The Significance of Utility Tokens in DeFi | gTrade
Why utility is essential for a DeFi project’s token and how our $GNS utility token is innovative.
When new projects launch in decentralized finance (DeFi), it is a challenge to create innovative tokenomics. Many projects in DeFi struggle with creating a token with long-term use cases. Let’s explore how utility tokens with unique tokenomics are something to watch for in DeFi and how gTrade is setting a standard for the future of utility tokens.
What is a utility token?
Utility tokens are a unique class of cryptocurrencies as they aren’t exactly just currencies and cannot be defined as securities either. These types of tokens serve a use case within a specific ecosystem. The formidability and value of utility tokens is a spectrum. Utility tokens are usually not mineable but instead are distributed in a manner chosen by the project’s team — usually in the manner of LP rewards and airdrops. However, some utility tokens provide a better use case than others within their respective ecosystems.
The Utility Token Powering the Gains Network Ecosystem — $GNS
$GNS Token Genesis
Our decentralized leverage trading platform gTrade launched in January 2021 on the Ethereum network. The project’s token was named $GFARM2 initially. This utility token was farmed by users who staked $ETH or provided liquidity via the $GFARM2/$ETH pool. A total of 38,500 was farmed and the token was later migrated to the Polygon Network. $GFARM2 was used as collateral for trading.
Next, in October 2021, our community agreed to migrate $GFARM2 to a new contract to create a rebranded token named $GNS with a 1:1000 split. And the trading collateral was changed to $DAI.
Each $GFARM2 token will be forever redeemable for 1000 $GNS tokens. The total supply of $GNS is now below 30M and the max possible supply is 100M.
The $GNS utility token will be deeply integrated into the future projects of Gains Network — with each product having its unique use case for the token. It is currently at the core of our trading protocol gTrade. The reason why $GNS exists in the first place is so that it can be used in a mint and burn mechanism to fund the $DAI vault used for rewarding traders. When a trader wins, $GNS is minted so it can be sold to refill the $DAI vault when it’s less than 100% full (as it was used to pay the trader their rewards).
However, when a trader loses and the vault is beyond the 110% threshold, for the required degree of solvency, the protocol will slowly buy $GNS and burn it. This effectively reduces the supply while adding liquidity to the token. You can see the supply decreasing over time on our Dune Analytics dashboard here.
This is a unique utility token mechanism that capitalizes on the statistic that more people lose than win when trading. It is also a fair mechanism, because if these traders wouldn’t lose on gTrade, they would lose elsewhere. gTrade can put an organic deflationary pressure on the supply of $GNS! This is not the same as for example meme coins with an artificial burning mechanism, as their mechanism does not create any value for anybody.
Second, the $GNS/$DAI vault needs liquidity for gTrade to function. This was bootstrapped by rewarding liquidity providers (LPs) for staking. This is another use case of our utility token.
“The more users, the more inherent value GNS will possess. You can also earn passive rewards associated with each product. For example, you can stake GNS/DAI Quickswap LP tokens… to earn a share of the trading fees from the leverage [trading] platform. The token holders and liquidity providers own the platform…” (GNS Gitbook).
The long term goal is to have the protocol own the liquidity so that rewards can go to $GNS holders in a single staking pool. This means the APR will be shifted from the current $GNS/$DAI pool to a solely $GNS pool. Holders will not need to submit to impermanent loss to be rewarded for holding our token.
Lastly, $GNS will receive an additional governance use case once Gains Network transitions to a DAO. Holding $GNS (or a derivative like $veGNS) will give voting power — this allows the community to determine the direction of the protocol and propose new ideas while adhering to decentralization.
Gains Network is building an innovative DeFi ecosystem of products with $GNS as the underlying utility token for each product.
gTrade is the first Gains Network product and more are to come in which new unique use cases will be made for $GNS. gTrade is showing other projects how utility tokens can be integrated creatively in DeFi to create real value for both protocols and community members. $GNS is minted and burned when traders win and lose respectively — we are the first to do this. It is also used to collect protocol fees in terms of rewards and will eventually be used as a governance token granting voting power to the investors in our community.
The Gains Network team is continuing to iterate on gTrade and plan for future $GNS use cases while defining what’s possible for the future of utility tokens in DeFi.
Disclaimer: You should not invest based on any future development announced by the team behind Gains Network, you should only take into account the current state of the project. The $GNS token’s sole purpose is to be minted and burnt to power gTrade, our decentralized leveraged trading platform. If you decide to invest in it, please do proper research, as any loss or gain will be your responsibility only.
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