Gearbox Protocol: 2023 Overview
In the blink of an eye, the year seems to have lapsed 3 months. But within that blink were sights that set the protocol up for becoming the base layer of leverage in DeFi. From reaching 750 Ninjas on V2 to the announcement of V3, from expanding our integrations to having Balancer deploy funds to the lending pools. From moving the DAO to OBRA model to expanding on our DAO-to-DAO relations. The journey has been one to behold, but… (and Gearbox “buts” are always good “buts”, no pun intended) there is a lot more to come still and that is what we will take you through today.
While this article will give you a complete overview of the quarter that went by as well as updates about the future on L2s, token utility and more, these are all based on the self evaluation that the DAO created for itself. You can read the complete piece below to know about it in depth. Or read the table below for a cursory glance.
Year Till Now…
Let us first take you through all that has already happened in the year so far before we talk about how the DAO expects the year to go forward.
A lot of what you read below would have been already covered in the monthly DAO updates. You can read them in detail below.
January: Here
February: Here
March: HereOr carry on reading for a quick catch up on the updates of the same.
1. Gearbox V3 announced
Just 4 months after the launch of V2, the V3 tech stack was unveiled as the code was sent to audit.
The update comes with multiple redefining features including:
- New Lending Market: Addition of Mid-Tails means higher APYs for those who opt in for the new Alpha Pool. If you don’t opt in, you can still earn decent APYs from the lower risk Bluechip Pool.
- Quotas for better Risk Management: To manage liquidity linked exposure for the protocol, the V3 update will come out with Quotas that define how much exposure the protocol can have to a certain asset or protocol.
- New Integrations: Balancer and Aura will be the new integrations for the upcoming V3.
- Minimum Viable Tokenomics: The token holders will now decide how the fee from alpha pool will be distributed and if they were to get a share from the DAO side of the fee
- Improved UX: Gearbots bringing the automation to portfolio management for our CA users
You can read the complete update in the Article attached above
All this and more is planned for V3 already, this will be followed by discussions and votes by the DAO to decide what actually happens. V3 is bound to be exciting for our users and for the future of leverage in DeFi.
2. Yearn, Balancer, Aura and Frax boosting Gearbox Lending pools
Gearbox lending has unique benefits that help keep user funds safe. 2 of the many being non-custodial lending and guard-railed swapping of funds by Allowedlist. The former doesn’t let the borrower actually custody the borrowed funds, the latter ensures they can’t take it to any unaudited protocol or swap it to any random shitcoin.
You can read the details about what sets Gearbox lending apart below:
Add to this a consistently high rate through high utilisation with an LM program and the deal becomes lucrative yet safe. The same has been recognised by multiple protocols now who are deploying the funds in their vaults/pools to earn additional APY.
Yearn has deposited $2.5M, FRAX has deposited $2M to the FRAX pool while Balancer has deployed over $3.5M and will keep deploying basis GEAR bribes.
Gearbox has been able to set its lending market as an important, upcoming one ever since the V2 upgrade.
3. Assets and Adapters update
Gearbox assets are the tokens, vaults and pools that are added to the Allowedlist. Integrations are the complete protocol contracts that are added to the platform. They fuel the growth for the protocol by attracting additional and incremental TVL.
Over the first Quarter, Gearbox DAO has approved 3 key assets.
- Frax: Frax has been added as a collateral to the protocol.
- cbETH: Expanding on our LLSD cohort, the DAO will now be adding cbETH to its available assets.
- MiM: The DAO approved to add MiM, it’s Curve pool and Convex pool. This gives the protocol users access to a vault with relatively high APY and the ability to earn 40%+ on leveraged farming.
Beyond this, Adapters take a significant amount of time to create and be audited. Usually 6 months+, so while the vote for the same hasn’t occured, there are two under development
- Balancer Adapter: Vaults to be decided upon by the DAO
- Aura Adapter: Vaults to be decided upon by the DAO
4. LLSDs came to life
Gearbox staked it’s claim in the evolution of LSDs(Liquid Staking Derivatives) by introducing the world to Leveraged LSDs. By using our existing mechanism, users can now go ahead and stake upto 10x more ETH than they have directly on LIDO natively.
You can listen to our call with LIDO below, hosted by Blocmates, to understand better how Gearbox evolves LSDs
With Shanghai at the time being on the horizon, this was the perfect time for Gearbox to build something that truly captures value as we move forward. And that’s the exact result we saw, LLSDs on Gearbox rose from ~$12M to ~$30M, a 250% increase. With the upcoming addition of cbETH, Gearbox will have the top 2 LSD integrated. frxETH and rETH likely to see discussions as and when the chainlink oracles become live.
You can read the complete report on LLSDs below.
5. Gearbots for trading evolution on Gearbox
To put it simply, Gearbots are automation tools that’ll enable users to access features like Stop Loss, Take profit, Liquidation Management and more on chain without any manual intervention.
Why do they matter? Gearbox Protocol at the moment has a higher priority for just leverage farming given that’s where we saw initial signs of PMF. With Gearbots, Gearbox will be able to add the tools required to enable a smooth trading experience on chain. The ideal point for Gearbox will be where users take leveraged positions and instead of paying a funding, use that position to earn a positive yield instead. Making capital efficiency a true possibility.
You can learn more about bots from the article below:
6. DAO growth and ease of contributing through OBRA
OBRA structure, as inspired by Gnosis Safe proposal 18 — has been adopted by Gearbox DAO post due process and voting in January. Its main point (although this is subjective interpretation) is to let the social structure of a DAO grow yet not burden contributors, new and old, with too much reporting. It basically elevates trust given by the DAO to the different groups applying, and does so without any synchronicity.
This is achieved through creation of sub-DAOs and enabling individuals to float grants for strategic developments they want to create for the DAO. 2 were voted in for the first cycle with the next cycle coming up over the next few weeks.
You can read about it all here:
7. Gearbox Analytics UI upgrade
The entire Gearbox Analytics page was revamped by the devs. The newer UI features better collection of metrics, links to more data sources to help you better analyse, better visualisation for Credit Accounts, ability to dig deeper into individual CAs and more.
The lending pools will now display APYs for 3 different timelines to help you make better decisions. V3’s launch should see more UI advances taking place. You can read about the complete update in this thread by Ivan.
8. Protocols building atop of Gearbox
Existing protocols that were building on top of Gearbox, Brahma and Mellow both introduced NEW vaults on Gearbox. For the people who want to use Gearbox but don’t qualify the Ninja requirements, this can be a great fit. Read below to learn more.
Meanwhile 3 new protocols: Sector, Overlay and Enso too are developing strategies on top of Gearbox.
9. Governance update
There have been a total of 13 Votes that have concluded till date this year. Or roughly one vote every 8 days. So governance has been active. GEAR/ETH Curve LPs too have been added to the voters list in order to increase inclusion of holders.
These votes were largely used to carry out the above mentioned tasks, code audits, liquidity mining approvals and fund initiatives/sub-DAOs. You can read the complete details on the same below.
That’s it on the key bits of Q1, if you would like to know all that happened in depth, check out the monthly DAO reports attached above. But while that’s it on What “has” happened, let us also help you see what’s possibly going to happen for the rest of the year. Keep reading!
What for the rest of ‘23?
This is where things get interesting, there are multiple things planned across different functions of the DAO. A lot of updates below will need DAO voting and depends on DAO votes actually passing so should be read with that in mind. Meanwhile, we’ll try our best to give overviews of stated discussions and not add to it. These updates should be up for vote by Q3'23, a following update in the second half of the year should follow for Q4.
1. Tokenomics
$GEAR is still a governance token but with V3 coming in, we’ll see addition of Mid-Tails. These will generate additional, higher revenue. This revenue’s division will be up to the GEAR stakers. While the stakers are supposed to divide between the lenders and the DAO, there is no reason why a vote on stakers getting a share too won’t be possible.
Basis the same capability created through Quotas, Overkoalafied has come up with tokenomics ideas for the same. A discussion is now in place and can be followed on the below forum.
The current suggestions are
- Revenue Sharing
- veNomics
- Liquid Wrappers
- AAVE style safety module
- Part of GEAR feature economy
Go ahead and read them out and discuss to push utility for GEAR tokens.
2. Complete security upgrade
As we announced in our last twitter update, the Gearbox V3’s security model will go live towards the end of April. The security update version of Gearbox comes right before our development towards V3. Since V3 will utilise V2s codebase, is vital for us to have the most secure dApp that we can create.
The new Security module update eliminates any low or no traction features that could potentially lead to security complexities, fixes system bugs, upgrades existing code to the best practices and has been audited by Chainsecurity. The enhancement ensures that Gearbox Protocol remains at the forefront of security best practices in the DeFi space.
You can read the complete details here:
3. Addition of Assets and Adapters
Quotas will bring exposure limits to the protocol. Effectively, if a coin only has $4M of DEX liquidity, we can go ahead and cap it’s exposure on Gearbox to $1-2M and thus ensure it can’t be used as an attack vector even if approved.
This enables us to go ahead and add multiple mid-tail assets. While a discussion on the same isn’t active yet, one should come up as we get closer to V3’s release. At the moment though, we can’t comment on what assets will be put up for vote. Regardless, you are likely to see multiple new collaterals, pools and truly face melting APYs on Gearbox as mid-cap addition rises.
4. Expansion to L2s
The same way Quotas enable mid-tail addition, they can also help us limit exposures on L2s and thus make L2s a true possibility for Gearbox to be on.
In order to evaluate this, a discussion is now already underway. Ilgiz and Amantay have created a preliminary report on the state of L2s. The evaluation takes into consideration DEX Liquidity, other protocols’ presence, Chainlink oracles, Network performance and bridges. You can read the complete details and add to the discussion below.
The discussion at the moment only entails Optimism, Arbitrum and Polygon. You can make the case for any other L2 or chain if you believe they will add more value.
5. Gearbots, Trustless Fund Management and Economy
Gearbots are immutable and automated smart contracts. Effectively giving one the parameters they want set in a manner that can be set on chain. This enables fund managers to now come on chain, deploy their “trust models”. Users can go ahead and verify the max leverage, the additional collateral, the tokens being traded, the entry levels all on chain before they use the script created.
This means you’ll no longer have to just take the word of the fund manager as what might be true and deploy your investments in a trustless manner entirely. You’d still have to trust the competence of the fund manager but you can rest assured that the funds itself aren’t in their custody with them being able to use them as they want.
6. Leverage Trading Push and Planning
Like we mentioned in the self evaluation, Gearbox’s growth is owed to focus on leverage farming as a use case. Leverage farming utilises non-directional leverage, that is where you borrow ETH against ETH or Stables against Stables. This lets you get a bigger stack of ETH or Stables with significantly lowered risk of liquidations. This was done due to early signs of users preferring farming. But, Gearbox has unique advantages in the leverage trading segment as well.
Leverage trading is where directional leverage comes in to play, and with that comes higher volatility. This is where you long ETH after borrowing stables and thus can take higher profits as ETH goes up. Where does Gearbox come in though?
- Turning funding fee into net positive yield for users
If a user decides to long that ETH, they could either be paying a 3% borrow fee on it or they could stake it and earn a 10%+ on their collateral. Easies - Lowest funding fee in the game
The below visual will explain it all
Just leverage trading on Gearbox has the cheapest fee, trading and then using your position to farm returns a positive yield for the users though. This is where Gearbox is likely to see the next leg of growth from.
7. Risk Framework Upgrade
With Quotas coming in, we’ll see exposure limits being applied on all AllowedList assets. Exposure limits will cap the amount of an asset that Gearbox is exposed to. This helps further ensure that price manipulation attacks are prevented entirely and liquidity on DEXes isn’t lower than the value the protocol might need to liquidate.
Gearbox Risk Contributors are working with Risk DAO in order to determine the best way to achieve this and set the optimum values that reduce risk while not reducing the usability of the asset itself. The complete details will be released as the pre-GIP for the same goes live.
8. And MORE…
The above are just the broad plans that the DAO has in the pipeline. There’s a lot more yet to come out but to name a few.
- Taking voting partially on chain
- Removal of Ninja List
- Improvement of UI to enable trading
- Collateral and Asset governance for addition
- And how much more alpha do you want in an article? Aaaaaaaa
That’s it for now. Follow us on twitter to keep up with the updates or just hop in to our discord to say Hi! and ask your questions. See you soon!
If you would like to join — just get involved on Discord. Discuss, research, lead and share. Call contributors out on their bullshit and collaborate on making things better. Here is how you can follow developments:
- Website: https://gearbox.fi/
- dApp: https://app.gearbox.fi/
- User Docs: https://docs.gearbox.finance/
- Developer Docs: https://dev.gearbox.fi/
- Forum: https://gov.gearbox.fi/t/start-here-forum-rules/
- Blog: https://medium.com/@gearboxprotocol
- Github: https://github.com/Gearbox-protocol
- Twitter: https://twitter.com/GearboxProtocol
- Snapshot page: https://snapshot.org/#/gearbox.eth
- And, of course, the DAO working docs:
