Critique of buyback/burn model, and an alternative path

Hello!

I want to start a conversation around the buyback/burn model of value accrual for the CAP token - specifically around the burn aspect. Most of my critiques and ideas are inspired by this article:

Essentially, the critique is this: “… buybacks are a fine way to socialize profits to capital-token holders, but burning limits the network’s ability to reinvest in itself.”

Burning tokens is a waste of an extremely important resource - the ability to create incentives and increase capitalization through issuance. Following the model laid out in that article will provide us with a programmable positive feedback loop - the buyback shares profits with holders, and there is a constant source of issuance without diluting overall supply.

Thoughts?

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I also prefer the buy back & make model over the burn. It creates a constant buyer of last resort (the contract itself), so the CAP is basically locked forever, not in the burn address, but in an AMM (e.g. Uniswap or Balancer).

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The proposed model appears to be a very elegant alternative, I must say, and does provide an answer to the liquidity concern I had. (Even though I still consider the “CAP has 18 decimal” argument to be valid.) I would love to read a critique of this new proposal.

The article does not say, but is there a running protocol that uses the buy back & make model?

I suppose at this point so close to mainnet release, the default setting will be bb&b and we’ll be able to witness the effect of that policy. To change it change would require a solid code proposal and community approval then.

Very interesting read in any case, thanks for sharing.

Yes, although not fully expressed on the forum here, support for this model is very strong. It is being considered as a preferred direction as of current, and is still open for discussion. Much of the discussion around the idea of going in this direction occured in the telegram channel.

Some of the key points valued are:

  • Still having the same effects of the buy backs on upwards price pressure
  • Rather than burning the tokens, they wold then become owned by the Cap treasury and controlled by governance, able to be used to grow the system.
  • The tokens while being held, would serve a function by providing added liquidity to the market
  • Using the tokens in this way, allows for the usage to be geared towards future growth and long term viability
  • provides a capital reserve, staying within the control of Cap holders via governance, and can act as a type of insurance in the event the CLP is drained, governance could vote to fund it out of these funds.
  • A portion of the bought back Cap could be used to incentivize traders, or rather reward traders based on their volume.

This is still open for discussion, and would only require a few days worth of coding to implement.

Here is the link, to where much of the discussion happened recently in telegram:

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While the buyback still gives upward price pressure, removing the burn decreases that pressure, right? If that’s the case, keep in mind that price action of the token is definitely related to awareness of the platform, and use of the platform is related to CLP excess used to buy back tokens. Buyback and burn for a while seems the most certain way to cause upward price pressure and increased awareness and adoption of the platform. Once there’s a solid user community and many more token holders, this new model gives more flexibility to address weaknesses in the system. On the other hand, maybe that flexibility IS most needed early on? Trade offs.

Ultimately I guess if a strong enough case could be made, and governance convinced, then theoretically any path would be possible. There certainly are trade offs, as you say.