The GMI liquidity token
WAGMI Educational Articles: Part 3
Introduction
Today, we’re going to dive deeply into WAGMI and explain the logic behind the GMI liquidity token as well as sources of fees for the protocol.
What is GMI?
GMI represents a pool within which we have multiple multi-pools, and each multi-pool consists of three V3 pools.
You can acquire GMI with any WLP token that is supported by GMI and by holding GMI earn fees from all multi pools inside the GMI.
Think of GMI as a brilliant tool for diversification. Forget about losses (permanent or impermanent) with GMI; they simply don’t exist. Profit from all multi-pools that exist inside GMI is shared among GMI holders according to each holder’s GMI share.
Keep in mind, GMI is not transferable between wallets.
Understanding WAGMI’s Emissions and Profit Sharing
WAGMI employs a unique system where protocol emissions are reserved to cover potential losses. The protocol has been designed with equal profit sharing in mind, meaning that all profits from the pools are equally distributed among users.
Let’s use an example to illustrate how this works: if $100k worth of ETH in fees is to be distributed among a total supply of 100k GMI tokens, a holder with 10k GMI tokens would be entitled to claim $10k worth of USD in the form of ETH.
What makes the WAGMI protocol exceptional is its clever use of its own Concentrator contracts. 100% of all fees generated by these protocol-owned contracts are claimable by GMI token holders, distributed proportionately based on each holder’s share of GMI liquidity owned concentrator LP’s.
Practical example
To better understand this concept, consider the example of three users:
Tobleronov, Kachingwong, and Shiningforce. They all join the WAGMI protocol with $100k worth of liquidity, each receiving 100k GMI tokens. The total active liquidity generating fees is $300k.
Suppose Tobleronov vests his tokens and burns his 100k GMI. The total liquidity still stands at $300k, but now the remaining 200k GMI tokens receive the fees from total worth of $250k in liquidity. This means, other GMI holders benefit from Tobleronov’s exit and the APR on their GMI position goes up!
The fees generated from the remaining $50k worth of liquidity are now protocol owned and used to buy back and burn WAGMI tokens from the market. This offsets the selling pressure generated by Tobleronov’s exit.
It’s worth noting that WAGMI holders have governance rights and can vote on treasury usage and whether it is claimable.
Vesting and Exiting the GMI Position
Our protocol features a function that allows GMI tokens to be vested into WAGMI tokens, with the premium set by the protocol at the point of entry depending on the pool depth. This provides an extra layer of flexibility for users. However, if a user decides to vest their tokens and exit their GMI position, it’s important to know that the protocol still retains the liquidity provided by the user.
When a user exits, the unallocated fees that his liquidity provided will earn is split in 50/50 manner between WAGMI and the remaining GMI holders. This intelligent mechanism contributes to a couple of outcomes:
up to 50% of the fees go towards the buyback and burn of WAGMI tokens, and the other 50% enhances the yield of the remaining GMI token holders.
To transfer GMI liquidity commitment to liquid assets and exit the liquidity mining position, users can start the vesting period to WAGMI tokens that were accounted as representation of liquidity commitment amount and any premium if applied. The full vesting time is 690 hours or 28.75 calendar days.
However, users can exit the vesting earlier with a penalty calculated based on the percentage of total time vested.
Practical example of vesting
User who vested 345 hours (50% of total vesting period) can exit immediately, but will receive only half of his total vested WAGMI tokens and the rest will be held by the protocol.
The vesting to WAGMI tokens, therefore, can be considered as liquidity commitment with optional call for immediate repayment with decreasing time-based penalty.
Tobleronov wants to exit the position for providing the 100k worth of liquidity. He is entitled to receive 105k WAGMI tokens at the price of 1$ per WAGMI token. 5K is a premium that the user secured when providing liquidity. If the user wants to exit after 69h of vesting, he will receive 105k * 10% (because 69h is 10% of 690 hours — the full vesting period).
If he vests for 345 hours, he receives 105k * 50% (because 345 hours is 50% of 690 hours — the full vesting period). Amount that equals to User full entitlement — early exit of the user is taken by the protocol and burned.
Capping Liquidity for Optimal Efficiency
The WAGMI protocol has a unique mechanism for setting a cap on liquidity. For instance, when setting a cap for a BTC/ETH pair, back-testing is performed for the previous month to simulate the liquidity needed to accommodate historical trading volume and ensure competitive pricing.
If the depth finding shows that $500k in total value locked (TVL) is required, the cap is set to $550k, preventing any further GMI acquisitions through that pool once the target depth is hit. This approach ensures that fees per GMI token are maximized as excess liquidity is not utilized and could otherwise become a burden to GMI holders.
Should the market require additional liquidity at a later stage, liquidity contracts can raise the cap, enabling new users to participate.
GMI liquidity commitment premium calculation
To satisfy majority of profitable trading volume for a certain pair, the protocol only needs “X” amount of liquidity — this is target depth.
The premium is calculated on the distance to target depth from 0 expressed in %, taking in account the distance from all the pools.
Maximum premium a certain pair can get is 10% (in case the pool is filled 50% or less).
Minimum premium a certain pair can get is 0% (in case the pool is filled 90% or more).
Practical example:
Target depth of ETH/USDC is $1M. This is sufficient to satisfy majority of trading volume if concentrated in certain ranges.
The actual depth at the moment is $800k, meaning we need to acquire additional $200k or 20%.
Another pool of FTM/ETH has target depth of $1M as well, however, current TVL is 60% of target depth so the distance of depth is 40% as a result, we can calculate that the premium of FTM/ETH is 2x greater than that of ETH/USDC.
Protocol can select a multiplier for certain pools offsetting the ratio and hence prioritizing certain pools that generate more fees.
In picture 8, you can see there are 4 pools.
ETH/USDT filled 80% ($8M/$10M)
BTC/USDT filled 90% ($9M/$10M)
DOGE/ETH filled 50% ($5M/$10M)
FTM/USDT filled 50% ($2M/$4M)
Biggest gap we have is 50%. Pools that have 90% of cap liquidity get no premium. Pools with 50% gap get 10% premium (those are DOGE/ETH and FTM/USDT pools in our example), also please note that we can change the premium amounts depending on pool depth in range from 0% and 10%.
In this example, a pool with 80% cap gets 4% premium.
So if a user joins with $100k liquidity in ETH/USDT, he would get 4% premium, so total worth of WAGMI tokens he would receive after full vesting would be worth $104k.
- A gap of 50% yields a 10% premium.
- A gap of 90% (which is 100% — 90% = 10% away from full capacity) yields a 0% premium.
From these points, the rate of premium per percent of the gap is calculated as:
Calculating Premium for any given gap:
Using the rate we found above, we can find the premium for any pool gap.
For instance, an 80% cap means a 20% gap (100% — 80% = 20%).
To find the premium:
This means a pool with an 80% cap (or 20% gap) would get an 8% premium.
- Value Calculation for a User:
- If a user joins with $100k liquidity in a pool with an 80% cap (hence, 20% gap), they would get an 4% premium. This means they will receive a value in WAGMI tokens equal to:
Value = $100k + (4%*$100k)
Value = $104k
In summary:
- The bigger the gap in liquidity, the bigger the premium, but the rate of increase is linear at a rate of 0.4 (or 40% of the gap value).
- For the provided example, with an 80% cap (20% gap), a user who contributes $100k in liquidity would receive a value of $104k in WAGMI tokens after full vesting due to the 4% premium.
Conclusion
Through our innovative use of WAGMI emissions, profit sharing, vesting mechanics, and liquidity caps, the WAGMI protocol provides a unique solution within the DeFi landscape, optimizing yield and liquidity for the benefit of its users. Whether you’re a long-term holder or a newcomer, the flexible mechanisms within the WAGMI ecosystem can potentially bring benefits that cater to your specific needs and profit generating strategies.
