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December 23, 2023

esGMX + veCRV Gauges = esGS

The long awaited deep dive into GammaSwap Tokenomics

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DeFi Devin
esGMX + veCRV Gauges = esGS


Today, we will be introducing GammaSwap Tokenomics. We will explain what aspects of GMX and Curve incentive mechanisms we took inspiration from. The article will also cover planned incentives for staking and farming.

Finally, we discuss future incentives the protocol has planned for borrowers and gauges.

esGS, inspired by esGMX

We have taken inspiration primarily from GMX when designing our tokenomics system. They were the first DeFi protocol to achieve strong traction in pool based perpetual futures using their novel CFD mechanism. Additionally, from our previous article on sustainable emissions, they had the highest emissions efficiency (EER) of any major DeFi protocol this year.

The GammaSwap Foundation received a seed investment earlier this year with participation from two core team members from GMX.

The GammaSwap Labs team was lucky to have their support when designing $GS tokenomics and the mechanics behind borrowing for the protocol — helping provide protocol safe guards and optimizing the spread.

The esGMX token has many incredible game theory mechanics and emission efficiency optimizations, which we have implemented with esGS while building in other incentives.

1 — Increasing Opportunity Cost

Rewards in GS or esGS can be leveraged to immediately earn more protocol fees, incentives and multiplier points via compounding.

When staked, GS/esGS earn Multiplier Points, which rewards stakers based on duration without inflation. Unstaking GS/esGS burns the proportional amount of rewards and reduces APR boost.

While vesting, esGS cannot earn staking rewards. This increases the opportunity cost to vest esGS -> GS since users cannot earn rewards while vesting and must forfeit their APR boost.

2 — Deferring Inflationary Pressure

Typically, in an emissions strategy the token is not escrowed. As emissions increase, the token supply rapidly increases. If the inflationary pressure outweighs growth of the network, the token will likely lose value.

The esGS model emits all tokens in their escrowed form which has a linear bonding curve where esGS can be converted to GS continuously every block.

Therefore, in the short term, increasing emissions has the effect of reducing relative circulating supply. Over the 365 day period, the charts will converge to the above but more sustainably than traditional liquidity mining programs.

Why? Think about investing. Most projects that raise from venture funds have vesting schedules, typically long ones because they align interests & disincentivize mercenary capital. Even 401k contributions have vesting.

Are you more comfortable buying tokens in a protocol where the team allocation has no vesting or 3+ years of vesting?

It makes sense that similarly adding a vesting schedule to emissions will also disincentivize mercenary farmers. The longer time frame to actualize APRs means farmers have to be more long term oriented regarding the protocol.

3 — Increasing “Stickiness”

Total Value Locked (TVL) is a meme in DeFi because none of the assets are actually locked, they can be withdrawn at any time — unless you are the new “L2Blast.

Disabling withdrawals aside, the esGS tokenomics model increases stickiness because it requires reserving LP tokens to vest escrowed emissions.

A user can always exit from their LP position and stake their esGS for more emissions & protocol fees. They are not locked in but to actualize their APR yield they must provide liquidity for the entire vesting duration by reserving the LP tokens. If the user exited the LP position, they will have to re-mint the LP token and reserve to fully vest their esGS.

It gives users optionality, increases stickiness and effectively burns emissions tokens from the impatient — reducing circulating supply of the liquid token.

Escrowed (es) vs Vote Escrowed (ve) Tokens

We explained how esGS tokenomics operate above, similar to esGMX. For those who aren’t familiar, we will provide a brief background on veCRV and their vote escrowed tokenomics system.

In the veCRV system, you can lock your CRV tokens and receive an amount of veCRV proportionate to the time-lock you have chosen. The maximum is a 4 year lock where 1 CRV is worth 1 veCRV. Like esGS, it linearly decays on a bonding curve and is non transferable. Additionally, veCRV lockers earn a boost percentage on the CRV incentives for qualifying pools.

There are some key differences, however, primarily stemming from the ill-liquidity of veCRV.

esGS is also escrowed but it does not require the locking of tokens to earn rewards. This is a critical difference for users when assessing risk and yield opportunities. Let’s explain this using behavioral economics.

Prospect Theory

Prospect Theory (Loss Aversion Theory) is a behavioral economics framework regarding human judgement and decision making, developed by Daniel Kahneman and Amos Tversky in 1979. It is considered one of the most influential theories in all of behavioral sciences, finally putting a framework in place to understand the irrational and paradoxical ways individuals interpret risk.

The research paper on prospect theory earned the author, Kahneman, the 2002 Nobel Memorial Prize in Economics. To date, it is the most cited paper in economics. It popularized the concept of loss aversion, which states that people prefer small guaranteed outcomes over larger risky ones.

Based on results from controlled studies, it describes how individuals assess potential losses and gains differently.

Here is an example from the original paper, Prospect Theory: An Analysis of Decision Under Risk. Participants are given two choices:

A: 100% chance to win $500

B: 50% chance to win $1,100

In the above scenario, 83% of respondents chose to receive the $500 dollars, although the expected utility of option B was higher.

Contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people, who are primarily risk averse.

A graph of the irrational utility function below. You can see the slope of the curve is different for losses vs gains, demonstrating human risk aversion.

Understanding human psychology is important to find product market fit and to maximize the Emissions Efficiency Ratio (EER).

Escrowed Tokens reduce Principal Risk

Vote escrowed (ve) token models pioneered by Curve Finance are a popular choice among burgeoning DeFi protocols because it removes tokens from circulation for the duration of the lock. Reducing circulating supply is a way to combat high inflation from emissions.

With veCRV, users lock CRV for a specified period of time to participate in governance, boost CRV rewards from providing liquidity and earn 50% of protocol fees distributed in 3pool LP tokens.

When a user locks their CRV tokens for voting, they receive veCRV in proportion to the lock duration and CRV locked. A user can only reclaim the CRV tokens after the lock duration has ended. VeCRV is also non-transferable.

The veCRV amount the user receives after locking can be calculated using this formula: CRV locked * (t/4), where t is the time in years.

There is increased market risk with ve when locking the principal investment.

Locking tokens magnifies principal risk for investors, the risk of losing some or all of the original investment. Crypto tokens have much higher volatility than equities. Many protocols fail and token prices can crash rapidly. The longer the protocol has been operating however, the less risky it should be due to the lindy effect — the idea that the life expectancy of non-perishable things like technology is proportional to their age.

ve token models require users to lock their investment for illiquid non transferable tokens to earn yield. With a GMX style escrowed model, users also earn illiquid non transferable tokens, however, users can remove their principal investment of GMX at any time. They will forfeit some of their staking rewards but they always have the ability to exit their investment.

Humans are irrational and optimize for lower perceived risk, even if it does not maximize their utility.

Take this theory with a grain of salt. There is a small sample size due to the current scale of DeFi markets and lack of escrowed token models for comparison, however, it seems that the market does behave according to prospect theory. GMX trades at both a higher FDV/TVL and FDV/Revenue ratio than ve token models like Curve, if you include bribes as revenue. Analysis available here.

Additionally, both Balancer and Curve have an EER less than one, while GMX has an EER of over 100 showing that the emissions are much more efficient. One must keep in mind that these differences are not just due to tokenomics, the perp DEX category tends to generate higher revenue than spot DEXs, assuming similar TVL. Regardless, these results align with behavioral economics and game theory.

Bribes are of course an amazing invention as they provide more revenue to token holders without additional inflation and help decentralize emissions.

$GS Tokenomics & Incentives

GS/esGS Staking

The $GS token can be staked for 30% of the protocol fees earned in the WETH/USDC pool in LP tokens, esGS incentives and MP points which act as a boost on the GSLP tokens earned.

The MPs reward long term stakes without inflation or principal risk. The MP points accrue continuously every block at a 100% APR rate with a 100% MP point cap on the total GS and esGS staked. 100 GS staked for one year would accrue 100 MP points. Multiplier points could be staked for more WETH/USDC GSLP rewards at the same rate as GS/esGS. Both MP points and esGS are non-transferable unless you are transferring complete ownership of a wallet, including private keys.

If a user hits the MP cap, they will still continue to earn MP points but they will be “inactive” until they stake more GS or esGS.

Total MP Points = APR * (staked GS + esGS) * t where t is time in years.

To calculate Multiplier Point APR for active MP points:

Multiplier Point APR = min(APR * staked GS+esGS * t, MP Cap) where active MP Cap is 100%

When GS or esGS are un-staked, the proportional amount of MP points are burned. To calculate the burn amount, use the following formula.

MP Points Burned = (Unstaked GS or Unstaked esGS) / (Total Staked GS + esGS) * MP Points

The APR formula is

Staking APR = (WETH/USDC LP token fees + esGS emissions annualized) / (Total GS + esGS staked) * 100

The “Boost Percentage” in the UI above represents how much your fee APR in WETH/USDC GSLP tokens is boosted by MP points.

For example, if the WETH/USDC LP token APR is 50% and you have $1,000 worth of GS and esGS, then your rewards would be $500 annualized, if you additionally have an amount of Multiplier Points equivalent to 10% of your total amount of GS and esGS, your “Boost Percentage” would display as 10%, and you would get an extra $50 of WETH/USDC GSLP rewards annualized.

The “Boost Percentage” is calculated based on the ratio of Multiplier Points to your total amount of staked GS/esGS:

Boost Percentage = 100 * Staked Multiplier Points / Total Staked GS + esGS Staked

To calculate your rewards from MP point staking (not available in the UI):

Boost Percentage Rewards = Fee APR in WETH/USDC GSLP tokens * Total GS + esGS staked * Multiplier Point APR

To calculate the full boosted APR (not available in the UI), use the following formula

Boosted Staking APR = (Boost Percentage Rewards / (Total GS + esGS Staked)) + WETH/USDC Fee APR + esGS Emissions APR

In terms of the interface, users can “Stake” their GS or esGS. Confirming a “Stake” transaction will deposit the GS or esGS from the users wallet into the staking contract to earn WETH/USDC GSLP tokens, MP points and esGS incentives.

Clicking the “Unstake” button will withdraw tokens from the staking contract: the WETH/USDC fees, GS or esGS and burn the respective Multiplier Points according to the MP burn function above.

Clicking “Compound” will stake pending MP points and esGS rewards. Clicking “Claim” will withdraw rewards in WETH/USDC fees and esGS emissions.

Vesting Staking Rewards

The action of vesting converts escrowed GS (esGS) to GS linearly over a period of 365 days continuously every block, similar to esGMX.

When initiating vesting, the average aggregate amount of GS, esGS and MP points used to earn the esGS will need to be reserved.

For example, if you staked 100 GS and earned 10 esGS token, then to vest 10 esGS, 100 GS tokens will need to be reserved. The reverse amount required is calculated directly in the staking contract and is essentially a time weighted average of the tokens leveraged to earn esGS.

Vesting esGS poses an opportunity cost because esGS deposited into the vesting vault cannot also earn staking rewards. The reserve tokens used to initiate vesting remain in the staking contract and earn rewards continuously. If there are not enough reserve tokens for the user to begin vesting, the tokens must be purchased on the open market.

Tokens from the vesting contract are claimable at any time, users are not required to wait until the end of the vesting period. Claiming will withdraw all GS and esGS tokens from the vesting contract. This will pause the vesting schedule. Any esGS converted to GS will remain as GS even if vesting was terminated.

Depositing into the vesting vault with ongoing vesting is supported. New deposits will renew the vesting schedule.


Providing Liquidity to pools in GammaSwap can also earn esGS rewards.

A user can check all available “Farms” in the “Earn” dropdown.

The Farm APR is calculated as such

APR = 100 * (Token Emissions per block annualized * GS Token Price) / Total Value LP Tokens Staked

Depositing liquidity into a pool with farm rewards will automatically stake the GSLP tokens in the liquidity mining contract, which earns rewards in esGS along with the supply fee APR from the pool.

LP tokens in the liquidity mining contract cannot be used in other DeFi Dapps by default. A user can “Unstake” their LP tokens from the emissions vault but they will no longer earn esGS rewards.

A user can claim esGS from the liquidity mining contract at any time without pausing emissions. The dollar amount of unclaimed rewards in esGS is simply

esGS Rewards in dollars = Unclaimed esGS * GS price

where the GS Price is simply the ratio between WETH and GS in the WETH/GS DeltaSwap pool and the WETH is dollarized using the most liquid WETH to stable pool in DeltaSwap.

GS Price = (WETH Supply / GS Supply ) * (Stable Supply / WETH Supply)

We price esGS equally to GS since each esGS token can be converted into GS linearly over a 365 day period, although esGS is not tradeable.

The esGS earned from farms can be staked to earn esGS emissions, WETH/USDC fees and MP points on the staking page. Alternatively, a user can also vest esGS earned from farms for the respective pool where they earned the esGS emissions.

Vesting Farm Rewards

To vest farm rewards, the users must “Vest” esGS which will require the time weighted average of the emissions for GSLP tokens to be reserved. The reserve amount is calculated directly in the smart contract.

Similar to the staking page, GSLP tokens reserved to initiate vesting for esGS can remain in the liquidity mining contracts and earn esGS rewards. If the user does not have the necessary LP tokens to satisfy the reserve requirement, they must recreate the LP position.

One can re-deposit when there is already ongoing vesting but the reserve requirement will be recalculated and the vesting schedule will be renewed.

Withdrawing will claim all esGS and GS from the vesting vault into the user’s wallet.

Borrowing Incentives

Many money market protocols like Compound and Radiant have incentivized borrowing, not just supplying liquidity. GammaSwap is similar to a money market for AMM liquidity. Given GammaSwap is a novel protocol, it may make sense to incentivize borrowing as well to get new users to “try out” the protocol and learn how to trade with volatility perpetuals. Alternatively, there may be periods of low volatility where there is less than usual market demand to borrow liquidity, which incentives could normalize.

Therefore, to create a way to incentivize borrowers while minimizing the effects of mercenary capital, GammaSwap has innovated on the original GMX tokenomics design with the introduction of esGS incentives for borrowers through the esGSb token.

esGSb has many of the same characteristics as normal esGS:

  • esGSb can be converted to esGS through vesting 1:1 for GS over a 365 day period
  • esGSb can be staked for WETH/USDC fee rewards, esGS and MP points
  • esGSb can be compounded to earn more rewards in staking

The only difference is that esGSb does not require reserve tokens to be vested. Normally, esGS requires the tokens that were used to earn them (GS, GSLP, etc to be reserved). The issue is a loan position is non fungible and can be liquidated. It wouldn’t be practical to require reserving of the tokens here.

Note: GammaSwap will not be launching borrow incentives initially. It is available in the staking contracts but the core team does not plan on directing emissions here. After launch, the DAO could vote to incentivize to boost volumes or bring in new users later.

Bribing: veCRV gauges without the ve?

Bribing gauges are a massive source of revenue for token holders. Gauges enable token holders to vote on where pool emissions will be directed on a weekly epoch basis.

Often, many projects want to boost their liquidity as efficiently as possible. If there are sufficient emissions in a DEX, it often makes economic sense to bribe those emissions to boost incentives above what a traditional liquidity mining program can offer.

The problem is without vote escrowed tokens how can GammaSwap offer bribing gauges and enable those who are long term oriented to have more influence on the protocol? The answer is simple, MP points. We can use active MP points along with esGS to determine gauge weights while not requiring locking of tokens.


Today, we introduced $GS tokenomics and why we decided to implement an escrowed token model similar to GMX over the more popular veCRV model. We will be including bribing gauges popularized by Curve Finance in the future using MP points.

Shortly before our launch we will detail emissions plans and token distribution. Stay tuned and thank you for reading.