Deep Dive into Gains Network (Part 2)
Primer: This is part 2 of the series about Gains Network, based mainly on Trayzy’s work on Reddit. Part 2 of the series is about the deflationary tokenomics as well as the burn/mint mechanism of the GNS token.
Introduction
Gains Network is building a decentralized finance ecosystem on the Polygon Network. The trading platform gTrade is the first product from them. We’ve written an article about them, which is the first part of this series to dive deeply into the protocol.
This is based mainly on the works of Trayzy on Reddit here.
To refresh your memory, you can take a look at part 1 below:
In part 2 of the series, we’ll be touching on the deflationary tokenomics and how the protocol burns/mints GNS in order to stabilize the DAI vault. Let’s begin with the tokenomics.
Tokenomics
The following shows the numbers as of 4th Feb 2022
Combined market cap (GNS + GFARM): $111 million
Combined Supply: 29,370,259.50 GNS
Total burn: 9,129,741 GNS (-69.05)
Total burn percentage: 23.71%
Deflationary
Staking
GNS/DAI pool
GNS holders can stake their token in the GNS/DAI pool to earn trading fees from the gTrade protocol (as GNS tokens) and QuickSwap fees (as dQUICK tokens)
Current APY is 67% (at the point of writing on 4th Feb 2022), funded entirely by paying users of the trading platform
90% of the platform fees goes to this pool
DAI only vault
19% APY, at the point of writing
10% of the platform fees goes to the DAI vault
Foundation of the Liquidity Pool
GNS LPs are the foundation of the ecosystem
The platform is built around the mint/burn mechanism of GNS tokens so that LPs collect rewards
Without a token, the protocol could not mint and burn GNS to stabilize the DAI vault, so GNS is a utility token essential to the operation of the protocol
Burn/Mint Mechanism of GNS
When a trader opens a trade using DAI, it goes into the DAI vault
When the trade is closed, any profits or remaining balance is paid out in DAI to the trader
Protocol mints GNS when:
TVL (defined as the total amount of DAI staked by LP) is greater than the DAI vault balance
This happens when there is a lot of winning trades, so payment of trades exceed the collateral added to the vault
The minted GNS will be sold slowly for DAI to refill the vault
Protocol burns GNS when:
TVL is lower than the DAI vault balance by more than 10%
This happens when there is a lot of losing trades and incoming collaterals
The protocol will use the excess DAI to buy GNS and burn it
The 10% buffer is to limit the likelihood of minting during a period of several large winning trades without new collateral coming in
All trading occurs on the DAI liquidity layer, thus eliminating swap fees previously paid by traders
GNS burn/mint mechanism is the liquidity backstop to the DAI vault liquidity layer and is integral to the function of the protocol
Deflationary mechanism
The long term deflationary nature of the token comes from historical statistics that in the long run, traders lose more than they win
The loss ratio is amplified by volatility and leverage
The high leverage available on the Gains platform (as compared to other platforms) combined with the extreme volatility of crypto assets means that the loss ratio is higher than typical
At the point of writing, the platform had already burned 23% of the supply
The lower the price of the token, the faster it is burned and the only way to slow the burn is for the price to rise up
Regulation
Due to Gains Network’s unique liquidity mechanism, it will likely face less regulatory scrutiny compared to a tokenized security because traders in Gains Network is strictly dealing with DAI only
Traders supply DAI to open a trade and are paid in DAI when they close
They do not hold any assets nor do they hold a token representing the assets
GNS is used as a liquidity backstop in the smart contract; the trader does not interact with anything other than DAI
With countries banning leveraged trading on CEXs, Gains Network is a synthetic DEX that provides the user with a superior trading experience compared to a typical exchange can offer
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.