Fees and Reflection: Sustaining the Protocol
Overview GMI employs a strategic combination of fee structures and reflection mechanisms to enhance the Total Value Locked (TVL) through Protocol Owned Liquidity, bolster the resilience of the Index, and generate necessary funds for protocol maintenance.
Fee Structure The fee system is designed to incentivize behaviors that align with the Index’s objectives, specifically maintaining optimal token weights. The fees adjust based on the transaction’s impact on the Index's balance:
Minimum Fee: 33 basis points (0.33%)
Nominal Base Fee: 100 basis points (1%)
Nominal Base Tax: 60 basis points (0.6%)
Fee Adjustment Mechanisms
Beneficial Transactions: If a transaction helps balance the Index by bringing a GM asset closer to its target weight, a rebate is applied, reducing the fee down to the minimum of 33 basis points as needed.
Detrimental Transactions: Transactions that move the asset weighting away from its target incur a tax, increasing the fee by up to 60 basis points, potentially reaching a maximum of 160 basis points (1.6%).
Fee Calculation for Transactions
Deposits: The fee calculated (in basis points) is applied to the amount of GMI tokens to be minted:
feeAmount = (mintAmount * fee) / FEE_DIVISOR
Withdrawals: A similar calculation applies, but the fee is based on the GM tokens being withdrawn:
feeAmount = (withdrawAmount * fee) / FEE_DIVISOR amountOut = withdrawAmount - feeAmount
Reflection Mechanism To foster growth in TVL and enhance the Index's robustness, the fees collected from deposits are allocated as follows:
60% for Reflection: This portion is reinvested into the Index in the form of newly minted GMI tokens, directly increasing TVL.
40% for USDC Looping Liquidity: This portion is managed by the protocolFeeRecipient address for liquidity operations.
Detailed Impact
Deposits: The reflection from deposits not only bolsters the Index’s value but also supports ongoing liquidity and operational efficiency.
Withdrawals: Reflections from withdrawals are similarly reinvested to maintain and enhance the Index's financial health.
For a deeper understanding of the deposit and withdrawal functions, including example calculations.
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