Hi! This is Mona from the Avantgarde Finance team. We’d like to explore bringing in the $GRT delegation functionality into the Asset Management protocol Enzyme. Our company has carried out a lot of the core development work around Enzyme over the last few years and as part of that work we have also developed and maintained one of the first subgraphs in the ecosystem.
We see the following frictions with delegation, staking and signalling of $GRT which we think we can address over the short/medium term.
- We currently see a tendency towards an indexer oligopoly where only a small number of indexers have the most stake and therefore also the biggest delegation capacity. Inexperienced delegators are likely to delegate to the top 10 indexers because it feels safer to do what everyone else is doing. An Enzyme vault managed by a sophisticated fund manager could delegate its entrusted $GRT smarter to smaller indexers which are trustworthy but not so well funded.
- Today, investors holding $GRT in an Enzyme vault miss out on the yield they could potentially have from delegating their GRT because delegating from the vaults is not possible
- Today, if you delegate your tokens to an indexer, the minimum lock period is 28 days making delegation illiquid and capital inefficient. Ideally there would be some kind of ERC20 wrapper around delegated $GRT in order to facilitate Liquid Delegating.
- There is no way today to create any additional yield on top of $GRT whilst they are being delegated.
- There is potentially a large pool of people who may have the skills to be great indexers but don’t necessarily hold the minimum amount of GRT required to become an indexer. Indexing requires a lot of active management which Enzyme was designed for.
- Additionally, indexers can only receive delegation up to a maximum of 16x the tokens staked by them. In other words, if they’re doing a very good job and attract a large amount of delegation, the excess delegated tokens are just dead weight. Having a vehicle which they could raise capital to allow for growth in capital relative to growth in delegation will increase capital efficiency and performance of the vaults.
Proposed technical solution:
- Enabling the delegate functionality for $GRT from an Enzyme vault via writing an external position adapter for the protocol.
- Write test suite, audit contracts & proceed with integration.
- Providing an easy UX/UI for both investors and the indexer via our interface.
- Spec out what would be required to add indexer functionality. If straightforward, implement this functionality too otherwise work towards a phase II proposal depending on initial traction & interest.
What possibilities does this open up?
- Ability to create a transferable, ERC20 wrapper (the Enzyme vault token) around a delegation pool thus creating further possibilities such as:
- Better spread of delegation/staking due to sophisticated Vault managers who are knowledgeable about The Graph ecosystem.
- A secondary marketplace for liquid delegation because the Enzyme Vault holding the delegated tokens acts as an ERC20 wrapper and is transferable.
- The possibility of creating incentivized liquid delegation pools on say Curve or Uniswap.
- Possible gas savings and simplifications for people. Eg. Easier to buy ERC20 Liquid delegation tokens on a DEX rather than having to buy the token $GRT and then delegate it and then wait 28 days plus before being able to undelegate and transfer/sell/ etc.
- Empowering more indexers and reducing barriers to entry thus paving the way for broader decentralisation.
- Higher capital efficiency for indexers and their delegators and better overall returns as a result.
- Other things we probably haven’t thought of!
Curious to hear your thoughts on this and discuss…