Preface: As discussed in today’s Secret Swap Committee Meeting, I believe that all governance proposals should have accompanying forum posts which better enable discussion and specification for enactment. I’m choosing to post this here BEFORE proposing on governance so that as a community we can better understand and weigh the pros and cons of this idea and the practicalities of its implementation before enumerating it in a governance proposal. My current plan is to propose a version of this protocol in detail this weekend, but both the proposal, and my decision to post it are subject to change based upon feedback in this forum.
Purpose : I’ve been requested by the community to author a governance proposal to suggest a buyback/burn mechanism for the SEFI token. Under guidance from the Secret Swap Committee call, this forum post is meant to facilitate discussion before I potentially create said governance proposal on the summation of our combined conclusions and thoughts on this subject.
Goal : The goal of this proposal is not merely as a temporary price flash but is to give the SEFI token non-speculative value. Adding buy pressure without replacing it with equivalent sell pressure does game well theoretically in the short term, but the long-term implications would be for SEFI holders to own a percentage of the volume. This would also incentivize further development of the exchange by means of facilitating volume-based growth for SEFI holders.
Plan Overview : In current ideation, this buyback/burn would work by changing the structure of fees gathered in incentivized pools, so that instead of 0.3% going towards liquidity providers, 0.25% would, and the other 0.05% would be used to purchase SEFI and burn it, permanently removing it from the supply.
Liquidity Providers : The opportunity cost for enacting this comes on behalf of the Incentivized Liquidity Providers, whose fees will decrease by 1/6. This would still be beneficial for them if the price of SEFI goes up however, as currently the SEFI rewards are more substantial than those of the LP fees collected, and a higher price would raise the incentivized APY. Liquidity Providers for non-incentivized pools would not be affected.
Traders : Since the .05% comes from the LP’s section of the fees, trading fees are not raised, and traders are unaffected.
SEFI Holders : SEFI would no longer be strictly speculative but would have its first metric of inherent value which would not be mutually exclusive with any other ideas of further value capture which may be conceived and proposed later on.
Pragmatic Implementation : Implementation of this is likely difficult to decentralize. Ideally we could code all this in directly to the pairs, but would have to organize where and how to get enough gas to process the transactions in addition to other difficulties. It could be time consuming and expensive as pools change as to whether they’re incentivized or not, and it has been suggested this might be more time-consuming than it is rewarding or value capturing. Therefore, while I would like for this to be the case, I currently plan on proposing a less attractive, cheaper and more centralized iteration, with the goal of eventually enabling the former idea should it prove possible and worthwhile.
My current proposal (very much subject to feedback) is for the newly passed SEFI Executive Committee to reach out to and hire developers (ideally the Enigma team) to program into the applicable pools routing the 0.05% of fees to a wallet that could be accessed by the SEFI Executive Committee, and have the committee manually purchase SEFI once per week and sending that SEFI to the burn address on the first of every month with an accompanying public disclosure as to the monthly burn total.
Specific Details :
- To cover gas the SEFI Execs will occasionally convert received from fees to SCRT, keeping the amount of SCRT in the wallet between 10-100 times the average gas fee (within reason, gas prices change but at times of conversion those would be the guidelines).
- For initial gas this account could borrow 1 scrt through the secret-pizza section on the discord.
- Weekly conversions would only be done on assets that had a cumulative value of over $100 in the wallet. If some incentivized pools got very little volume that week, it doesn’t make sense to burn gas and go through the motions. That amount will still be there the next week.
- Average gas will be used unless special situations require more.
FAQ’s – Concerns that have been actively voiced and should be publicly considered and addressed:
- Auto-burning part of inflation would be an easier way of lowering supply
- This is true, but it is specifically the Buyback section of this proposal that gives SEFI holders non-speculative value for their token. The burn is simply so that that given value is held permanently and not balanced by equating the buy pressure with sell pressure
- There are better ways for developers to spend time on SEFI
- This may be the case. The current suggestion which is centralized and not ideal would require less dev-work per my understanding, but the enactment of this protocol wouldn’t be mutually exclusive with other value capture mechanisms. The more the merrier as far as I’m concerned, and community members have made it clear to me that they didn’t want to sit on their hands hoping on other undisclosed value capture methods.
- This is a lot of effort for very little reward
- This is also possible and should be considered. At the time of writing this the Secret Swap has had $300M in volume, most of which has been in incentivized pools. If all had been and this proposal was in place the entire time, a total of $150,000 would have been used to buyback/burn SEFI ($500/Million). That’s not a substantial amount in and of itself. As bridges continue, liquidity grows, price goes up, and volume increases however this proposal has the potential to grow into being substantial, and that growth would directly transfer as value to SEFI holders. It’s a way of SEFI holders to bet on themselves and their platform. It is also an easy to understand first step towards value capture.
Full Disclosure : I believe that as of the Secret Swap Committee meeting this morning, I am to hold one of the SEFI Executive Committee Community Seats (the other belonging to Iowascero). With that in mind this could be read as a means of me trying to give myself more power. As contrary words are meaningless without action, know that I am committed to transparency with the community and am genuinely open for discussion and don’t get easily offended. Please shoot all concerns my way, I’d rather them be properly addressed than become rumors or welling discontent. It’s entirely possible (which is why I so detailed this enumeration) that many may only consider enacting this protocol if it were to be fully automated. Even as a committee member I would prefer this as well but think that this more manual iteration would be an easier transition to early enactment, and also a compromise based on the warranted FAQ that considers this too great an expense on the opportunity cost of developer time.