Proposal to initiate a buyback/burn to drive MELT price

Proposals
#22

There’s something to be said for increasing the price of MELT to increase the value of H2O (more valuable MELT discourages looping and makes LPing in the Curve pool more valuable), but I think the effect in the other direction might be stronger. Defrost can survive for a while with a low market cap, but in order for the market to see the product as strong (and therefore for MELT to be valuable) it must be clear that H2O can maintain its peg; instead we’ve seen it wander down while the Curve pool has become more than 90% H2O.

Here are two alternative proposals that target H2O more directly:

  1. Simply invest the protocol’s treasury in the Curve pool and leave it there, raising the price of H2O in the process
  2. Use the treasure to buy back H2O via the Curve pool if the price of H2O goes below a certain level. You can’t simply burn the H2O at this point because then there won’t be enough in circulation to pay back all outstanding debts, so instead let people buy 1 H2O for 1 USDC whenever they want as long as the treasury is holding H2O

#2 is a more extremely and I imagine likely more effective version of #1, but I also imagine the implementation challenges are much greater.

Would love to hear what the very intelligent people in this discussion think of these options.

1 Like
#23

These options mentioned above regarding putting the reserves into H2O would be highly ineffective. This is because the curve pool is $60 million deep and the amount to spend is like $20k. That has no effect on H20 price by putting it into 3CRV. None. At all.

But MELTs market cap is very low, so $20k a month can be a highly effective boost, which will have a direct effect on H2O, without needing $10 million to do it, especially if these coins are then burned.

2 Likes
#24

The question is, do we need immediate or longterm benefits? Id suggest burning until price stabilizes, then holding a seperate vote to switch reserves to buying and holding liquidity if people preferred POL. But I think we desperately need something to pump the price in the short to mid term.

2 Likes
#25

Hi,

I understood the originators point of view to be:
To attempt to set a price floor for $MELT by using treasury funds to periodically buy and burn $MELT.

Whilst there is value in a buyback and burn mechanism I believe that treasury funds can be better utilised. For example, the current H2O APR on $sMELT is over 10%. Purchasing $MELT at these prices to stake and accrue +10%APR in H2O whilst also getting ~85% in more $MELT effectively acts in a similar function and offers a price floor to $MELT, wherein the more the price of $MELT decreases, the higher the stablecoin APR increases (I think it might be directly proportional and this assumes no other changes, i.e. in TVL of collateral locked etc.). Thus further incentivising the purchase and staking of $MELT into H2O CRV pool at these low price levels.

Thus, I’m against this proposal.

This protocols value is derived from enabling LP’s to borrow against their LP positions whilst charging them a fee. I do not think using those fees to artificially support the governance tokens ($MELT) market price adds any long-term value.

All efforts (read Protocol fees) should go toward further increasing revenue, acquiring additional partnerships (to increase revenue) and the development of new products/functionality (to again, increase revenue). All of which will organically increase the value of $MELT through protocol growth and income. Public Tardfi companies do not normally engage in stock buybacks until they are huge and they’ve nearly exhausted all other methods of encouraging growth (e.g. product development, mergers and acquisitions, diversification etc.) . We should recognise our youth and act accordingly by spending the protocol fees on the product roadmap or protocol partnerships.

Whilst this might be better suited to having its own forum post, I note one example of a better use of $MELT and/or treasury fees below (in my opinion). I’m more than happy to work alongside anyone whose interest is the protocols success on any topic they feel might add value; please don’t hesitate to hit me up.

Thoughts:

The biggest issue facing Defrost.Finance at this point in time is H2O being off peg. This is not inherently a bad thing. H2O is overcollateralised. Whilst people have looped significantly, repeatedly selling their H2O into the pool to acquire more LP tokens, this has the effect of increasing the number of LP tokens collateralised through which Defrost accrues fees. However, having a stable peg is important but can more effectively be achieved (in contrast to this proposal) via the following (or a combination thereof) options;

  • Pursuing a Curve.Finance gauge through using $MELT (or another token purchased with treasury funds) as bribes (either through redirection of emissions from other farms or through the purchase of $MELT on market using treasury fees [albeit I’m less inclined of this option]). First bribe to garner the votes needed to get a gauge and secondly continued bribes as to increase $CRV emissions to our pool. The benefits of this are Curve legitimizing us (marketing), raising awareness (marketing) and offering arbitrageurs an opportunity to return us to peg (I understand this opportunity already exists in its present but arbitrageurs are won’t do if they don’t think your pool will return to peg soon).

  • Deployment of a H2O, 3CRV + other AVAX native stablecoin pool. Wherein both protocols offer incentives/bribes to get a CRV gauge (assuming we’re too small fry to do it ourselves alone).

  • Adopting a variable stability fee that dis/incentivises users when the peg goes beyond a certain threshold. Those that don’t unwind either pay us more fees (a win) or the peg gets so out of whack that they are now paying stability fees that are higher than the APR they’re getting from their LP thus they end up risking liquidation. The variable stability fee should also have the benefit of giving arbitrageurs the confidence that eventually the mechanism peg is sufficient to restore the peg for them to arb the pool before the variable stability fee is necessary. I.e. instant (or near instant) restoring of peg over progressive unwinding of leveraged positions.

  • Developing additional H2O use cases, e.g. developing lending and borrowing markets (or getting added to existing), protocol integrations, bonding $MELT/AVAX and/or H2O/AVAX LP’s for Protocol Owned Liquidity in return for $MELT at discount.

  • Attempting to secure Avanlanche RUSH (or similar) rewards for our protocol. (This isn’t something I’m overly familiar with but throwing out there)

Thanks,
A

5 Likes
#26

I love your idea. I personally think that a simple buyback and burn mechanism will not do much help in the long run.

The recent price drop is very normal. The market is bad, isn’t it.

1 Like
#27

Responding to those that aren’t so keen on a burn,
I think it’s very evident that we need a buy back and burn. The r:r of this proposal is definitely to the upside and perhaps with a potentially long crypto winter I think it’s essential to have this come into play. Just imagine price remaining suppressed for a long time due to a long bear market, the potential burned melt can set us up strongly for the next run up.

People who call against this don’t have a clue about economics honestly. I studied econ for my undergrad and it’s simple math that this mechanism will help over the long run. Sure you can use other means to ‘develop’ protocol but team already has plans for that in the works for q2/q3.

We have to appreciate the fact that there’s different types of investors in the defrost eco system. Some want higher emissions so they can dump their rewards tokens. However, there’s investors like myself who just purchase melt and single stake for 85% apr. A buyback and burn mechanism is important for someone like me as it shows there’s so value being added to my token. We added melt rewards for the sake of ‘liquidity’ to avax pool, did that save you anon??? People are literally shaking over a 20k monthly purchase lol. Imo this is a no brainer and has to be voted in sooner rather than later to see a positive effect when we need it.

Thanks

3 Likes
#28

It’s a good idea, could work or do nothing at all, but I think it’s a good thing to implement. I am for this and will vote in favour if I get the chance

3 Likes
#29

Support as the first measure of righitng the ship. As many here and on the discord have noted, this won’t solve all of our problems, but it’s a good first step while more long-term solutions are thought through. Support putting to a vote.

3 Likes
#30

I have been trying to reframe my way of thinking so as to think of Defrost as a fintech. I have also been thinking about how we can provide the most amount of value to users. After all, the best way to get value is to give something of value in exchange.

In light of that, our greatest product is the super vault. The ability to use leverage for looping with stable coins to get high (mostly)non-ponzi apys is amazing. User are very happy with the product and getting unparalleled yields with little risk of liquidation.

The super vault user base is extremely sticky capital that is likely to stay in Defrost for longer periods of time. Not only that, they also contribute to the biggest portion of revenues generated by the protocol.

I strongly believe that any measure which de-incentivises looping or harms loopers in any way is extremely dangerous for the long term health of Defrost. While loopers are very much beneficial to Defrost.

There is only one issue with looping, the H2O exchange rate. At the moment we have made available too much H2O to be minted for looping purposes without having been able to secure enough stables in the H20-CRV pool to help with the peg.

For us to be able to offer more of this service we need to increase the amount of USDc-USDt-DAI in the H20-CRV pool.

There are 3 things I can think of to make this happen:
1 - Make it temporarily impossible for new H2O to be minted. With no new H2O hitting the market the peg can only get better.
2 - Direct efforts to encourage people to deposit stables in the H2O-CRV pool. Be it through CRV emissions, Avax rewards, Benqi Emissions, marketing proposals etc, what ever we can get our hands on.
3 - Try to seek 3rd party capital to deposit stables in the pool.
4 - Use our treasury funds to deposit USDc-USDt-DAI into the H20-Crv pool
Once the H2O-CRV pool is back towards a healthier state we can start offering looping services again.

To expand on the 4th point:

USDc-USDt-DAI deposited into the H20-Crv pool accrues Melt rewards which can be then staked by the protocol itself and used for further boosting the treasury reserves.

This in effect acts as a “burn” address because the melt rewards being accrued there will not be available for use and will keep accruing more melt putting continuous “burn” pressure in the token.

In the long run those treasury reserves make Defrost independent on 3rd party capital for providing looping services.

It marginally helps with the peg and gives the market a signal that we will defend the H2O peg.

With a treasury reserve that keeps increasing in value we could add a display in the front page which shows how much reserves the protocol has:

Treasury
Treasury1873×682 52 KB

4 Likes
#31

Sounds good. Too much volatility in the price of the melt also affects the protocol itself. We need to keep the price of melt to attract new users.

1 Like
#32

There has been a lot of talk on the discord about POL instead of a MELT burn. My concern here is that if we are taking MELT rewards and adding it to liquidity, you are creating sell pressure on half the claimed MELT as its being exchanged for AVAX. That is a net negative effect on price.

If POL were introduced as an option for a vote, I would 100% vote no unless it added absolutely no sell pressure to price.

Off the top of my head, here is one way this could be accomplished.

-No MELT rewards claimed by the platform POL would be sold. Period.

-JOE rewards could be sold and paired with an equal value of MELT and added to the POL without negative price impact.

-All other MELT rewarded is single staked and added to the boost mechanism for the POL.

This would avoid the sell pressure, increase platform voting power, decrease the amount of emissions pushed to the market not only from the POL but also the single staking APY rewards, and would over time potentially allow a max boost for POL, which would remove even more emissions the larger the boost pool grows.

If any MELT rewards at all were being sold for any reason, my vote is no. If no MELT is sold, such as the example I posted above, I could be persuaded to vote yes.

2 Likes
#33

What do you mean by ‘-No MELT rewards claimed by the platform POL would be sold’ ??
There should be some POL in the first place right? I honestly believe POL is not a good plan for us. It has a constant dumping pressure natually.

#34

POL does not have “natural dumping pressure.” If anything, the increase in liquidity would lower volatility and less overall emissions would be dumped. What I laid out eliminates 100% of the sell pressure involved in establishing POL.