Background & Motivation:
I have rarely participated in governance processes, but I believe it is my duty as part of the community to suggest potential improvements for better outcomes. As a holder of HMX, I’ve been thinking deeply about improving its tokenomics. Recently, HMX holders have faced challenges due to the market conditions and sentiment, leading to a constant price decline.
While the market is to blame for the overall decline in altcoin prices, I believe now is an opportune time to revisit and possibly adjust our tokenomics to benefit all holders.
Last month, the team proposed a potential improvement to HMX tokenomics by suggesting a staking requirement for esHMX vesters, which faced backlash from the community. You can find the discussion thread here. I would like to revisit this discussion and propose a solution that I believe is fair for all parties involved, while putting the HMX community first.
Objective:
To help improve the price action of HMX token through reduction of the sell pressure by users who do not show any platform loyalty (i.e. farmers and dumpers).
Details:
To assess tokenomics to identify the most appropriate course of action, I believe we need to understand the different stakeholders holding HMX/esHMX. In my view, we can categorize holders of esHMX into the following categories based on what they do with their esHMX.
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Stake Only: These holders, once they claim their esHMX, proceed to stake their esHMX without vesting. They do not intend to vest esHMX as they potentially do not plan on ever selling, and would like to compound rewards and DP as much as possible, to earn a higher share of protocol revenue over time. In my view, this group of users is the most loyal and long-term oriented, and should be rewarded.
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Vest & Stake: These holders, once they claim their esHMX, start vesting their esHMX. Once the esHMX has been vested and converted into HMX, they stake their HMX to start earning protocol fees and more esHMX from emission. They probably choose to vest initially, because they want to to give themselves flexibility to sell their vested tokens if they no longer believe in the project. In my view, this group of users exhibit medium level of loyalty to the platform, as they may have an intention of selling the tokens later.
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Vest & Dump: This group of users, once receive their esHMX tokens, choose to vest immediately and then sell the vested tokens into the market to lock in profit and yields. While there is nothing wrong with this approach, I believe it is the most short-sighted group of all and does not exhibit any loyalty to the platform as token holders.
Note: Please note that a user can be a combination of group 2 & 3, which mean they vest and stake some and sell some.
When examining these three categories of users, I believe Dragon Points (DP) can serve as a proxy for platform loyalty.
Assuming all users start with the same amount of esHMX:
- Group One (Stake Only) will have the highest number of DP because they continuously stake their tokens without vesting.
- Group Two (Vest & Stake) will have a moderate amount of DP, as they initially vest but continue to stake afterwards.
- Group Three (Vest & Dump) will have none, as they quickly vest and sell their tokens without staking.
Therefore, DP can be a reliable measure of user loyalty and commitment to the platform.
With that said, I propose that we revisit HMX’s tokenomics adjustment plan with the following changes:
Adjustment #1: Introduce a vesting requirement with DP for current vesting period
This adjustment will require esHMX vesters to have DP staked to start vesting their tokens according to the original 12-month schedule. For example, a possible requirement could be 1 DP for every 4 esHMX (1:4 ratio). This number is arbitrary, and the team can determine the most suitable ratio, but a 1:4 ratio seems reasonable in my opinion.
With this adjustment, users who have been vesting and dumping esHMX on stakers will be most affected (group 3) while users who just stake only (group 1) will remain unaffected. If users in group 1 choose to vest, they should be able to do so, as they should have accrued a certain amount of DP.
With a lenient 1:4 ratio suggested above, I believe this is very fair for all the stakeholders, as DP is emitted at 100% APR, which means users will have stake for only one quarter to have enough DP to vest their staked amount.
Adjustment #2: Lengthen the vesting period for all users vesting HMX to 36 months
While introducing a DP staking requirement, users can still vest their esHMX. However, the vesting schedule will be extended to 24 or 36 months instead of the current 12 months. This allows users to realize their yields/gains, but over a longer period.
The original proposal suggested a staking requirement where users would need to stake HMX to vest esHMX, forcing those who have esHMX but no longer hold HMX to purchase HMX from the market to stake, offering no exit option without additional expenditure.
Increasing the vesting period addresses this issue by allowing users to exit without spending extra funds, though over a longer timeframe.
Implementation Details:
Here are some key implementation details to consider. These are open for discussion, but I am sharing my thoughts:
- All esHMX in vesting will remain unaffected if the user has enough DP staked to cover the esHMX in vesting based on the suggested ratio (1 DP : 4 esHMX).
- All esHMX in vesting beyond users’ DP coverage will be unvested. Users will have to vest these tokens again through an extended vesting period of 24 or 36 months.
I believe existing esHMX vesting positions should not be grandfathered, as the vested HMX can already be claimed by the user. Existing positions that have not been vested should follow the new vesting requirement and timeline.
Conclusion:
In summary, I believe these two changes will be crucial in improving HMX’s tokenomics and fostering long-term growth. These adjustments protect the interests of long-term HMX holders from short-term profit seekers while keeping long-term holders unaffected.
They also address the key concerns raised by the community in the previous proposal, as users will no longer need to spend funds to exit their remaining esHMX.
Lastly, as a holder of HMX, I urge our fellow HMX holders to share their thoughts and support. The loudest voices in the community seem to be from those who vest and dump. As long-term holders, we need to show unity and demonstrate that there is a significant group of users who support protecting the long-term interests of HMX.