Governance Vote — Market Maker
Market Maker Engagement for CEX Listing
This Governance Vote can be seen at Snapshot.org using the link below;
At the beginning of the year we started to discuss a centralised exchange listing. We are pleased to say we have now come to an agreement with a centralised exchange for GFI to be listed.
As part of the listing agreement, Gravity Finance will provide around 500,000 GFI tokens from the Farm Allocation, to be distributed by the exchange as part of a “deposit to earn” program (exchange staking).
One of the stipulations for being listed is that we have a Market Maker. This is industry standard and it is to ensure there is a healthy spread and deep liquidity on both sides of the limit order books on the exchange. This in turn helps to build support and confidence in the tokens market action.
We have discussed options with a number of market makers over the last month and have settled on a market maker that we feel will be the best fit for the Gravity Finance project now and also into the future.
Below, you will find the market maker requirements, including, loans and costs and warrants (option to buy GFI). We are asking the governance token holders to vote on how these requirements can be met and to vote on the option that you feel is best suited to the project at this time.
Market Maker Requirements
Market Maker borrows $50,000 USDC
Market Maker borrows 8.5m GFI Tokens
Market Maker pays back both loans in 12 months*
Loans; Intended Use
Both of the above amounts, 50k USDC and 8.5m GFI are loans to the Market Maker.
The intended use for the USDC is to add buying support to the GFI market pair. In the event GFI price goes down, the USDC is used to buy GFI from the market to support the price.
The intended use for the GFI is to add market-depth on the sell-side of the order books, this allows exchange users the ability to buy GFI without large price impact. We would expect approximately $50,000 USD worth of GFI would be deployed on the limit order books initially.
Cost
Most market makers that we have spoken with recently, and indeed several that we are in contact with personally, generally charge between $3,000-$10,000 per month for market-making services similar to the service we will receive with this market maker (in addition to the token and USDC loans).
Following several conversations with this particular market maker, we have settled on ZERO monthly retainer/cost for their services for the twelve month period, with the stipulation that there is a warrant on the GFI loan, explained in the Warrant section below.
Warrant & Terms on Loan Repayment
After 12 months, both loans are due to be repaid by the market maker.
GFI Repayment: The market maker has requested a warrant on the borrowed GFI, meaning that the GFI loan can be returned in either GFI tokens or a fixed USD price. The fixed price would be set as a TWAP (time-weighted average-price) based on 7 days prior to and 7 days immediately following exchange listing plus a 50% premium (we provide an example below).
USDC Repayment: The USDC repayment would be based on the market value of GFI at the due date. In the event that the GFI price is higher than the initial listing, it is likely that the trading account still holds $50k USD and has not been deployed to support the market.
In the event the market price is lower than when initially listed, then it is likely the USDC has been deployed and there would be less USD in the trading account, but the account would also hold some purchased GFI from the market.
When making the USDC repayment, the market maker would return any remaining USDC in the Trading account PLUS any GFI that may have been purchased with the USDC during the market making process (we provide an example below).
Funding the Market Maker Loans
We have spoken with several community members over the last week about how to fund the market maker loans, the general feedback has been to have a community contribution pool with GFI incentives re-allocated from the current farming allocation.
We are suggesting the following community driven proposal;
Market Maker - Scenarios and Practical Examples
The Market Maker is lent 50,000 USDC and 8.5m GFI from two separate community contributed pools.
They will return the two separate loans after 12 months. The amounts returned will vary depending on market conditions and whether they execute the warrant based on the TWAP as explained above.
There are two possible future scenarios depending on the price of GFI after 12 months. There are also two possible outcomes depending on whether the market maker exercises their right to buy the GFI but the most likely scenario is the one that benefits them the most.
While it’s unknown what the actual 14 day TWAP strike price will be, the examples below assume a strike price of 7.5c. Keep in mind this may vary (up or down).
While it’s unknown what the actual 14 day TWAP strike price will be, the examples below assume a strike price of 7.5c. Keep in mind this may vary (up or down).
Scenario 1 - GFI Price is up after 12 months (higher than the 14 day TWAP)
Outcome 1 - Market Maker exercise their right to buy GFI (most likely outcome)
- Market maker pays 7.5c for 8.5m GFI ($637,500)
- Returned to GFI contributors: $637,500 (no GFI returned).
- Returned to USDC contributors: 50,000 USDC
Outcome 2 - Market Maker doesn’t exercises their right to buy GFI
- Returned to the GFI contributors: 8.5m GFI
- Returned to USDC contributors: 50,000 USDC
Scenario 2 - GFI Price is down after 12 months (lower than the 14 day TWAP)
Outcome 1 - Market Maker exercises their right to buy GFI
- Market maker pays 7.5c for 8.5m GFI ($637,500)
- Returned to GFI contributors: $637,500 (no GFI returned).
- Returned to USDC contributors: Combination of USDC and GFI (Market Maker has used some USDC to support the GFI price)
Outcome 2 - Market Maker doesn’t exercise their right to buy GFI (most likely outcome)
- Returned to USDC contributors: Combination of USDC and GFI (Market Maker has used some USDC to support the GFI price). See example below
Example:
20k USD is used to buy 500k GFI to support the market — $30k USD + 500k GFI is returned to the USD Contributor pool.
Example:
20k USD is used to buy 500k GFI to support the market - $30k USD + 500k GFI is returned to the USD Contributor pool.
We propose to reward each of the two community pools (GFI and USDC) with 2m GFI upfront incentives for each pool (split proportionally and distributed after the 14 day TWAP has passed). This would come from the 14m allocated for Farming.
Notes
Part of the GFI loan will be initially used in the trading account. Any GFI not used in the trading account will be held in multisig, with the market maker and the Gravity Founders as signatories.
Any Admin Fees claimable on the multisig controlled GFI will be claimed periodically throughout the year and will be distributed to the GFI-contributor pool. Any admin fees on the GFI held in the trading account will be claimed by the centralised exchange and distributed in a manner that benefits the Gravity Finance project as a whole, either to a deposit to earn program on the exchange or a similar manner. The exchange has confirmed they will not simply keep the admin fees for themselves.
In the event this vote passes, early indications suggest it is likely there will need to be limits imposed on contribution amounts allowed, the team will manage this. Contributions will be kept confidential by the team.
The incentives will be distributed manually by the team.
Vote
This GFI DAO vote offers a Yes or No option only and should the majority vote Yes, the following is adopted:
1. Acceptance of the Market Maker’s terms.
2. Fund the Market Maker’s loans via a community driven fundraising (managed by the team).
3. Re-allocate 4m GFI from the farming allocation to use as incentives for the fund raising.
If you hold GFI tokens and would like to participate in the vote, please visit Snapshot.org using the link below;
