Introduction
The Minswap community has witnessed significant advancements, with the latest being the MIN tokenomics V2. With the introduction of batcher fees as a new revenue source, it’s paramount that we strategically use this resource to fortify the position of $MIN and ensure the continued dominance and success of our DEX.
The Challenge: Falling $MIN Token Price
Recent market dynamics have led to a declining trend in the $MIN token price. This not only affects our current token holders but can have cascading effects on the entire ecosystem:
- Reduced Farming Yields: A declining $MIN token price will translate to reduced farming yields.
- Drop in Total Value Locked (TVL): Lower yields can discourage liquidity provision, leading to a decline in TVL.
- Decreased Trading Volumes: A decline in TVL leads to lower volumes. As the primary business of our DEX, reduced volumes can impact revenue generation and the platform’s overall growth.
The Solution: Buyback and Burn Mechanism Using Batcher Fees
To counteract the declining token price and its potential ripple effects, I propose using the batcher fees revenue to buy back and subsequently burn $MIN tokens.
Benefits:
- Counteract Selling Pressure: Regular buybacks will introduce consistent buying pressure in the market, potentially stabilizing or increasing the token price.
- Increase Token Scarcity for All: Burning the bought-back tokens will reduce the circulating supply, inherently increasing the value of each remaining token. This mechanism is designed to benefit all $MIN token holders, not just a subset such as stakers. By focusing on all holders, we embrace a democratic approach that acknowledges every participant in the ecosystem. This reinforces our commitment to equal distribution of benefits from Protocol Owned Liquidity (POL) and ensures that rewards aren’t disproportionately allocated.
- Send a Strong Message: Such a move will signal our commitment to maintaining the $MIN token’s value, discouraging potential sellers and instilling confidence in the community.
Data Analysis: October 2023
To better understand the potential impact of this proposal, it’s helpful to dive into recent data. Here’s a breakdown of figures from October 2023:
- Daily Batcher Fees: Approximately 6.5k ADA/day
- Monthly Batcher Fees: This translates to roughly 195k ADA for the entire month.
- Comparison with Emissions: The buyback figure represents only about 30% of the daily emissions. Though not a dominant figure, it’s substantial enough to influence market dynamics.
- Potential Buying Pressure: With the implementation of this proposal, there would be a new buying pressure of around 0.2MM ADA monthly, or 3.45MM $MIN at current prices.
Impact Analysis:
While the new buying pressure might seem modest in comparison to the selling pressure, its regularity and consistency could introduce crucial stability to the market. Here’s how:
- Stabilizing Price: Even though the buying pressure from batcher fees would counteract only 30% of the daily emissions, this continuous and predictable buying can act as a buffer, helping stabilize the price.
- Instilling Confidence: The introduction of a regular buyback mechanism sends a clear signal to the market about the project’s commitment to maintaining token value. This can deter potential sellers and might even reverse selling trends over time.
- Multiplier Effect: Consistent buying can lead to improved market sentiment, potentially attracting more investors and traders to the ecosystem.
Foreseeable Difficulties
One of the challenges that may arise from this proposal pertains to the execution timing of the buybacks. Specific concerns include:
- Frontrunning Risks: Direct, predictable buybacks could expose the process to frontrunning, where certain market participants take advantage of the knowledge of an impending buyback to manipulate prices.
- Optimal Execution Strategy: To counteract frontrunning and other market manipulations, buybacks should be executed strategically. Rather than making bulk purchases, the strategy should involve:
- Matching limit orders where possible.
- Executing buybacks at random intervals and in varied quantities.
- Spreading out buyback operations over time, even though the dedicated account gets replenished monthly.
- Timing Lag: Given these considerations, it might be prudent to have a lag in the buyback execution, using funds from the previous month. This provides a buffer period to ensure a more unpredictable and strategic buyback pattern.
Call to Action
The strength of our DEX lies in our ability to adapt and take proactive measures. This proposal aims to protect the interests of our loyal community and ensure the sustained growth of Minswap. I urge all members to support this initiative so we can bring it on-chain for implementation.
By endorsing this proposal, we not only address the immediate challenge but also pave the way for a robust and resilient future for Minswap and all its stakeholders.
This proposal can be revisited in the future and redirected elswhere if the DAO thinks it is a better option, but for the time being, we would give some utility to that ADA which now has none.
