The Functionality Of The Treasury
The central belief that underpins the Gnox protocol is giving all investors exposure to DeFi yield opportunities and that is why Gnox will be the first DeFi protocol with a treasury purpose-built to operate for the benefit of token holders. The Gnox tokenomics include a 10% buy and sell tax. Every time Gnox is traded 10% of the funds will be allocated to various purposes.
The full tax breakdown:
1% is redistributed to holders in GNOX tokens paid every 60 minutes
1% is transferred into a liquidity pool on PancakeSwap to create a stable floor price
6% goes to the treasury fund
2% will fund further marketing efforts to ensure a constant influx of new users driving up the token price and increasing the treasury’s capital value
The totality of funds accrued in the treasury will be deployed across various DeFi protocols with GNOX token holders being given the opportunity to vote on how the funds are allocated. The revenue generated by the treasury will be converted to stablecoin and then split two ways: 60% will go directly towards the treasury to ensure a larger capital sum with which to generate revenue, and 40% will be distributed to all GNOX holders proportionate to the number of tokens held.
The central goal of the treasury is to accumulate funds. With more funds available in the treasury the revenue it can generate will be greater, and thus the greater the monthly stable coinreflection to all token holders. The principal of the treasury will never be touched only the proceeds each month. This will lead to a constantly expanding treasury. And thus greater payouts for token holders.
Due to the nature of the Gnox treasury and its deployment strategy. The treasury will be more vulnerable to market fluctuations than the individual investor. The entire treasury will be converted from stablecoins into the desired tokens necessary for the chosen yield opportunity and reconverted each month. Whereas the individual investor could hold tokens for a prolonged period, for example, in the situation where the token’s value dipped, the investor could hold until their value climbed again. The Gnox treasury will be deployed in month-long cycles, so a 30% drop in the value of a token during the month, could see the treasury’s value slashed by 30%. Investors will be in control of the treasury’s deployment and thus must make an informed decision each month.
Token holders will have the power to vote on the deployment strategy of the treasury. Each investor will have a different risk tolerance and different financial vision but in this manner, a democratic vote can be cast. Following the vote, the treasury will be deployed in whichever protocol/ strategy is selected by the holders of Gnox.
DeFi deployment strategies will have various categorizations of risk varying from low risk/ safu all the way to high risk/ degen ape territory.
A low-risk option for the treasury would be to engage in DeFi stable coin loaning protocols with large well-trusted protocols such as Aave or Curve Finance. Or to provide stable coin pairs to liquidity pools again on large well trusted protocols. With the risk being low, the reward would also be low, with the APR typically being in the low single digits. This option would represent the safest investment strategy with no real chance of fund loss. However, stable coin payouts to the investors would be low.
A medium-risk option for the treasury would be to engage in liquidity providing. A good example of a pairing that would satisfy this risk tolerance is CAKE-BNB which currently offers a 30.14% APR. This pairing offers a good middle ground for CAKE the native token of the popular DEX PancakeSwap is a token that is longstanding, and BNB the native token of the Binance Smart Chain is also longstanding. These two tokens also display a correlation that makes them safer than most liquidity-providing pairs. If more people are using BNB it is likely more people are also using CAKE, therefore demand and thus the price of BNB and CAKE are very loosely paired which helps to protect the investor against Impermanent Loss.
In regards to rewards for liquidity providing: a portion of each transaction is distributed to liquidity providers in return for providing liquidity. The central risk involved when providing liquidity is Impermanent Loss. Participants must understand the dangers of proving liquidity and in certain cases, participants providing liquidity can experience losses greater than if they had just held the tokens separately.
In simple terms, the impermanent loss is what happens when there is a divergence between the price of the coins when initially deposited and when they are withdrawn. Impermanent loss happens regardless of whether the tokens’ prices appreciate or depreciate. What is crucially important is the price ratio at the point of depositing.
As stated earlier the Gnox treasury would be converting all generated revenue each month into stable coins thus the risk of impermanent loss is higher than a solo investor who can continue to hold the paired tokens until they appreciate in price- not that this is guaranteed to happen.
The investor hopes that the transaction fees they receive are greater than the impermanent loss suffered but this is not always the case.
A high-risk option, it should be noted is not encouraged during times of intense market volatility and a strong bearish sentiment would be liquidity providing to a lesser-known pair offering a higher APR. The smaller the total liquidity in a pool the higher the returns because the risk the investor takes on is greater. Investors must understand even if a liquidity pool offers an outrageously high APR sometimes as high as 1000%, nothing can protect the investor from a decline in the coins price. To illustrate even a 9,500,000% APR is utterly worthless if the token’s price drops by 95%. This has been highlighted by the decline of the high APY DAOs including but not limited to Olympus and Wonderland both down more than 90% from their All-Time Highs with both showing no signs of recovery.
This strategy can be broadly considered high risk and will be done in special circumstances but depending on the acquisition the risk categorization will be subject to change. Within this risk categorization, a medium-risk option for NFT acquisition would be projects similar to Sappy Seals or Cool Cats which already have an established floor price. A high risk would be an unknown NFT project which could appreciate or turn out to be worthless. NFT acquisition will be made in rare circumstances when the opportunity is provided by market conditions.
The Importance of Gnox Token Holders
Every month the token owners will vote on the deployment strategy of the treasury. The success of the treasury will largely come down to the decisions made by individual investors. As with all things in life, balance is often a good thing, and for the continued success of the protocol, a fine line must be tread between generating sufficient revenue each month and ensuring the safety of the treasury for the revenues of the future. In line with the democratized values of decentralized finance, the investors will shape the future of the protocol.