We believe that we have introduced with Gnosis Protocol a new layer for DEX trading from which almost all current entities in the DEX space could benefit:
GP solves the problem of transaction ordering within a block. Fundamentally the value that can be extracted here (MEV) would go to miners and searches. Beyond MEV GP can save gas costs (safe block space) and safe on market maker fees by leveraging COWs.
This additional value can be redistributed to:
solvers (comparable to searchers)
the protocol (miners)
A big challenge and at the same time moat is that those 3 saving effects (network effects) only come into play and become if a decent percentage of all DEX trades are routed through GP. While we could try to incentivize specific new behavior (“happy hour”, “longer batch time”) it seems most promising to not require a change in user behaviour. Ideally, we would settle batches every block and those batches are large enough (contain enough trades) to create the above-discussed network effects. While a more detailed analysis might be required I would at this point be confident to say those network effects will be already very strong once we reach an average batch size of 10 trades which would roughly be ~1/3 of the trading volume on Ethereum.
An important aspect here is that GP introduces a new layer and as such is not in direct competition with the existing DEX space. So to reach e.g 30% adoption we don’t need to directly out-compete existing solutions but instead make them opt-in into our protocol. An example here is our partnership with Balancer.
The different actors that are complementary:
a) Onchain liquidity (AMM): Uniswap, Balancer, Sushi, Kyber, …
b) Dex aggregators (1inch, Paraswap, Matcha)
The obvious question now is how to reach this level of adoption. Token incentive programs have proven to be powerful tools to bootstrap networks (network effects).
GnosisDAO is in the fortunate position to still have a lot of unallocated GNO so that such an incentive program would be possible. On the other hand there is also the possibility to introduce a new token. Our mental model of thinking about this has been:
What are chances of the success with a new token/ with GNO incentives?
How much dilution of existing GNO holders would happen with GNO incentives/ with a new token?
If chances of success are significant larger with a new token it can justify the higher potential dilution. In any case - GP at the current stage belongs to GNO holders and giving it under the control of a new token should only be done if this is a net positive for existing GNO holders.
Advantages of a new token:
- Clear narrative around Gnosis Protocol
GNO and Gnosis in general have struggled to find a clear narrative. While we believe we have built many useful products GNO as a token has never found a clear narrative or even associated with successful Gnosis products like the Safe. Building a new token for Gnosis Protocol (the step of creating a new token would probably force a renaming of GP otherwise it would be wired that GNO is not the token of *Gnosis Protocol) would allow this token the be 100% focused on GP.
- Higher flexibility in token program
As long as GNO is associated with other things (other Gnosis Products like the Safe, Gnosis Auctions, Gnosis DAO, Gnosis Treasury) the needs of those projects will have to be considered when designing a token incentive program which ultimately means less flexibility
- Governance Focus
GP will require some governance around solvers and fees. It is in itself a highly complex project while e.g. the Safe is a highly complex ecosystem as well. However - it is not clear that there is a large overlap of interest between those projects. Those that might be interested and qualified to govern solvers might not be for the Safe and vice versa.
- Limited Risk for GnosisDAO/ GNO holders
For GnosisDAO it would be possible to enable a very aggressive token program (giving away a lot of tokens) and still limiting the risk for the value of GNO. GNO at the current stage should derive its values from the various products under the Gnosis umbrella but also from governance rights over the GnsoisDAO and thus all the assets GnosisDAO controls (e.g. the treasury of 150k ETH). While GP is beside the Safe the main product of Gnosis and giving it away itself would reduce the value of GP a large token program in this new token would not reduce (dilute) the value of GNO in relation to the other things associated with GNO. If GnosisDAO and or GNO holders receive a significant share of GP tokens it could result in GNO holders significantly benefiting from GP in case of success while very much limiting the downside in case of failure.
- Team Incentives
Everyone working at Gnosis is receiving as part of the compensation GNO. This was meant to create better incentives assuming great work would make the token more valuable. Currently, this connection is unfortunately not the case. GNO has been trading in a fairly tight range around 0.1 ETH and as such the price of ETH in $ had a much larger impact on the price of GNO in $ than anything else. Given the large ETH treasury controlled by GNO that is to be expected. A GP token on the other hand would be purely valued by the value of the GP protocol and thus would be much tighter coupled to the work of the team behind GP.