[HIP-5] Improving HMX’s Tokenomics for Long Term Growth

HMX Improvement Proposal (HIP)
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Hey Dragons! :dragon: The community has proposed a new idea that’s gained traction following our tokenomics improvement proposal (HIP-3). After discussions, it’s now officially become HIP-5 and is ready for voting soon. You can find the full discussion thread here.

There’s still time to share your thoughts for minor adjustments before the vote. Your input is valuable in refining this proposal.

Background:
The HMX token has faced challenges due to recent market conditions, leading to a constant price decline. While market factors are largely responsible for the overall decrease in altcoin prices, this presents an opportunity to revisit and adjust HMX tokenomics to benefit all holders.

Objective:
Improve the price action of the HMX token by reducing sell pressure from users who do not demonstrate platform loyalty, while rewarding long-term holders and maintaining fairness for all stakeholders.

Observation:
Before diving into this proposal, we must understand the different type of HMX/esHMX stakeholders on our platform. To improve tokenomics effectively, we’ve categorized esHMX holders into three main types based on their behavior. Understanding these profiles is crucial for making informed decisions about our platform’s future and optimizing our tokenomics.

  1. Stake Only: Most loyal users. They stake their esHMX without vesting. They earn the most Dragon Points (DP) and create the least selling pressure on HMX.
  2. Vest & Stake: Medium loyalty. They vest esHMX to HMX, then stake it. They earn fewer DP than group 1 and can create moderate selling pressure on HMX.
  3. Vest & Dump: Least loyal. They vest esHMX to HMX and sell immediately. They earn no DP and create the highest selling pressure on HMX.

Proposed Changes:

  1. DP staking requirement for esHMX vesting: To vest their esHMX tokens, users will be required to stake DP tokens at a ratio of 1 DP for every 4 esHMX. This 1:4 ratio is fair for all stakeholders, as DP is emitted at 100% APR, meaning users will only need to stake for one quarter to accumulate enough DP to vest their staked amount. This requirement will encourage longer-term commitment and primarily affect those who quickly vest and sell their tokens, while users who only stake will not be affected.
  2. Extended esHMX vesting period: The vesting period for esHMX tokens will be increased from 12 to 36 months. This extension will allow users to realize their gains over a longer period, thus promoting project stability. Users can still exit without additional expenses, but over this extended 36-month timeframe.

Summary of the proposal:

Current Tokenomics:

  • No DP staking requirement for esHMX vesting
  • 12-month vesting period for esHMX

Proposed Modifications:

  • DP staking requirement: 1 DP staked for every 4 esHMX to be vested
  • 36 months extended vesting period for esHMX

Benefits:

  • Protects long-term holders’ interests.
  • Encourages platform loyalty.
  • Reduces short-term selling pressure.
  • Provides a fair exit strategy for all users.
  • Enhances the utility of Dragon Points.

Implementation Details:

  • Existing esHMX in vesting remains unaffected if the user has sufficient DP staked.
  • esHMX in vesting beyond DP coverage will be unvested and subject to the new vesting requirements.
  • To not penalize users who recently unstaked, we will implement a one-time offer where users can recover their Dragon Points balance back to before they unstaked by restaking their HMX and esHMX tokens. This mechanic only applies to users who unstake between May 1st and the end of this proposal voting period.

Example:

  1. Alice has 20 HMX + 40 esHMX staked, with 20 DPs.

  2. On May 10th, Alice unstakes 10 HMX and vests 20 esHMX. She then lost 50% of her DPs (now 10 DPs) at the time of unstaking.

  3. Recovery options:

    • If Alice restakes 30 tokens (any mix of HMX/esHMX), she’ll regain all her 20 DPs.
    • If Alice restakes less than 30 tokens (any mix of HMX/esHMX), her DP recovery will be prorated.
    • If Alice has sold some vested esHMX, she can stake HMX instead. As long as she restakes a total of 30 tokens (any mix of HMX/esHMX), she’ll recover all 20 DPs. Restaking more than 30 tokens won’t increase her DPs beyond the original 20.
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I can’t believe that such proposals are even being put up for discussion. Something is wrong with the logic here.

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We’re looking forward to your feedbacks in that such case! :dragon: Hoping to hear from you soon about those and better ideas!

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I’m not sure the new proposal has much merit. People who are not loyal to projects and only want to be there for the free hand outs will just go somewhere else. There are enough projects to chose from.
Instead, you will project the image that long-term holders are trapped and inflexible to market conditions. The 21 day lock on HMX is fine but it does hamper any kind of reactivity to market conditions. Sure, long-term idealists (and don’t get me wrong, I have long-term intentions for crypto plays too) are not the majority of people that are in crypto right now. Catering to this minority too early will bring much greater risks to the longevity of a project than success.

I liked the previous ratio proposal of saying you have to stake HMX to also be able to vest esHMX. Seemed like a good idea. Maybe the ratio needs to be fine-tuned.
Doing it with Dragon Points, seems overly complicated and a turn-off for newcomers.

Instead, why not try and give incentive in a different way to those who hold their vested esHMX. For example, if you re-stake vested tokens you get an additional earning boost (valid for the week of re-staking) ~ so for example 0,5% extra APR from the fees pool.

This in turn will also promote, and give incentive to HMX as a project (not the token) to focus more on marketing effort to attract traders. Reinforcing loops are fantastic.

Oh and also, if you sell your vested tokens, instead of getting the boost, you get a -0,5% (or whatever, the percentage is just an example) anti-boost to your weekly APR.

2 Likes
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This proposal is complicating things
HMX is facing two main problems:
1, There is no upward buying pressure
2, Continuous selling pressure comes from those vesting ESHMX
My explanation for these 2 problems
1, I really want to buy and stake HMX but the 21-day unstake restriction makes me worried (21-day restriction to prevent people from unstaking and selling their HMX- But why be afraid of them selling HMX, there will be buyers This number of HMX is sold because we have regular weekly revenue, high APR). The limited 21-day launch will only hinder new users from purchasing and staking HMX
2, A lot of people want to get out of ESHMX (HLP suger rewards, trading rewards, staking rewards…) they want to recover their capital or lock in profits… Instead of stopping them and letting them sell every day , let them exit HMX, there will be new buyers and take their place, add option of instant vesting with 70% fee, 3 month vesting with 50% fee, 6 month vesting with 25% fee %… This will reduce the supply of HMX
The most important thing about HMX is that there is no buying pressure, let’s add utility to it instead of putting restrictions on HMX and ESHMX

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I support this proposal.

The Vest and Dump crowd aren’t going to sit there and re-evaluate incentives like boosting APR for holding or whatever long term ideas we can come up with. They don’t care by design, their goal has been to acquire and dump as much esHMX as possible to cushion their trades

Initially, DP was a good attempt to retain users and continues to serve as clear indicator of who is patient and loyal to HMX. The problem is that the initial vesting design of HMX was not perfect and rewarded large volume traders for dumping more than long term supporters for holding. I don’t fault anyone, its a learning process. This proposal we are voting on rewards DP holders without requiring additional investments tax us further. I think we’ve paid enough already.

Don’t let objections and stall tactics prevent this from going to a vote. The writing is on the wall, The longer we wait, the longer the punishment by the “Vest & Dump” will continue. The recent vote to increase our liquidity only works to buy us time to make real changes to the platform. If you agree that Dragon Points holders should be prioritized here, please be sure to “Like” Takamuras proposal or and /or this comment. Dont be lazy and let other people fight your battles. Take 1 minute and sign in to show your support and stand up for your bags.

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To be fair, as far as I remember, the 21 days was initially implemented to prevent voter abuse, not with regards to “fear that holders sell”. That said, the solution here is, to take a snapshot before initiating a governance discussion.

I like your second point. That could be interesting for the team and community to consider.

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So would the current way of linear vesting just happen over 36 months?

esHMX vests linearly and will take one year** to fully convert to HMX tokens.

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I am fully in support of this proposal.

Those who are complaining are the ones who don’t really care about the long term health of HMX.

Just tell me, how many of you are actually holding HMX and not esHMX?

The design listed above is clear that long term holders will not be affected.

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I only do staking, so I agree. However, I can understand the reasons for the opposing views. I think HMX needs to make further efforts to expand HMX to other chains rather than making such minor changes in tokenomics. If we aim for multi-chain dapps, not just Arbitrum and Blast, I think the price of HMX tokens will naturally rise.

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I don´t think it´s a good idea to force short term oriented users to stay longer in esHMX. Many of them will migrate to a different platform, which reduces volume and hence reduces the platform´s value.

Imo Point 2 mentioned by @MORE to allow different vesting windows with variable exit fees is a better way to balance long term holder interest and platform value. The exit fee could even be redistributed to esHMX stakers specifically to incentivize 1) not converting to HMX and 2) to stake esHMX.

Too much focus on short term price action of the token over platform utility/value is not a promising management strategy for long term investors, so you risk to lose them too.

That aside, I have major concerns with the implementation details.
Just like last time, the proposal suggests to change the logic for ongoing vesting amounts.

I don´t know if there is any place in the world where it is allowed by law to change a commercial contract in retrospect and single-sidedly without consent by the other party - this would be the real world parallel to the proposal.
Imo, this type of business conduct is fundamentally unfair and erodes trust in the team.

What will you do next time? Expropriate depositors to buy back HMX?Technically, you could do so.

I´m exaggerating here to get the point across: do not ever break trust with your users and / or investors. That means, honor past agreements and only make forward-effective changes.

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Since we talk about tokenomics again, I want to suggest another point that was mentioned in HIP 3 by someone else and which I fully agree with:

Implement a DP cap per staked HMX / esHMX.

This avoids a structurally unfair playing field among investors where later investors cannot ever catch up with the earning power of old investors. Naturally, this crushes demand for the token and reduces liquidity over time, as GMX demonstrated.

If the cap is reached after a reasonably long time, like 5 years, (i.e. max 5 DP per 1 es/HMX) it still incentivizes investors to stick around for the long term. However, it doesn´t repell new investors because they can eventually catch up to earn their fair share of fees, proportional to their investment value.

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I agree with you, the maximum DP level for each HMX/ESHMX should be set at 2-2.5, it will take 6 months to reach this maximum DP

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I understand where you’re coming from. Since you operate Possum Labs and Possum is an upfront yield protocol, it is in your best interest to realize the yields ASAP for your depositors. Naturally, you would want to exit your position ASAP, so I understand why you’re going against this proposal.

You cannot equate adjusting the vesting schedule to modifying a commercial contract retrospectively. In this case, there is no contract. Your esHMX tokens are still yours, and no documentation or protocol states that the terms will never change. The vested $HMX tokens are already yours, and you can do whatever you wish with them. The remaining esHMX tokens are also yours, but they will go through a longer vesting period.

Furthermore, any changes are subject to the governance process. If the proposal doesn’t pass, nothing changes. This is an opportunity for you to use your HMX and esHMX tokens to vote against the proposal if you disagree. Ultimately, this is a democratic process, and everyone has the right to vote as they see fit.

I am also the OP who raised this initially in a discussion thread, which you can find here.

I totally agree with your point about not breaking the trust of the investors. You can consider me an investor of $HMX as I hold a considerable amount. In my view, I also have the right to voice my opinion, and if the team doesn’t put this proposal up for voting, I would see that as a breach of trust, not the other way around.

Why should I have to endure short-sighted decisions from other users at the expense of my long-term investment? I need to advocate for what I believe is right for HMX, which includes suggesting what I think would be best for its future.

I’m NOT saying that these changes NEED to be implemented. I’m ASKING for this proposal, which received A LOT OF positive feedback in the original post, to be put up for voting.

Whether or not this gets implemented is UP TO the community based on the votes. As an investor, you are BREAKING MY TRUST by not at least putting this up for voting.

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Hey Possum, thank you for your thoughtful feedback. We appreciate your concerns, but we want to clarify that all significant changes, whether proposed by the team or community members, go through our governance process. This particular proposal originated from the community, was discussed, and has now progressed to the HIP stage for voting.

I’m not sure why you feel this is unfair or would erode trust in the team, as this proposal comes directly from a community member and we’re simply following the established governance process. Our governance model ensures that token holders have the final say on all major decisions. The team’s only role is to facilitate the process and participate in voting just like any other community member.

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It will be implemented like that if HIP-05 is put for voting without any changes the term and community votes for it.

Since there are various suggestions from our community. So need to wait if there is any changes on it or not. Also you can drop your suggestions regarding it mate. :innocent:

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Possum Labs is the most aligned partner of HMX that you can come across.

Our Portal offering upfront yield on HLP is a permanent sink of esHMX. The contract stakes esHMX and there is no way to unstake or vest it ever since our contract is immutable - as I already mentioned as a sidenote in HIP 3.

That out of the way, what´s the point of this thread if the proposal must be set up for voting in the current form? I thought it´s posted to discuss and make changes - just like in HIP 3 which then was changed before going to vote.

On the note of retrospective changes being unfair, let´s say you deposit your money in a bank at 5%. Half a year later you want to withdraw your money & interest but then the bank tells you that you can only withdraw after a full year because of a recent policy change. But you will get the money and interest as promised - just not now when you need it.

The above proposal is doing exactly the same in the context of HMX and it´s frankly beyond me how anyone can argue that this is not unfair.

I´m genuinely concerned about the long term outlook for HMX as a project - not the token - when this type of business conduct is demonstrated.

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I appreciate the position you’re in and why you’re against it, but in all honesty it’s a corner case scenario and we need to reward holders that have paid the price for the dumpers. New holders should worry about a “level” playing field as you alluded earlier because they get this protocol for a discount.

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Thank you for the clarification, and I apologize for any misunderstanding.

Anyway, regarding your analogy with the bank, that’s not entirely how I see it. I don’t think it is a fair comparison to say that esHMX is equivalent to bank deposits because of the following reasons:

Nature of esHMX Distribution: Unlike bank deposits, esHMX cannot be bought and can only be earned through protocol usage (i.e., airdrops, farms, trade). It is distributed as incentives rather than an asset that can be purchased.

Vesting vs. Withdrawals: Vesting esHMX is not equivalent to withdrawing money from a bank. Vesting is a process where earned incentives are gradually converted into liquid tokens over a specified period. Withdrawals from a bank, on the other hand, are straightforward transactions that reflect a different type of agreement and expectation.

Democratic Process: The changes proposed here require community input and voting. This democratic process ensures that changes reflect the collective will and best interests of the majority of participants. It’s not like I’m asking for this proposal to be implemented without the voting process. At the end of the day, users who hold esHMX and HMX will be able to voice their opinions through their votes.

Alignment with Long-Term Goals: The adjustments in the vesting schedule are proposed to align with HMX’s long-term growth. Everyone here, assuming good faith, wants the best for HMX as a protocol. This process is made with that in mind.

I think comparing esHMX to traditional bank deposits overlooks the fundamental differences in how these assets are earned, used, and governed. The proposed changes in the HMX protocol are designed to ensure long-term sustainability and alignment of incentives, which are crucial for the long term success of HMX.

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You raise fair points and I can understand your reasoning.

However, I disagree for the simple reason that esHMX is an essential factor in the PnL for those farming the platform. Those are the people / bots who drive volume & balance OI, so they are by no means useless.

Of course, I don´t mean to say that esHMX is like a bank deposit, it was just a metaphor. But esHMX is tangible economic value that is counted on by an important user group of the platform.