GIP-13 Gnosis Protocol Token
GIP: 13 title: Gnosis Protocol Token author: Chen Magen, Anna George status: Draft type: Meta created: 2021-09-21
Note : In this document we still refer to the Protocol as Gnosis Protocol v2 (GP) and to the newly proposed Protocol Token ticker as GPT, although the creation of a new token and the proposed spin off of the team would likely result in a rebranding.
The first forum post suggesting a dedicated token for Gnosis Protocol (GP) lays out in great detail the advantages of launching a GPv2 specific Protocol Token and has received positive feedback. In the following post we are focusing on a more concrete proposal to lay out a distribution graph and propose a compensation model for GnosisDAO and GNO token holders.
Gnosis Protocol v2 is a fully permissionless trading protocol that leverages Batch Auctions for matching orders. The Protocol is uniquely designed to maximize liquidity via Coincidence of Wants (CoWs) in addition to tapping into many available on-chain liquidity sources whenever needed. Solvers are in competition to find the optimal trade settlement solution and thus are competing to minimize the MEV that is extracted from users. The winning solver will be the one that can maximize traders surplus within a batch, which is either being achieved via finding the most optimal CoW, finding the best liquidity sources, or combining both in a single settlement.
There are various aspects of the Protocol that need governance input, for example, deciding on a protocol fee which could be either volume based or simply taken as a cut from the created surplus. Further, governance is crucial to the decentralization of the protocol: as laid out in more detail in this post, there are several parameters to enable the desired decentralization of solvers that require a flexible governance mechanism, including the definition of the objective function for solution scoring of solvers, and the designation of an economic size that solvers have to stake in form of the new token to prevent malicious acts.
The previous forum post by @mkoeppelmann mentions the main actors of the GP ecosystem (solvers, interfaces, traders) and how specifically targeted incentive programs can be crucial to the success of the Protocol. Please refer to it for more details on the advantages a GP specific token can unfold. We believe that the introduction of a GP specific token will significantly increase the probability for success of Gnosis Protocol v2 whilst reducing the risk of GnosisDAO and GNO token holders.
The following proposal outlines a potential design and distribution of a Protocol specific token, as well as a proposed compensation to GnosisDAO and GNO token holders, which should also ensure a long term economic alignment between the two DAOs.
In order to enshrine Gnosis Protocol as a community owned project, we are proposing to launch the GPT governance token. We consider the GPT as an essential tool to ensure the Protocol is not captured by rent seeking players, that it stays neutral and true to the values and needs of its traders. We believe introducing a GP specific token would firmly establish Gnosis Protocol as a public good and community-owned trading infrastructure. If the community votes in favor of this proposal, GPT tokens will be distributed to stakeholders of the Gnosis Protocol ecosystem that are interested in shaping the future of permissionless trading.
We envision the GPT Token will be used to govern and curate essential infrastructure components of the Gnosis Protocol ecosystem, including:
- Fee structure
- Objective function for solution scoring
- Appointing and dismissing solvers based on agreed upon rules
- Traders, solvers, frontends, developers and other ecosystem participants should always remain sufficiently incentivized to continue contributing and maintaining a robust ecosystem.
Treasury holdings and Protocol revenue
- Allocation of treasury holdings
- Distribution of Protocol revenue
GPT Token Distribution
This proposal is about whether a GPT token should be implemented. In the following we outline specification ideas as to how such tokens could be distributed, assuming the proposal to issue GPT tokens finds support within the community and will end up being implemented. This proposal is open to discussion and invites alternative suggestions. The usage of the future tense in the following is used for clarity but should not detract from the proposal being dependent on the community’s input and support.
When designing the GPT Token distribution model, we followed this principle:
Distribute the GPT Token fairly and sustainably across a wide range of relevant stakeholders to foster active governance of the Gnosis Protocol ecosystem.
At genesis, 1 billion GPT Tokens are proposed to be minted. While the token supply would be fixed at launch, the token contract would be written to allow for inflationary supply. This functionality could be activated by the DAO in the future. Allowing for an inflationary supply guarantees that solvers can be economically incentivized long term, but more importantly allows for a more fine grained economic system that can shift from an inflationary supply to a deflationary supply.
A model can be envisioned where every successful batch is being rewarded with a fixed amount of GPT, while this model might be inflationary at the start - where the batch reward is higher than the accrued fees, it would shift to a deflationary model as soon as the accrued fees are higher than the batch reward and the excess could be used to buy back and burn GPT.
GnosisDAO as creator of the Gnosis Protocol Team funded and enabled the continued research and development of Gnosis Protocol and should therefore receive a significant share of the newly created token that ensures GnosisDAO and its members are able to benefit from the success that Gnosis Protocol might accrue in the future.
Note that GNO token holders will be additionally rewarded in form of the Airdrop and Community Investment (see the following paragraphs).
As GnosisDAO will receive by far the largest share of GP Tokens, the vesting period would likely have to be longer than the 4 years that apply to the vesting schedules of the other shareholders.
Retroactive airdrop to early adopters (5%) and GNO token holders (5%)
5% will be airdropped as reward to our early users and community members who already contributed significantly to the success of GP and allow them to have a voice in carving the future of the Protocol and its community. An additional 5% will be airdropped to GNO token holders as direct reward for their support and investment in GnosisDAO.
External investors, advisors and partners (10%)
Those would include VCs, angels, market makers and integration partners. VCs and angels are entities/individuals specialized in helping early stage ventures to succeed, we expect them to contribute significantly to the success of GP via active governance participation, leveraging their network to kick off relevant partnerships, writing research articles and other means to spread the message about GP, and helping us to tap into new communities of users. Market Makers and integration partners play a significant role in bringing more liquidity to GP, some of these are expected to run their own solver. Enabling partners to invest at an early stage in GP will help create economic alignment and strengthen our long term partnerships.
Investors will be given options to invest at a previously defined evaluation (equal evaluation for everyone) that will be capped at a previously defined amount. Investment options are not transferable and will only be available during a specified time period, at the end of which the vesting period will begin.
The capital raised is essential to bootstrap GP DAO’s treasury and guarantee continued development of the Protocol for the next two years. All investments would have a 4 years vesting period.
Community Investment for early adopters (5%) and GNO token holders (5%)
We are aware that there are many community members that contribute to the overall success of Gnosis Protocol and we believe that they should receive the same opportunity as our core investors to invest early in GP. We would therefore airdrop options to our community members that enable them to invest under the same conditions as VCs (same valuation, same vesting schedule) into our new token.
GNO token holders should also be eligible to participate in the early investment round and will therefore get an equal share of investment options airdropped. GNO token holders will be able to use GNO to make their investment, this will provide the GP DAO with an initial share of GNO tokens which should further align the incentives between the two DAOs.
All investments would have a 4 years vesting period.
Note that the above pie chart only alludes to a total of 15% investments. Options for investment can’t be transferred and we don’t expect all options to be leveraged. Hence, we are estimating roughly 5% of options within this category will be redeemed.
Team allocation (13%)
The Gnosis Protocol Team will likely play a significant role in the further development of GP and the decentralisation of its ecosystem in the future and should be incentivized for this.
Note that the core team does not include the Solver Team. The Solver Team will launch its own entity and shall receive GP tokens only as rewards based on their successful submission of solver solutions. Keeping the Core Team and the Solver Team separate is a crucial step towards the decentralization of the Protocol and the avoidance of any preferential treatment towards a single solver team.
The team share would have a 4 years vesting period.
GP DAO treasury (52%)
The treasury allocation will be in the hands of the community. This allocation is a vehicle for rewarding future ecosystem contributions. Some tokens will be used immediately after token launch to incentivize the three key contributors to the GP ecosystem: solvers, traders and integrations (other interfaces channeling their order flow to GP).
What will be the relationship between GnosisDAO and GP DAO and their respective teams?
GnosisDAO will become a significant stakeholder of the newly formed GP DAO, which will allow GnosisDAO to benefit from Gnosis Protocol’s success and maintain a significant governance share in the Protocol. Gnosis Protocol will receive some GNO tokens via the community investment round, which will further strengthen the alignment between the two DAOs.
As the Gnosis Protocol teams will spin out of GnosisDAO, the teams will become separate and independent entities from GnosisDAO, whilst maintaining a mutually beneficial relationship and aligned goals. Token incentives managed by the GP DAO will incentivize increased activities by a variety of new stakeholders (including trading, hosting of interfaces, operating solvers, building tooling and more), leading to wider adoption and external contributions to the Gnosis Protocol ecosystem.
The GP DAO and the GP ecosystem are not exclusively dependent on GnosisDAO or the GP team. Instead, any ecosystem players can support and interact with the Protocol on an equal footing.
Staking of Solvers
GP solvers will be incentivized to compete for providing best solutions by capturing value for participation. This could come in the form of trading fees, solution token rewards or both. Every solver will be required to stake GPT in order to participate in solution submission, thus allowing the GP DAO to penalize them in case of malicious behaviour. GPT staking will reduce the GPT circulating float.
Staking of Traders
GP users will be able to lock GPT tokens for a fee discount on their trades. This gives tangible utility to the tokens benefiting all GP trades. A multi-tier system can be envisioned where different lock amounts and time periods unravel larger fee discounts.
Fees and Rewards
It will be up to the GP DAO to decide on the fee structure. There are various ways a fee can be taken from traders, eg.: a volume based percentage could be applied, or a percentage taken from the surplus generated for the users.
It will be up to the GP DAO to decide on a batch reward for solvers that will enable a healthy ecosystem of competing solvers. Here, an inflationary/deflationary token model can be envisioned, where every successful batch is being rewarded with a dedicated amount of GPT (that may be adjusted by the GP DAO based on market conditions). While this model might be inflationary at the start - where the batch reward is higher than the accrued fees, it would shift to a deflationary model as soon as the accrued fees are higher than the batch reward. The collected fees that are exceeding this batch reward could be used to buy back and burn GPT, or simply used as revenue for the GP DAO and its members.
Importance of GPT in DeFi trading as a key incentive alignment tool between traders and the core execution and settlement layer.
Today, traders welfare isn’t in the best interest of other ecosystem players like miners who are in large part in charge of trade execution. GPT helps to align trader interests with the entities that execute and settle their trades - Solvers. Solvers are competing to provide to GP traders the best execution path possible and settling it with the least extracted value. This competition, fueled by GPT, aligns the interests of traders with the parties that are in charge of execution and settlement of their trades.
First, the incentive alignment created by GP and GPT will help to save hundreds of millions of dollars extracted from DeFi traders globally. More importantly, creating a safe and protected trading environment, will lay the foundation for increasing DeFi’s trading user base and potentially increase trading volumes by orders of magnitude.
The Gnosis Protocol Team is convinced that launching a GP distinct token will significantly increase the success factor of the Protocol. As the idea for a GP specific token has so far received positive feedback from the community in this forum, the above proposal aims to lay out a concrete token proposal, its distribution and a reward structure for GnosisDAO and the GNO token holders. The proposal aims to reward GnosisDAO and GNO token holders for their continuous efforts in bootstrapping the Protocol, align their economic incentives, and provide them a gateway to become active stakeholders of the Gnosis Protocol ecosystem, whilst maximizing the overall chances for success of Gnosis Protocol.
The plans outlined in this proposal are subject to discussion and change. They may also need to be (re)structured to take account of legal, regulatory, or technical developments as well as governance considerations. This document should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in any transactions. You are solely responsible for your own investment decisions and transactions.