Proposal to initiate a buyback/burn to drive MELT price

The following are my early thoughts on a proposal to initiate a MELT buyback/burn mechanism to create regular upward pressure on the price of MELT:

Those that were around during the vote to change the MELT/AVAX rewards from USDC to MELT know how adamantly against this I was, particularly due to the fact that we were essentially removing buy pressure on MELT by not distributing the USDC.

Im not sure the exact amount of stability fees collected, so Im going to use the info from when USDC was being rewarded to LPers as a placeholder. At that time it amounted to around $20k, I believe.

If $20k was used to purchase MELT, it would net around 33k MELT at current price and create positive price pressure. Then, if burned, we just increased our total MELT burned by 30% instantly. This would create an increase on price several fold over just buying MELT, and it would in large part be a sustained increase since the burn is cumulative and irreversible. This could be done once, or repeated monthly. It could use a portion or all of the stability fees.

While I know there is an argument about the effect this would have being insubstantial, I would vehemently argue otherwise. Aside from the actual act of buying, increasing the rate of burn by this amount (a rate which increases as price decreases since more MELT can be bought for lower price) it would have profound effects on the price of the token, not only instantly, but cumulatively as we see a constant upward price pressure by the continual burning of coins.

-Continued below-

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Going further, Id like to point out that increasing the price of MELT can directly assist in restoring the H2O peg.

As MELT price increases, the H20-3CRV APRs increase. As APRs increase, it makes more and more sense for many not to loop, since the profit made directly from the pool becomes higher than the APR for looping, with far less steps, fees, or risks.

This helps restore the balance of the Curve pool by decreasing the quantity of H2O being poured into it, increasing the price of H2O closer to the peg, and it does it using significantly less money than would be required to use stability fees to purchase H2O, since the MELT mcap is miniscule in comparison to that of H2O.

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I’m in favor of this!

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This seems like a really solid proposal. Not only does it seem like it would help boost Melt but also return H20 peg. I’m in favor of this!

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i would like to see this go to vote.

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I’m in favour of the proposal as well. Reinstating USDc rewards for lp provision is a big incentive and as you put it. We were ahead of times to then only go backwards in time.

edit: I thought more about it and if you keep scrolling I’ve revised my opinion in a thread below. Keep reading.

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Fully agree.
In order for melt to fully reach potential we need to create more incentives to hold the governance token. I think this is a brilliant way to do so as it lowers impact of high emissions which we are seeing the effects of recently.
Been thinking of exiting my melt recently because a lot of people just use it as a reward token to dump instantly. Another use case would be great.

hope devs respond to this ASAP and we can get the vote going

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I support this proposal

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I like this. The current H2O fees distributed to SMELT stakers are around $300 worth a day. This means a total of $600 is being collected (as only 50% of the fees are distributed to the SMELT stakers) a day, so approximately these $20k a month you mention.

I still think that the interest rate level remains up to discussion. I agree that the peg is also about the competition between loopers and “standard stables” stakers. So if the MELT rewards are low in USD terms, more people are incentivized to loop instead of staking for MELT directly. This means more selling pressure on H2O. However, it is still the interest rate (and the minimum collateral level, but that would be much more problematic to change/increase as it would lead to immediate liquidations, and we don’t want that; it can be done for new vaults but not for the current ones) that directly affects how efficient it is to loop.

If voting, I would be for “increasing the fee (interest rate) in the stablecoin vaults from 1% to 2% and use 75% (all?) of the accrued fees to buy back MELT and burn it daily.” Currently, this would be like $1k worth of MELT being burned a day which is not a lot of pressure on H2O from the selling side but can do some work on the MELT side.

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For me personally as long we see some sort of incentive for buy backs and Holcomb melt I will be for this. Regardless of the ‘how’. Let’s get this to vote ASAP to see effects when most needed.

Thanks

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This proposal of buy back seems beneficial to the defrost ecosystem. I am fine with either the rollback to distribution of USDC rewards or this buy back mechanism . We need to be proactive in trying to get us back

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Sounds good. Lets do it.

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100% agree ! Hope this gonna happen.

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I think the loss of USDC hurt the protocol. This proposal should significantly help things. Let’s do it!

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Sounds good… lets do it guys!!!

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I vote yes. This could help pump

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tldr: I don’t think this will do much, but its better than nothing, and I think it can have a compounded effect by positively impacting sentiment.

I believe the team was hoping for a way to deploy the reserve funds more effectively as the mechanical price impact of such a policy is really minimal. It’s understandable, but in lieu of some other plan, such as saving up to pay some miracle marketing campaign, I think this is better than nothing.

Price of MELT is basically entirely determined by the trader joe MELT/AVAX AMM LP. So the price effect of a burn would be identical to a buy and hold wallet. At a price of .5 USD, a $20k USD buy will increase price about 16%. At 1 USD, it will be half so around 8%. At 2 USD it halves again to around 4%. And at $4 the price impact of a $20k buy is around 2%.

Therefore, all things being equal, this policy will have the net effect of increased MELT price by 16% per month at .5 USD price, 8% per month at 1 USD price, etc. If we run this policy for 12 full months from a hypothetical starting MELT price of 0.5 USD, we can expect about +160% increase or price to $1.3 USD. It would take 17 months to double from there, highlighting the diminishing effect as price rises. If we assume nearly all emissions are initially sold into the LP, these times are halved.

160% sounds like a lot, but if you trade MELT you also know by now that as the price has decreased, the variance of the price has increased. Glancing at the price now, we are down -50% in the past week. This is actually a direct and exact cause of why a burn’s price impact is large at low price, and actually the two scale together. Therefore the price impact is actually not as large at lower melt price as it appears.

You may point out that at lower price this will have a greater effect of canceling out more melt emissions. While this is true, even at the .5 USD price, it will only cancel out just under one day of emissions, or 3%.

So overall, this will undoubtedly have a positive effect on MELT price, but it may be small to the point of being unnoticeable through the regular price action. We are talking a full year to go from .5 USD to 1.3 USD, if all else stays the same. As it previously took just a few days to double and quadruple , etc price, and similar time scales to halve and quarter the price, we should be well aware market forces are much, MUCH, stronger, larger, and faster. However market forces are driven by sentiment, and a positive sentiment can have unforeseen effects.

PS. I have used the simple xy AMM formulas to estimate the price impacts. Please let me know if you see any wild errors that would change my point!

PPS.
My personal opinion is that I would prefer the MELT not be burned but added as protocol owned liquidity. I think the interactions here are more complicated. It halves the price impact, but has other more permanent benefits such as the obvious deeper liquidity, and also allows the LPs to grow thanks to LP fees, which compounds the effect of the treasury’s $ over time.

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In favor. Posting to make this topic number one!:point_up:t2:

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Think this would be a great idea let’s move forward

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I think xiyu makes some excellents points about the buybacks having a diminishing return while putting it in POL would have a smaller now but more lasting effect, see this as an option for the vote?

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