[HPI-25] Approve Replacing GAMEFI/USDC Gauge with GAMEFI/WETH Gauge on Hermes

Introduction
This proposal seeks community approval for replacing the existing GAMEFI/USDC gauge with a new GAMEFI/WETH gauge on Hermes, in collaboration with Revenant (GAMEFI). This change is driven by strategic and technical considerations aimed at enhancing liquidity, expanding market reach, and improving cross-chain accessibility for GAMEFI. Below is a detailed analysis of the key factors supporting this proposal:

1. Strategic Alignment

Strengthening Partnerships
Revenant has been a crucial partner to Hermes since 2022, consistently ranking among the top five liquidity providers. The transition from the GAMEFI/USDC pair to the GAMEFI/WETH pair is aimed at reinforcing this partnership, enhancing liquidity and engagement in both the DeFi and GameFi ecosystems.

Long-term Collaborations and Synergies
Revenant is committed to fostering long-term, mutually beneficial partnerships with other DeFi protocols that align with their mission. Hermes gauges provide a strong fit for Revenant’s liquidity needs, as they enable liquidity to be incentivised within pre-defined ranges, reducing risks such as liquidation cascades. These cascades are common in liquidity pools (LPs) when farming with leverage in narrow ranges, but Hermes’ approach mitigates this risk.

Cross-chain Liquidity & Wider Reach
WETH, being more widely integrated across multiple blockchains than USDC, will enable GAMEFI to tap into broader cross-chain liquidity. This will improve GAMEFI’s scalability and reach, positioning it for growth across a wider range of DeFi users compared to the more limited scope of USDC.

Omnichain Compatibility with Ulysses
As a multichain protocol, GAMEFI is uniquely positioned to leverage the omnichain capabilities of Hermes’ Ulysses platform. This will allow for seamless cross-chain interactions, enhancing GAMEFI’s utility and attracting a broader pool of liquidity providers across multiple chains.

2. Gauge Performance Analysis

Current GAMEFI/USDC Gauge

• Total Value Locked (TVL): While GAMEFI/USDC has secured a moderate level of liquidity, its growth potential is constrained by USDC’s low volatility and limited trading activity.
• Fees Generated: USDC’s stability results in fewer trading opportunities and, therefore, lower fee generation compared to volatile asset pairs.

Anticipated Performance of GAMEFI/WETH Gauge

• Increased TVL: WETH, being a more liquid and volatile asset, is expected to attract higher TVL from a broader range of DeFi users, particularly those interested in cross-chain opportunities.
• Higher Fees: With greater volatility and trading activity, the GAMEFI/WETH pair will likely generate higher fees than the GAMEFI/USDC pair, boosting rewards for liquidity providers and enhancing protocol revenue.

3. Market Impact Analysis

Broader Liquidity Access
The introduction of WETH will allow the GAMEFI liquidity pool to appeal to a wider set of users in the DeFi space, expanding liquidity beyond the limitations of USDC. This increased accessibility will deepen liquidity pools, reduce slippage for traders, and create a more efficient market for GAMEFI tokens.

Price Discovery Improvements
Due to its volatility and high trading volume, WETH will offer better price discovery compared to USDC. This will result in more dynamic price adjustments for GAMEFI, providing a more accurate reflection of market sentiment and conditions.

Increased Trading Volume
With WETH’s increased trading activity, the GAMEFI/WETH gauge is expected to drive higher overall trading volumes compared to the stablecoin pair. This will benefit the Hermes platform by creating a more vibrant and liquid market for GAMEFI tokens.

4. Risk Assessment

Volatility Risk
The move to a WETH-based pair introduces greater exposure to volatility for liquidity providers, as WETH’s price can fluctuate significantly compared to the stability of USDC. However, this risk is offset by the potential for higher rewards through trading fees generated by more frequent market activity.

Liquidity Shift
Some liquidity providers may prefer stablecoin pairs due to their lower risk profile. To mitigate potential liquidity outflows, Revenant will provide weekly bribes to incentivise liquidity providers to participate in the GAMEFI/WETH pool, ensuring steady engagement and growth of the new gauge.

Centralisation Risk (USDC)
By moving away from USDC, the protocol reduces the risk of centralisation associated with stablecoins, such as the possibility of funds being frozen or regulatory interference. WETH, as a decentralised asset, aligns better with DeFi’s permissionless principles, offering greater security for liquidity providers.

Conclusion

The shift from GAMEFI/USDC to GAMEFI/WETH offers numerous strategic advantages for both Hermes and Revenant. WETH provides broader cross-chain liquidity, deeper pools, and higher trading fees, which will enhance the overall market for GAMEFI tokens. While the volatility of WETH introduces some risk, this is balanced by the increased trading opportunities and rewards.

Revenant’s commitment to providing weekly bribes for the GAMEFI/WETH gauge will further incentivise liquidity providers, ensuring the success of the transition. This added support will help maintain robust liquidity, facilitating a smooth migration from the USDC gauge to WETH while bolstering participation in the GAMEFI ecosystem.

Additionally, as a multichain protocol, GAMEFI is well positioned to utilise Hermes’ Ulysses omnichain features, making it attractive to a diverse and expansive range of liquidity providers and DeFi users.

In summary, this proposal represents a valuable opportunity to strengthen the GAMEFI market, expand cross-chain liquidity, and attract a broader DeFi audience, all while aligning with the strategic goals of both Hermes and Revenant.

Links for Reference:

• Revenant: https://www.revenant.gg/