A token for Gnosis Protocol

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:

  • users

  • 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)

c) Interfaces


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.

36 Likes

Yes! I strongly believe that a token gives GP the energy it needs to build a solution for the tx ordering within a community!

3 Likes

Great hear that in this time.

I think it is necessary to establish a management token for cowswap to strengthen the management of cowswap

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Strongly disagree. market will price it based on a plethora of factors.
Virtually ALL protocol tokens dumped along with BTC/Eth recently. Heaps of tokens that in theory get their value from the value generated by the underlying protocol dumped recently.

To say the price would be “purely” determined by the performance of the protocol is just absurd.

I support a protocol token for Cowswap specifically, but any assumption as to how the market will price it or what price will be achieved is hopium. There are countless factors at play when it comes to how the market will price the token, not the least of which is the wider crypto market’s health, over which gnosis community has no control.

I think @mkoeppelmann was intending to compare it to GNO which by its historic price action seems to be tightly correlated to Gnosis DAO’s treasury value.
In contrast a token for Gnosis Protocol should in theory be able to reflect more accurately the value driven specifically by the protocol.

2 Likes

I think the launch of governance token of cowswap will benefit the development of cowswap itself. Just like uniswap, some of the token will be in the vault to support its development.

The experience of CowSwap is amazing. And I think if there is the new token for cowswap, it can be airdropped to the holders of GNO to protect their rights and compensate for their holding.

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it should be rewarded to early users of CowSwap.

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Agreed for your proposal. Cowswap early users should be awarded.

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I think cowswap should issue a new token to control the protocol and award all users.

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Agreed, Gnosis should have its own token. It’s a very famous protocol in the first place, its adoption will skyrocket once the token is live.

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I think the release of token can help the development of the project. At the same time, if we can give some rewards to our early supporters. I would appreciate it very much. thank you.

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Hopefully this project is a success and then it becomes one of the best Cryptos, I am enthusiastic about participating in this and also supporting it, Good luck

Will the ecosystem really recognise GNO as the native token of cowswap. ?

Will it require massive efforts to get people to associate GNO token to cowswap.?

For the love of memes, can GNO be used to memefy cowswap?

Imo cowswap is positioning itself to be quite unique. Thus having a great and memetic tokenomics might drive hype, attention and adoption.

I also think an ecosystem can have different tokens for different purposes. And various gamification can be infused into the various tokens to benefit various stakeholders in the ecosystem.

Honestly, I haven’t paid any attention to Genosis until now. And I came here because of cowswap.

3 Likes

Hi there,

I think having a new token will really help the Gnosis ecosystem a lot, making a parallel to how Matic helps eth network.

Anyways, if the decision will be to have a new token I am convinced that the distribution should have a clear hierarchy on who and how much tokens they are getting, for example someone who used multiple times cowswap or someone who owns gnosis etc, putting users first.

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I think having an separate token for GP will offer the most flexibility and precision on how the token is implement vs. distributing GNO. However the protocol being built by Gnosis should retain some connection to Gnosis and GNO.

The first way to do this would be to include current GNO holders in the distribution method for the new GP token. Ultimately GNO holders and ICO investors provided the capital required for Gnosis to go about building this product and should be rewarded as such.

The second way to connect them would be through GP’s value accrual mechanism. I believe taking a look at how other current DEXs manage their value accrual can offer some insight here. SUSHI is maybe the best and biggest example of a DEX that has active value accrual currently. Their mechanism works by converting all the fees taken on various token swaps into a common token, in their case SUSHI, then distributing that to users that stake their SUSHI as xSUSHI. For GP you could use a similar mechanism where all fees are converted into GNO as the common token, then distributing them to users that stake the GP token. Thus driving value accrual and buy pressure on GNO. GP would not be the first DEX to provide rewards denominated in a token other than their native token either. Previously Kyber would convert all trading fees to ETH to be distributed to Kyber stakers.

The added benefit of this mechanism is users of GP, such as solvers and traders accruing GP token to be staked will also have the piece of mind of knowing that their staked GP token will have somewhat of a floor based on the value of GNO redeemable for their staked GP token. Because as you’ve stated, up till now GNO has been highly correlated to the value of Gnosis Protocols treasury, and thus ETH. Without the value proposition being so speculative it should be far easier to attract high quality solvers and increased trading volume. It also opens up the possibility for a fly-wheel effect where the success of other Gnosis Protocol products drives value to GNO, driving incentives to act as a solver and trader on GP, etc.

3 Likes

Thanks for the posts, everyone.
It is great to see the enthusiasm of Cowswap users/ none GNO token holders.

Ideally, we can get more perspectives from GNO holders since for them the choice is less obvious.

Welcome @CosmicCollusion and thanks for discussing from GNO holder perspective: fully agree, GNO holder should be rewarded for making GP possible but ideally in a way that does not dampen the success chances of GP. On a personal note - I made the decision to personally not accept any GP tokens (from e.g. a team allocation) directly to make sure my interests are in line with GNO holders’ interests.

I can see various forms of giving value to GNO holders:

  1. allocation of GP-tokens to GnosisDAO
  • advantage: simple
  • potential issue: as GP-token will also be needed for governance it can be problematic to have one actor with a high(er) token amount that could potentially control governance
  • remedy: exclude GnosisDAO from governance or at least discount the vote (e.g. have some of the tokens in some form that can not be used for voting)
  1. airdrop to GNO-holder
  • advantage: most straightforward value accrual to GNO holder
  • potential issue: this is a one time effect - if a snapshot is used, in theory, GNO token value immediately should reduce in value by the value of the GP tokens the one block after this snapshot
  • remedy: one could earn GP tokens for locking GNO over time
  1. Give GNO holder preferred terms to buy GP-tokens
  • advantage: creates a filter for those GNO holders that believe in the success of GP
  • potential issue: it might be seen different what a favorable rate to buy is; also similar as above this might have a “snapshot effect”
  1. Raise some funds in GNO (and put them in a liquidity pool against GP-Token)
  • can be combined with e.g. 3; the raised GNO could be put into a liquidity pool with new GP tokens. Effectively this would create a bond(ing curve) between the value of the 2 tokens. As long as GP tokens have value GNO will be taken out of circulation into this liquidity pool - the higher the value of GP tokens the more GNO is absorbed. The same would be true in the other direction meaning that GP tokens would benefit from appreciating GNO. In the other direction, the “loss” from this mechanism is capped for both sides: if GP token would go to 0 only the GNO would be “freed up” that have been previously raised through GP while if (in theory) GNO would go to 0 all the GP tokens that have been initially put against up against the GNO would enter the market.
  1. Convert fees from GP into GNO and distribute them to GP holders (@CosmicCollusion)
  • I have some doubts that this would end up as value accrual for GNO holders. As the GNO is not burned and receivers are free to sell it anytime it is not clear how much benefit this would bring to GNO holders. On the other hand, it seems to me pretty clear that a GP-token holder would prefer to either get additional GP-tokens or a very liquid token like ETH.
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At worst it’s zero sum, but more than likely it will result in a net positive, consistent buy pressure on GNO. It would be creating x buy pressure from GP buying GNO with fees and y sell pressure from GP stakers selling, and y ≤ x.

If you want to ensure y < x you could split it so only a percentage of the GNO bought is distributed to GP stakers and the remaining percentage is burnt. However I personally feel like the buyback and burn mechanism isn’t the greatest. Perhaps instead of being burnt, that portion could be used as funds for the GP token DAO (sub-DAO?) or used to further bootstrap the GNO/GP token liquidity pool, like in your option 4.

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Hi @mkoeppelmann

I really like your takes, please let me offer some feedback

  1. allocation of GP-tokens to GnosisDAO

I can say that you are a very community orientated developer given the fact that your remedy would be to exclude GnosisDAO from governance or discount the vote

However, I do not see how this will be distributed to the community, something like BitDAO did? If not, you are giving GnosisDAO a lot of voting power but in the same time diluting it.

  1. airdrop to GNO-holder

You’re assumptions are about a self-sufficient closed economy which in theory it is right. Nonetheless, there are no real closed economies in crypto nor the real world. I interacted with a low of people on twitter and all the big brians and pro farmers know and use CowSwap.

Your point of view comes naturally from the founding team of CowSwap but the large public do not associate yet the two. Althoughm I think that this is the best option (!) for the Gnosis community it’s not necessarily for CowSwap’s success. I would be interested to see out of the people who used CowSwap how many own Gno (Disclaimer: I do own a big part of my crypto in Gnosis)

  1. Give GNO holder preferred terms to buy GP-tokens

Again, we are going too far away from CowSwap

  1. Raise some funds in GNO (and put them in a liquidity pool against GP-Token)

IDEM 3

  1. Convert fees from GP into GNO and distribute them to GP holders

My final point is, why not use a distribution like Uniswap or 1inch did? Fair and in line with how much one used CowSwap. When I say fair I mean for example: if you did 1 transaction you get 1 token, but in you did 1,000 you do NOT get 1,000 GP token so that all the supply is controlled by a few big parties.