Proposal to Improve Tokenomics and Utility of HMX Token

Background and motivation: I propose my thoughts on improving the tokenomics and utility of HMX. In my opinion, it’s impossible to enhance the project’s appeal through restrictions and bans. The project’s attractiveness should be improved through flexibility, variety, and rewards for loyalty.

The innovations I propose, in my opinion, will increase the project’s attractiveness for all parties - HMX holders, liquidity providers in HLP, and the project itself.

Objective: Yes, I don’t fully understand some technical aspects of my proposed innovations and don’t provide specific detailed figures and calculations; I am merely outlining general ideas. How attractive they are and what exact proportions and numbers to apply should be decided by the newly launched DAO.

Proposal Details:

Allocate HMX to HLP

I propose that the protocol allocate a portion of the commission revenues to buy HMX from the market and place them(permanently locked) staked within the HLP. It doesn’t matter what we call it - buyback, treasury, POL, or anything else. The principle here is as follows:

Gradually buy HMX to increase its weight in HLP to 3-5%. Then, if demand for HLP grows, regularly buy HMX from the market to maintain the token’s weight in HLP at 3-5%. If demand for HLP falls, causing HMX’s weight in HLP to exceed 5%, the project stops buying HMX from the market and starts buying GM-BTC & GM-ETH in HLP.

Thus, if the HMX token price rises, its weight in HLP increases, and the protocol starts buying GM-BTC & GM-ETH in HLP, balancing their weight relative to HMX. The income received from HLP can either be used to launch some incentives, for a constant HMX buyback from the market, or to pay an intern’s salary; how to use this income should be decided by DAO voting.

If the token price falls, its weight in HLP decreases, and more tokens need to be bought from the market to support its price.

Staked in HLP, esHMX tokens give HLP holders additional income. For example, if the current APR of esHMX is higher than HLP, HLP holders benefit. If esHMX yields less than HLP, the total income of HLP decreases slightly, but this likely means the token price has fallen, and hence the HMX buyback will be higher, benefiting HMX holders.

In both cases, the project itself benefits as the token price is supported, and the project earns income from staked esHMX and owning HLP.

We must not forget about the third party - traders; we want them to benefit as well, right?

Reducing Vesting, Penalties, Force Unstaking

Firstly, I propose reducing the vesting period to 3 months. Additionally, introduce the possibility of early force unstaking. However, to benefit HMX holders and the project from force unstaking, I suggest introducing a penalty for force unstaking, which decreases linearly from 50% to 1% depending on the vesting period. Simply put, if a trader earns rewards in esHMX and decides to convert them to HMX immediately without vesting, they pay a 50% penalty in their rewards. Part of these penalized esHMX goes staked within HLP, and another part is distributed among HMX stakers; the proportions should also be decided by DAO. If a trader holds esHMX in vesting for 1.5 months, they pay a 25% penalty; if they hold it for 3 months, they pay a 1% penalty for unstaking.

Ability to Lock esHMX for 1, 2 Years or forever with Additional Income

Loyalty should be rewarded, so I propose enabling the lock of esHMX for one and two years or forever. These tokens cannot be force unstaked during this time and should be given increased income. This could be a part of the project’s revenue from the sources described above or directed incentives like those from Pyth. Alternatively, the project could buy ETH with part of the profits and distribute them to locked esHMX.

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Hey DeFiVoyager!
Thank you for your proposal and participation in the forum. The tokenomics vote is currently in progress, but we will definitely study your various suggestions with the community for future proposals related to tokenomics. Your insights on improving the tokenomics and utility of HMX are appreciated, and we recognize the importance of flexibility, variety, and rewards for loyalty in enhancing the project’s appeal. We look forward to further discussions and community engagement on these ideas.

Yes I agree with the idea that you have proposed except for the vesting period being reduced without a penalty as well. We could leave the long lock up for esHMX but give people a declining penalty over the lock up period that they can pay to unlock esHMX early.

Possibly make the unlock penalty slightly exponential in the beginning to allow for a faster decline in the first year and then switch to a linear model for the remaining lock up time. The penalty should start at say 90% for day one and then by the end of year 1 decline to say 50% and the rest of the years decline at a straight line to get to 0% penalty on the last day.

A similar method could also be employed to the additional income for locked up HMX if committed to locking for say 2 years if the contract is broken and the staker wants out they would pay a penalty of x% of income only not principal since its fully unlocked HMX not esHMX which is above and have a declining penalty over the time of the contract and in addition adjust the earnings through a penalty as if they had locked HMX up for the period until it was unlocked early.

For example if they commit to 2 years but unlock after 1 year they would have been paid for the two year unlock so the earnings would be adjusted via a exit penalty on top of the declining penalty over time of x% until it reaches 0% so that people will be incentivized to keep there HMX commitments once made but have the option to unlock with fees drastically reducing earnings the earlier the contract is broken.

All of these fees should go to current HMX stakers. This would benefit HLP also if it were to hold a percentage of its assets in HMX units which could be paid for by using the additional unlock fees to partially buy back and burn HMX, send some to a permanent lock up in HLP so HMX price will be impacted positively when there are buybacks and burns. Having HMX as a part of HLP would also help stabilize earnings more for the HLP product as they would receive some of the fees from the HMX stake that is held in perpetuity in the HLP product. The amount should remain a relatively small portion of the HLP portfolio maybe 5%-10% and these amounts would only come from a portion of the penalties paid.