Some people in the telegram channels have asked me to better enumerate my concern with specifics, so attached is an example with my thoughts in hopes of more properly gaming this out.
Is burning 50% of each in Sefi-Scrt pairing an effective supply-sink for both? Let’s use an example ICO and analyze the pros and cons. According to the forum post, initial accepted donation tokens for participating in launches are LP tokens for scrt-sefi, scrt-wbtc, scrt-eth, scrt-bnb, and scrt-usdt. In the 4 pairings which don’t include sefi, 100% of scrt will be burned, and the other coin will be given to the team to be sold for funding. This gives wonderful buy-side pressure for scrt as well as an expansive supply sink. For the scrt-sefi pairing, however, only 50% each will be burned.
Let’s say a project wants to raise $10M on the Secret Starter, which would require $20M in donations due to burn setup, and let’s say (completely unfairly as this is unlikely unless amended to be the case) that each pool contributed evenly. The resulting amounts would be:
$10M worth of Scrt
$2M worth of Sefi
$2M worth of Eth
$2M worth of Usdt
$2M worth of wbtc
$2M worth of BNB.
Here $9M worth of Scrt would be burned, and $1M worth of Sefi, leaving the team with:
$1M Scrt
$1M Sefi
$2M eth
$2M wbtc
$2M bnb
$2M usdt.
Now the team sells the $8M of non scrt based assets, but what do they do with scrt and sefi? Just sell them too? That’s possible, but as they’re releasing a SNIP-20 they’re going to always need an amount of scrt enough to cover gas fees, and since it’s proof of stake it is most likely that they will stake enough so that their monthly rewards will enable them to cover gas fees perennially.
What does the team do with Sefi? They sell it. It has no inherent value to the team and can only be sold, but, it can only be sold for SCRT ! Selling $1M of Sefi for Scrt would substantially lower the price of SEFI in terms of Scrt. At this point the team STILL has to sell the SCRT, so this wasn’t avoided at all, but now as the price of SCRT drops, it once AGAIN drops the price of SEFI, which is represented in ratio to SCRT. This means that after this is done the team still will have had the same sell pressure in terms of SCRT, but the price of SEFI was arbitrarily lowered first in the name of having a 9:1 ratio of scrt to sefi value burned, as opposed to a 4:1 ratio.
Possible solutions?
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Burn 100% of SEFI in that pairing!
- It won’t change the amount of scrt somebody ends up with, but won’t put needless selling pressure on SEFI without adding buying pressure, which is evidenced by the fact that most pairs don’t include it so there’s no need to buy sefi in order to participate in the launch.
- Don’t offer that pairing!
- If you want scrt burned then just have 100% of scrt burned and don’t offer this pairing to add selling pressure to sefi. The teams will STILL have to buy scrt for gas which adds even more buying pressure!
- Keep in mind that you’re using the Secret Swap platform which is governed by SEFI and are doing absolutely nothing to benefit SEFI, and are now saying that SEFI can’t govern this at all… so expect some substantial backlash if this method is chosen.
- Offer other SEFI pairings!
- Offer a SEFI – USDT or SEFI – ETH pairing instead where 100% of SEFI is burned if one is that worried about sell pressure existing for scrt. This would benefit SEFI holders and give them opportunity to participate in the launch while creating a supply sink for the token, while not adding ridiculous double-selling pressure.
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Create other connected supply sinks for SEFI, such as having lootboxes be paid for in SEFI and have that SEFI completely burned.
- This would be a neat activity to not only market the upcoming launch on Secret Swap in a way that benefits SEFI holders, but also can be a neat alternative for people participating in all incentivized pairings for how to spend rewards.
- Give those that donate with scrt-sefi a higher portion of new tokens, like a 5% boost above market rate.
- This would at least offer some buy-side pressure for Sefi.
- This isn’t great for the team who is holding the ICO
My suggestion? Just 1 and 4. We don’t need THAT many pairings offered on the Starter. I think the ones suggested would be sufficient, adding maybe with xmr, ust, and other key liquid L1s that get added with bridges. Burning sefi in the one pool it is offered makes it worthwhile for sefi holders, but in general I think the idea is to try to bring in more of the assets in the other pools so that scrt is burned and not sold, and that’s great! In that case we should definitely not boost the scrt-sefi pairing which would cause higher sell-side pressure for scrt.
Unless somehow the launch was more than 50% executed in sefi-scrt lp, more scrt will be burned than given as potential sell side pressure, and with the necessity of Scrt to participate at all in the launch, the sell-side pressure is vastly outweighed by buy-side pressure. Furthermore measures could be put in place to limit how much of each pairing could be donated, so that overuse of the sefi-scrt pairing could be avoided, such as capping each pool at the $4M mark.
Again I’m a huge supporter and believer in this platform and idea and am very excited about this! I hope that this writeup better enumerates exactly why sefi holders could and should be concerned with the proposition as is, and provides actionable feedback that can help make this the huge catalyst for the ecosystem that it should be.
