Summary
Proposal to implement buy and burn of NOTE Tokens
Context
NOTE tokens are emitted from the treasury to reward nToken holders for providing liquidity in vaults and its utility limited to governance and LP staking.
Currently a portion of the treasury funds are added to the Balancer NOTE/WETH pool and sNOTE received is then distributed to the liquidity providers as rewards.
The LP rewards started out in Q2 2022 however since then we have seen an overall decline in the market impacting the price significantly. During this time the IL suffered by LPs would have been higher then the rewards received. The NOTE token holders involved actively in the governance have also been impacted severely.
The number of NOTE tokens in the Balancer pool has increased from 3mn(a few days after the start of LP) to 14.9mn as of today which is currently 33% of the total circulating supply.
The current mechanism of reinvestment of treasury funds into the pool strengthens it temporarily. The sNOTE received can eventually be converted to NOTE/ETH and then dumped into the market. This entire process becomes a zero sum game and adds no real value to the eco system.
Proposal
A portion of the funds that is being rewarded to stakers should be re-allocated to buy and burn the NOTE token.
For e.g. if earlier 1 ETH was being provided as rewards to stakers every week and if community agrees to utilize 50% of rewards for buy and burn then only 0.5 ETH should be rewarded to stakers and the remaining 0.5 ETH should be used buy and burn NOTE tokens from the pool.
Advantages
- Adds deflationary aspect to the tokenomics.
- Incentivizes holders of the NOTE actively involved in the governance.
- Incentivizes long term stakers who have witnessed a significant IL.
Disadvantages
- The rewards to LP would be reduced by 50%
- Affect the NOTE liquidity if LPs withdraw due to lower rewards
Points of dicussion
-
Duration
- Fixed - 3 , 6 , 9 months or a certain milestone
- Regular review and final decision through governance
- Tentative Criteria - Stop when 5% , 10% , 15% of token supply os burned.
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Timing & Mode of Execution(Team to decide based on minimum dev work as they see fit)
- Weekly - At the time when rewards are distributed , gives the flexibility to change % but also would
need changes in the code if the process is automated
- Biweekly - If the community decides to use 50% rewards for buy and burn then , if 1ETH is being rewarded every week on an average then Week 1 - 1 ETH to stakers , Week 2 - 1 ETH Buy & Burn, Week 3 - 1 ETH to stakers , Week 4 - 1 ETH Buy & Burn and so one.
No change in the current code(that provides staking rewards) except the timing of execution , a new code/bot to execute buy and burn.
Similarly if the community agrees to use 75% of the rewards for buy and burn then Week 1 - All
Reward to stakers followed by Buy & Burn in Week 2,3,4
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Options - What and how many options to consider for voting. The template of following options - % weekly rewards for buy & burn and staking
- 75% Buy & Burn , 25% Reward to Stakers
- 50% Buy & Burn , 50% Reward to Stakers
- 25% Buy & Burn , 75% Reward to Stakers
- 0% Buy & Burn , 100% Reward to Stakers (For those who want to vote but interested in
maintaining status quo)
- 100% Buy & Burn , 0% Reward to Stakers (Liquidity can vanish?)
2 Likes
Agree!
I prefer “50% Buy & Burn , 50% Reward to Stakers” option.
Mentioned 5 options for buy and burn vs stake , we should probably have the first four made available as options to vote on.
1 Like
From the Notional Labs side I just want to comment with respect to an estimate for the development work required to make this change.
We think any changes here would be minimal, no audit would be required, and would likely amount to only a day or two of dev work. So I don’t think resource constraints should stand in the way of this proposal if tokenholders want it.
1 Like
Great to hear that Ted.
Out of the 3 points to discuss , the second point has been handled.
Duration - Even if the price were to be at 10 cents for the next one year and assuming 100k USD is spent in buying and burning NOTE then only 1 million tokens will be burnt which is only 1% of the total supply. Having cap as a metric to stop burn does not make sense.
I believe the duration should be indefinite till we have some new tokenomics or staking module in place which will ideally be done in the next 1 year worst case.
Voting Options - Limited to the first four.
Unless there are any more feedback from other community members , we can put this to vote early next week?
I wouldn’t suggest a burn until the protocol has grown significantly and is bringing in significant positive cash flow. Until then, all available resources should go towards growth or building reserves for further development.
At current prices, how much would actually be burned at a 25% or 50% level?
Burn option is about to preventing NOTE token price declination. If NOTE keep declining, It’s a dead cycle for the project. Instead, If NOTE price can go up, more TVL and attention will come, It’s the positive cycle.
I think it’s not about how many token will burn, It’s about how to prevent endless dumping and gain more attention and confidence.
I have a bit more feedback for you:
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It’s a little unclear to me what we would be voting on exactly. Would you want to vote up or down on a single option? Or do you want to present multiple options? I think being fully specific about what the vote would be would be helpful here.
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The treasury reinvestment program is not indefinite. There is a finite amount of COMP left within the treasury that is being spent down at a consistent pace of 65 COMP per week. Are you suggesting that this proposal continue for the duration of the current treasury reinvestment program? What you’re suggesting here just isn’t totally clear to me, and I think tokenholders would benefit from more specificity.
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With regard to timing, the earliest the post could go to a vote would be early next week but I think it’s a good idea to give sufficient time for tokenholders and delegates to respond and give feedback. We’ve only had one delegate respond here so I think it probably makes sense to give the others a bit more time to share their thoughts.
@twoodward10
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Will be voting on the % of reinvestment to be used for buy and burn. Options that we need to vote on is below. We should go ahead with the one with most votes once it reaches quorum.
- 75% Buy & Burn , 25% Reward to Stakers
- 50% Buy & Burn , 50% Reward to Stakers
- 25% Buy & Burn , 75% Reward to Stakers
- 0% Buy & Burn , 100% Reward to Stakers (For those who want to vote but interested in
maintaining status quo)
-
By indefinite I meant till the time reinvestment is ongoing and sNOTE is being distributed.
Things that were unclear or needed feedback / review on were added to points of discussion.
Based on the feedback received , I will replace the open points with concrete ideas.
1 Like
Right now as mentioned by Teddy 65 COMP is being sold in the open market and then ETH received is reinvested into the Balancer pool, the sNOTE received is redistributed among the liquidity providers. The liquidity providers are then free to unstake and dump the rewards received.
From this we are requesting to reinvest only 50% of ETH and use remaining 50% of eth to buy and burn $NOTE. At current price of $51 per COMP , weekly $3300 is being reinvested and with 50% being used for buy and burn we will burn 16.5k NOTE tokens per week assuming the price of NOTE is 10cents.
We are neither requesting for any additional treasury funds to be used for buy and burn, nor for burning any idle unused NOTE tokens. So the point raised for retaining funds to use for growth or building reserves is not applicable in this case.
Whether we give 100% rewards to LPs or give only 50% of it and use 50% for burn, eventually the LPs are benefitting from this directly or indirectly.
There is no better time to burn tokens than at the bottom.
2 Likes
Here is the edited proposal after incorporating feedback from the community.
Summary
Proposal to implement buy and burn of NOTE Tokens
Context
NOTE tokens are emitted from the treasury to reward nToken holders for providing liquidity in vaults and its utility limited to governance and LP staking.
Currently a portion of the treasury funds are added to the Balancer NOTE/WETH pool and sNOTE received is then distributed to the liquidity providers as rewards.
The LP rewards started out in Q2 2022 however since then we have seen an overall decline in the market impacting the price significantly. During this time the IL suffered by LPs would have been higher then the rewards received. The NOTE token holders involved actively in the governance have also been impacted severely.
The number of NOTE tokens in the Balancer pool has increased from 3mn(a few days after the start of LP) to 14.9mn as of today which is currently 33% of the total circulating supply.
The current mechanism of reinvestment of treasury funds into the pool strengthens it temporarily. The sNOTE received can eventually be converted to NOTE/ETH and then dumped into the market. This entire process becomes a zero sum game and adds no real value to the eco system.
Proposal
A portion of the funds that is being rewarded to stakers should be re-allocated to buy and burn the NOTE token.
For e.g. if earlier 1 ETH was being provided as rewards to stakers every week and if community agrees to utilize 50% of rewards for buy and burn then only 0.5 ETH should be rewarded to stakers and the remaining 0.5 ETH should be used buy and burn NOTE tokens from the pool.
Advantages
- Adds deflationary aspect to the tokenomics.
- Incentivizes holders of the NOTE actively involved in the governance.
- Incentivizes long term stakers who have witnessed a significant IL.
Disadvantages
- The rewards to LP would be reduced by 50%
- Affect the NOTE liquidity if LPs withdraw due to lower rewards
Additional Details
-
Duration - Buy & Burn is done using funds from reinvestment program . Hence , till the time reinvestment program is active the buy and burn should be active as well.
-
Timing & Mode of Execution - Team to decide based on minimum dev work as they see fit
-
Options - 4 options to be considered for voting.
The template of following options - % reinvestment funds to be used for buy & burn , % reinvestment funds to be used for staking
- 75% Buy & Burn , 25% Reward to Stakers
- 50% Buy & Burn , 50% Reward to Stakers
- 25% Buy & Burn , 75% Reward to Stakers
- 0% Buy & Burn , 100% Reward to Stakers (For those who want to vote but interested in
maintaining status quo)
1 Like