Following feedback on the proposal to establish the STIP Bridge, it was agreed to involve the LTIPP Advisors in this process with the mission to “help applicants gain insights into their proposals. This not only guides applicants through the process but also ensures that the DAO will review better proposals.”
Despite the inclusion of Advisors, this process does not involve the Council, leading us to believe that this addendum places a significant burden on the delegates who must review all the proposals. One of the reasons for the LTIPP was precisely to avoid this excessive burden. Moreover, the optimistic model adopted in this phase could raise concerns about the real control the DAO will have over these proposals, as reviewing six months of data for each applicant is time-consuming.
For this reason, we decided to accompany each application we reviewed with a brief report. We ask the delegates not to take this as an in-depth or definitive basis for deciding your vote, but rather as a guide that can potentially raise questions for your own analysis.
Regarding GMX, there is an excellent and very detailed report by Blockworks that we refer to because we believe it is important for all delegates to read it to form their opinion. It raises very valid points and questions about the proposal, performance, and results of GMX STIP incentives distribution.
Regarding their results, as shown by GMX’s TVL on the Open Blocks dashboard, before incentives were introduced, the total TVL was $428 million ($352 million in v1 and $76 million in v2). At its peak in early March, the TVL reached $522 million ($154 million in v1 and $368 million in v2), and as of today, it totals approx. $376 million ($116 million in v1 and $260 million in v2).
In their addendum, GMX displays and shows metrics regarding only v2 performance, which is the one that received incentives. It is true that the goal of migrating TVL from v1 to v2 was achieved, which is beneficial as the capital is used more efficiently in v2. However, one could argue that there was no sustainable increase in overall TVL over time, as the current overall TVL is lower than before the incentives were introduced:
We understand that there was also a significant change in market conditions during this period that could affect the TVL.
One interesting finding and we believe it’s a great update to the execution, and that could partially explain the reasons of the TVL drop, is:
We would like to see more research on this in the conclusion of the bridge STIP incentives distribution. Where is capital going after incentives?
To avoid the same situation, GMX committed to capping the target APR to 25% for liquidity pools. We think this is great and could be the starting point of a benchmark APR for incentives distribution.
One of the points raised by Blockworks in their report is the lack of data of the origin of the capital that came to GMX during the incentives distribution. Was new TVL that came to Arbitrum?
GMX provided an answer to that question in this addendum:
Something that we’d like to be improved is the discretion with which their Grant Committee managed and continues to intend managing the ARB incentives distribution among the liquidity pools.
We understand and agree that there must be flexibility when assigning incentives to pools in order to adapt to market conditions and situations that may arise. But it would be a good practice to share the objective criteria that the committee will use in order to select the incentivized pools and then leverage that criteria to explain the changes in the distribution of incentives or the addition of new pools in the bi-weekly reports.
Regarding trading volume, as noted by Blockworks, it has been stickier following the incentive program’s conclusion.
On trading, another interesting finding and proposal from the GMX team consists of fee rebates: 75% is their proposed threshold to prevent programs from being exploited. This was also mentioned in Synthetix LTIPP application:
It would be really good to see research conducted on this aspect. Is 75% the number?
We appreciate that the applicant set measurable KPIs both for their TVL and Trading Volume metrics that will receive incentives.
Finally, regarding Grant Incentives, we echo Blockworks concerns regarding funding protocols that were also STIP incentives recipients.
We noticed in all the applications we reviewed that there is a significant drop in TVL during the last month. We believe there are multiple reasons for this, and there isn’t enough time to conduct a thorough and conclusive analysis of the long-term effectiveness of the STIP.