Given that the new protocol design does not share revenue with liquity token holders anymore, but only gives voting rights, I have the following proposal for the benefit of the liquity token holders.
Usage of the funds received
Bold incentives be directed to a smart contract that will buy liquity token from uniswap and send them to a burn address, something like: 0xliquityburn000000000 etc.
Impact for BOLD
Price action of the liquity token can be the best advertisement/marketting strategy of the new protocol and helping it to get more attention from the overall community. This proposal helps with that. This will bring more adoption by defi users to this protocol and make it the leading lending protocol on Ethereum.
Threshold & Target
There is no minimum or maximum threshold or target.
Impact Measurement, Tracking and Key
The community can track the number of burn liquity tokens on etherscan etc.
Reporting
No reporting is needed as long as the smart contract that does the buying and burning is immutable.
Practical Information
I am not an expert smart contract developer myself but just a liquity token shareholder and I wish someone from the liquity team to implement the smart contract to do this.
EDIT: Regarding impact I am updating the proposal with some math.
Impact for Protocol
We take three scenarios dependent on the success of the protocol and how much BOLD is minted i.e. borrowed:
Bullish: $10B (For reference AAVE stands at 14B)
Average: $1B
Bear: $100M
Assuming an average interest rate of 5% (currently we are at 7% and AAVE is at 10 so this is conservative) and the fact that 25% of interest goes to PIL (Hardcoded) and assuming a 30% vote on buybacks as opposed to other incentives we have the following:
Bullish: $10B * 0.05 * 0.25 * 0.3 = $37M
Average: $3.7M
Bearish: 370k
At the current market cap of liquity of 150M (you could assume this stays constant if you think buy backs do not create extra value) this is how much of the token supply would be bought back per year:
Bullish 37M/150M = 24.7%
Average = 2.4%
Bearish = 0.24 %
Revenues to LQTY holders = less revenues for Stability Pools and PIL
Yield-bearing stablecoins are the new meta and Liquity needs as many incentives as possible to expand its money supply.
If another stablecoin offers better yields, users make carry trades by massively selling BOLD and the stablecoin can’t expand anymore. Some examples:
Selling GHO to get sDAI
Massive carry trades with sUSDe from Ethena
This proposal would benefit LQTY holders, but penalize the protocol as a whole
Hello, and thanks for being amongst the first to submit a proposal; although I wished it was a better idea and a more qualitative write-up. I am sharing my detailed feedback to drive the discussion towards improvements.
About the idea
Buyback and burn is one of the stupidest concepts in crypto: it’s a massive waste of resources that could be better allocated to pretty much anything else (since the funds wouldn’t be burned but support a purpose).
No, the price of LQTY is not the best marketing for BOLD. Here’s the best marketing: the protocol itself is (=>education materials) and yields on BOLD, BOLD integrations in other protocols, BOLD on L2, etc.
And finally, more broadly, regarding the general concept of using some of the PIL for supporting LQTY, it could be something that can be considered, but certainly not when BOLD is 15M supply. All resources must be directed to grow the supply in the current phase.
About the proposal
I’m glad to see you re-using the template harnessed for the DeFi Collective proposal; however, this proposal feels very low effort:
Threshold and target are not defined; they should be.
The Impact Measurement is just left for the community to figure out… You’d improve the chances of this proposal gathering traction if you put in more effort. “Go check Etherscan” is not an appropriate tracking solution.
Likewise, reporting is not optional. Would you expect your boss to pay your salary every month if you were not tracking anything and not reporting on anything? I imagine not, so why would you think LQTY holders should support this proposal in this state?
Practical information: such a proposal’s implementation details would be relatively straightforward.
My position on the proposal
I’d vote 100% NO on this and hardcore campaign the community to do the same.
Hi
Thanks for taking the time to reply. In response to what you wrote:
1- Issuing buybacks is not an idea exclusive to crypto as public companies in tradfi do it all the time. Therefore, I would not dismiss it as being “stupid” that fast. Again comparing to tradfi usually the shareholders of a company either get dividends aka cash flows or keep the shares of large growth companies in anticipation of future cash flows. Since V2 has decided immutably not to give cash flows to shareholders it makes sense to keep the shareholders happy in another way. Buybacks are done in tradfi to keep investor sentiment high and also keep the stock price high in strategic times.
I think the new design has majorly ignored liquity share holders and disregarded its utility.
2- Even though that sounds ideologically correct, realistically speaking and whether you like it or not, people will take the market cap of the token as a first order approximation of how reputable and secure the whole protocol is. Nit everyone has the time or attention span to be “educated”.
3- I agree that most resources should go to BOLD at the moment as well to help expand the protocol but I also believe the voters can be smart enough to decide the allocation level that this should happen at.
I think the proposal is simpler so it does not require that much more explaining.
1- Not sure why we need a threshold and target for this proposal
2- Impact measurement is not trivial to figure out. What can I quantitatively say about the relationship of liquity price vs. changes in its supply vs market sentiment about the protocol.
3- Since we are not entrusting the PIL to an individual but to an immutable smart contract there is no need for reporting. Anyone one can “churn” the smart contract by paying its network fee to claim the incentive and buy and burn the tokens.
4- As I said I am not defi designer just a user, if you insist I can try to write the contracts but I really would prefer if someone else did it.
TradFI does many insane things and is not necessarily an example to follow. If you want more context on why burning is inefficient, please read this:
You acknowledge that measuring this initiative’s impact would not be easy… That should make you ponder whether the positive impact you anticipate would happen at all.
Finally, I was hoping you could explain to me, Maker, regarding the LQTY price action x confidence in the protocol assumption. The MKR token is notoriously one of the worst investments possible, yet users’ trust in the protocol and borrowing volume are high.
I invite you to check the Collective’s proposal; its impact is direct and obvious (every $1 allocated results in $1 of perma liquidity + $1 of incentives for BOLD LPs), and there will be precise reporting once it starts getting executed, allowing the LQTY voters to get down to a level of detail such as:
“This initiative receives XXXX BOLD weeks and drove YY M BOLD to Optimism/Base/Arb.”
It’s great to see active governance starting up for Liquity. To coordinate PIL effectively, it will be important to have a strong governance culture. So thanks for making this proposal!
I think buy back and burn may be something to consider in 6-12 months, depending on the growth of BOLD.
As for right now, I agree with TokenBrice and Stengarl that 100% of PIL should be used to grow the BOLD supply and BOLD integrations.
At this stage of the game, I think the price of LQTY will be most correlated to the growth of the BOLD supply. Because stablecoins are all about trust, visibility, and network effects. At this stage, we win by growing fast and having lots of integrations.
A buyback proposal gathers 30% of the total vote =~ 3k BOLD per week currently
Those parameters stay constant (extrapolation)
The buyback would amount to 0,0015% of the total weekly trading volume on LQTY.
Buying back and burning 1% of the total supply (1M LQTY = $1.5M with our assumptions) would take 500 weeks, so ~9.6 years.
==> Such a device is useless until we have >500M BOLD in circulation, if not 1B. We will get there and re-evaluate then (not for a buyback and burn, that’s insanity, but some form of value capture to LQTY).
I dont think this math is correct. Firstly you are confusing trading volume with market cap. Secondly you are not taking into account the fact the PIL income will be dependent on the amount of BOLD borrowed and just using this weeks numbers without projecting them.
I have added an analysis that I think is correct to the proposal for people’s reference
1- The article you have mentioned is not relevant to this protocol. It covers the case where liquity tokens would be issued to LP contributors which is not the case for v2. Even if it was somehow relevant, it is not the holy grail. Buybacks are a common established way of bringing value to shareholders whether your ideology thinks its stupid or not.
At the end of the day I am a liquity token holder and would like to have incentive to hold this token. You have also have incentive to guide PIL to your initiative and we have a conflict of interest. I dont appreciate your rude memes and passive aggressive comments on twitter.
2- I already addressed your wrong calculations on twitter and in this thread
3- Maker is the number 1 CDP protocol in terms of market cap so I dont see why you think its notoriously one of the worst investments possible. If it did buybacks to get there, good on them. If you can get liquity the n’th cdp protocol to that market cap I personally would be extremely happy.
I think it’s legitimate to think about ways of funneling value back to LQTY holders, but it’s something that needs to be well thought out both with regard to timing and the actual approach. It’s definitely too early at this stage.
As long as Liquity’s TVL is nascent, and liquidity is thin, it makes sense to use the entire 25% to incentivize DEX liquidity. But as the BOLD supply grows, the marginal utility of secondary market liquidity shrinks. While BOLD may initially need 10-15% in market liquidity for ideal functioning, this might drop to 5% or lower as the supply grows big since trade sizes don’t scale linearly with TVL.
That being said, we should aim for incentivizing TVL growth as much as possible, to eventually reach a point where we don’t need 25% of the incentives to go to DEXes.
Instead of burning LQTY, buying assets like wBTC / stETH could be a potential solution of providing value to LQTY stakers, as the liquidity stays with governance(needs a wrapper I think around existing governance module) and the liquidity can be repurposed later on to other initiatives depending on need.
I agree with what you are saying about making sure there is enough BOLD liquidity in the early stages of the project, say the first 6 months. Given the slow nature of development and iterating over ideas I still think we should start thinking more carefully and implementing things now as opposed to waiting 6 months to start thinking about how liquity stakers will benefit. There is no harm starting now and even if the proposal goes live tmrw it does not mean everyone is going to or should upvote for it.