. GHO pool: 5% GEAR APY + (25% organic) at $2M TVL USDT pool: 5% GEAR APY + (25% organic) at $5M TVL DAI pool: 5% GEAR APY + (25% organic) at $5M TVL

When active: if GIP-103 is voted in, within a day ideally March 25/26.