GIP-9: Launch Liquidity Mining program for Prediction Markets using Gnosis Conditional Tokens

Should the GNO Liquidity Mining program for Prediction Markets using Gnosis CT be launched?

  • Yes, let’s launch this Liquidity Mining Program
  • Make no changes

0 voters

GIP: 9
title: Launch Liquidity Mining program for Prediction Markets using Gnosis Conditional Tokens
author: Jimmy Ragosa
status: Draft
type: Meta
created: 2021-03-22

The original phase-1 post about setting up a Gnosis CT Liquidity Mining program was well-received and the requests for clarification were mostly focused on Gnosis CT value capture mechanisms for GNO holders which can be designed and proposed in other dedicated threads. The proposal is thus now moved to phase 2.

GIP-9: TL;DR

GnosisDAO will launch a Liquidity Mining program for prediction markets using Gnosis Conditional Tokens that would reward liquidity providers with GNO to incentivize a curated set of markets and thus boost the use of Gnosis Conditional Tokens.

Abstract

The GnosisDAO will allocate 120,000 GNO from the treasury for the first 12 months of this liquidity incentivization initiative. It will dynamically manage the GNO rewards distribution by assigning “allocation points” to specific markets that the GnosisDAO votes on in order to stimulate the markets with a higher participation potential or that would generate quality predictive data for the GnosisDAO. Currently, it means incentivizing mainly liquidity providers for Omen markets on xDai but the program would be open to any solution using Conditional Tokens (for example, it could also incentivize ERC20 wrapped conditional tokens on exchanges such as Uniswap, Balancer, SushiSwap, and 1inch).

Motivation

In the current environment full of yield farming opportunities, providing capital to any protocol incurs a high opportunity cost. Moreover, prediction markets are known to be more attractive to users and more potent at predicting events when the markets are liquid and efficient enough to allow for high-scale arbitrage (cf. Vitalik Buterin Prediction Markets: Tales from the Election blog post).

Anyone can add liquidity to prediction markets using Gnosis Conditional Tokens by minting them for existing markets or even creating their own markets. Liquidity attracts traders, trading generates prediction market fees, and ultimately this profitability attracts more liquidity. This is a flywheel effect that has to be incentivized within the Conditional Tokens ecosystem in order to position ourselves in the prediction market scene.

Regardless of the venue, early liquidity providers take on more risk and opportunity costs: including contract risk, low initial profitability, etc. Moreover, conditional Tokens users should get to participate early on in deciding how the GnosisDAO evolves and plans to build new versions of the Conditional Tokens.

Toward this end, we propose implementing a Liquidity Mining program for prediction markets using Gnosis Conditional Tokens rewarding liquidity providers with GNO tokens. These types of initiatives are proven to attract significant amounts of capital into products and to kickstart a virtuous cycle of additional liquidity (see the examples of Balancer, Sushiswap, and 1inch) and thus improved user experience and efficiency which will, in turn, bring more usage to Conditional Tokens.

The indirect benefits of this program for the GnosisDAO are multiple:

  • Fostering the use of one of Gnosis core products (CT framework).
  • Upgrading the distribution of GNO by rewarding it to valuable community members.
  • Improving the quality of data generated by prediction markets using CT.

The potential direct benefits to the GnosisDAO are just waiting to be unlocked by the governance. In the future, it could take the form of the implementation of a redemption fee mechanism embedded into the Conditional Tokens framework, or of a trading fee in exchanges controlled by the GnosisDAO. Legacy prediction markets like PredictIt charge significant fees (10% of the profit on a market and 5% of withdrawals), blockchain prediction markets like Augur or Cover charge a smaller redemption fee (~1% for Augur and 0.1% for Cover). As long as the GnosisDAO provides continuous support and development for Conditional Token, a small fee will probably be accepted by the users.

It would also be possible for the GnosisDAO to find novel revenue sources around Conditional Tokens. For example, frontends controlled by the GnosisDAO could also allow users to burn some GNO in order to have their markets displayed in more attractive positions of the UI.

Specification

The GnosisDAO liquidity mining program for prediction markets using Conditional Tokens will be inspired by Balancer and SushiSwap liquidity mining programs.

For the first year 120,000 GNO tokens, or 10,000 per month, will be distributed to liquidity providers staking their conditional tokens liquidity into the GnosisDAO liquidity mining contracts. For networks other than Ethereum mainnet (in particular xDAI), those GNO tokens would be wrapped on the particular network.

The amount of GNO distributed to a particular liquidity pool will be determined by an allocation point system. The GNO will be distributed between pools in proportion to their allocation points and within pools in proportion to participant liquidity.

For example let’s assume there are 3 pools A, B, and C with 100, 400, and 500 allocation points, Alice has 200 ETH of liquidity in pool A which has a total of 500 ETH of liquidity. Alice would receive 10000*(200/500)*(100/1000)=400 GNO per month.

In order to be able to rapidly incentivize new markets when opportunities come up, setting up allocation points will be done through a fast-track procedure on Snapshot which does not require going through the complete governance procedure.

Any account with at least 1000 GNO (from a snapshot taken at the beginning of the month) will be able to make an allocation point proposal each month for each 1000 GNO it holds (so an address with 3000 GNO would be able to make 3 allocation proposals per month). Those would be put to vote instantly with a 1 week voting period and without quorum requirements.

An allocation proposal would contain:

  • The conditional token liquidity pool to be incentivized.
  • The number of allocation points for this pool.
  • The start and finish date of the incentivization.

Allocation proposals can provide allocation points to new pools or change the allocation of a current pool (including setting it to 0).

Disclaimer

The plan outlined in this proposal is subject to discussion and change. They may also need to be restructured to take account of legal, regulatory, or technical developments as well as governance considerations.

2 Likes

This would be a separate snapshot space?

Not especially, it can be done in the same snapshot space, using a different prefix dedicated to this initiative allocation points proposal (GAPP for GnosisDAO Allocation Points Proposal).

(Example: GAPP-1: Allocate 800 points to Omen 2020 Olympic Games Winning nation market or GAPP-2: August 2020 Prediction Markets Mining Allocation Points proposal )

But if it were in the same snapshot space, we wouldn’t be able implement the voting strategy that you specified. It believe it would need to be a different space to have a different strategy.

The “minimum 1000 GNO held to make an allocation point proposal” is a requirement to make a proposal, not a voting strategy, and could be enforced like the current GIP proposal process is enforced.

Would the “No Quorum needed” requirement necessarily require another space? I’m not sure.

Right, but there is nothing stopping an account with less than 1000 GNO from creating a proposal on the Snapshot space (you currently need >=1 GNO to create a proposal). We would need a separate space with a different strategy to enforce >=1000 GNO.

Quorum is not actually a feature of Snapshot, it is enforced on oracle side.

You could, of course, enforce the 1000 GNO requirement on the oracle side too. But I’d worry a little about there being lots of invalid proposals (noise) that end up being rejected by the oracle because they weren’t created by an account with >=1000 GNO.