[Discussion] Buy and burn, tokenomics and rewards

[chagsy]

Hi
So, new to governance and tokenomics (and all things DeFi), but haven’t seen anything on the published chats about a “burn” option.

Thesis:
instead of charging 10% performance on labs and adding to the vesting pool, why wouldn’t it make sense to buy and burn Gro Dao tokens instead?

Adding performance funds into the locked vesting pool has two negatives (as I see it)

1. the supply of Gro tokens continue to increase causing a dilutionary effect on current Gro holders
2. disproportionately disadvantages new holders.

Power (governance) and financial rewards are distributed to those that hold a significant holding of vested/locked Gro already. (look, forgive me for my lack of familiarity on terminology with this sh*t, I’m new!)

for anyone looking to enter the Gro protocol, they want to have some reassurance that the Gro rewards they receive are going to be worth something in a few months/years time, and that they can vest their rewards in a cost-effective manner.

Currently, neither of these criteria are being met. Exhibit a) Gro price chart
exhibit b) cost of vesting of earned gro - its only worth vesting earned Gro for those with large holdings/earnings already that makes the “vest now” option cost effective.

As i understand it, this has several downstream effects:
it disenfranchises current new entrants without sufficient funds and similarly re-inforces a dynamic of creating greater financial rewards and decision making capacity to those that are already heavily invested in the product.
(My socialist pre-disposition is offended by the creation of a system that rewards the heavily entrenched with more money and more power, despite the superficial appearance of a democracy - is this the same with all DAOs?)

If part of the goal of a new protocol is to attract newcomers to increase TVL, then the above points are clearly a negative to any potential investor who doesn’t have 10s of thousands (or at least thousands - being rewarded in a depreciating asset that one cant access for 12 months…) of $USD to put in.
It could be that there are perfectly rational explanations as to why a buy and burn strategy is not sensible. As a newb to the whole DeFi game, I would be most grateful if anyone could put forward the counter argument.
Enjoying the journey…(The Road Not Taken by Robert Frost | Poetry Foundation)
whatsup with links?

[Slacking]

Thanks for making the post!

You may have read what @graadient linked in the tokenomics discussion post but I’ll repost it here: Stop Burning Tokens – Buyback and Make Instead — Placeholder

The summary of the idea boils down to distribution of tokens to those most willing to do so

Like you, I’m enjoying exploring ideas around DeFi space and i don’t have a strong leaning (yet or ever) towards one side or another for long term token distribution + governance mechanism. But I will present some counter points to provoke some thought:

1. There is a major assumption in the cryptocurrency space that scarcity is a sufficient condition for value accrual. But it is not, there are plenty of scarce things/ideas/concepts/structures etc. that are not given value. The same for cryptocurrencies. Mathematically, it is true that reduced supply all else being equal SHOULD lead to a higher $ denominated value. But there is the demand side of the equation that must also be fulfilled in order to cause price to move, it is part of price discovery. In the long term, supply reduction by itself guarantees nothing about the value accrual of a token. In the short term, mechanically speaking due to the way that AMMs like Uniswap works it will, but again, no long term guarantees

2. If an investor is seeking to get guarantee returns they should look into buying high-grade bonds instead due to the high confidence over the certainty of the payout of such investment vehicles. Or they may try to find arbitrage opportunities to extract theoretically risk-free returns. But all else in between, investors need to be comfortable with uncertainty and risk. It is the price paid (some say brain and mental damage) for expected returns

3. While burning tokens may uniformly increase the value of current holders GRO holdings, it also does not change the percentage share of their holdings. So net-net nothing really changes internally. But then we can question, why should we maintain the status quo, instead of distributing more to those who are more engaged and actually care about the Gro ecosystem? It is well accepted that many participants (most perhaps) in DeFi care little about actually growing the community/governance/product responsibly together. Most come to grow their money, which is understandable. Even if say they do care more than a little, they may not have the capacity to fully navigate through the ins and outs of the development. We may rightly want the most engaged and most discerning group of those with vested interest in the system to have the greatest long term growth. A non-uniform distribution gives rise to that possibility (or at least more so than a uniform distribution)

4. Unfortunately (or perhaps fortunately), most DAOs are plutocratic from a voting mechanism standpoint. There are also those that are more like ancient Greek’s democracy, advocating for the ones with the most expertise and commitment to rise up while opening the opportunity for others to join if they are willing. And most DAOs have an implicit central point of control in the decision making process/enactment, often in the hands of the core team developers. DAOs are not magical, they don’t immediately solve the thousands of years of rich history of the development of voting, democracy and social/organizational structure. Gro currently has both plutocratic elements and also ancient Greek’s democracy with G-Force and OG members

5. The uniform distribution of power and rights makes a lot of sense for public goods where no one should be denied out of the good/service. But most DeFi protocols are not public goods, either by construction or by mandate (certainly Gro was never claimed to be one or not). Additionally, in relation to public blockchain adversarial context, DeFi protocols are also often placed under adversarial situations. Some examples: hacks, competition/vampire attacks (copycats etc.), arbitrageurs/profit maximizers/squeezers, mercenary capital, pump and dump whales. In such situations it becomes much harder to uniformly distribute power and rights and requires carefully planned defense mechanisms (or punishment mechanisms). Combined with the non-public goods standing of most DeFi protocols this adds another reason to not just burn tokens (and hence uniformly distribute)

With all that said @mjohanm4 has pondered whether we should confer governance rights to Vault/PWRD users. This is what they said:

would love thoughts on the idea below: GRO is currently a sub $10MM market cap token where the amount of value in the entire protocol is $42M (TVL) + $10MM GRO; some people do not invest at all in GRO but DO invest in PWRD or Vault as stables. The current voting weights is $10MM in GRO, but only $500k of value in Vote 009 dictated how all $50MM protocol value is reworked. I think a good idea for more active governance, a greater incentive for TVL in PWRD and Vault (especially if PWRD/Vault are enticing to -ve projects), to allow PWRD and Vault holders have a certain weight of governance over the protocol rather than exclusively the GRO DAO token. I would argue to have a majority % of weighting still be to the GRO DAO token (say 1 / (GRO_TVL/ (GRO_TVL+ TVL_vault+PWRD)) and PWRD/Vault be (1 / PWRD_TVL+Vault_TVL / GRO_TVL+Vault_TVL+PWRD_TVL); currently that would be 1/ $8MM market cap in GRO / ($46MM in GRO+pwrd+Vault market cap), or a weighting of 5.9; for PWRD and Vault it would be a weighting of 1 / 38MM / $46MM, or 1.25 thus, holding GRO gives 4x the weight at current prices. If GRO 10x, then PWRD and Vault holders would get a much larger weighting. -VE projects like Convex may be interested in allocating for more governance to our stables, for instance, to vote on increasing convex allocation (could be competitive like CRV–>convex–>rebasing projects)

naturally, -ve GRO could also gain certain weightings, but I would like to focus on PWRD+Vault voting rights here since those two smart contracts are the main drivers of value (at least currently) of GRO DAO

Which can be one avenue to give more users governance power. It’s like being a member of a credit union (from where I am at)

[Jacky]

I think seeing that people do invest in pwrd and vault and labs means that the product is good or has potential. Instead of giving governance to vault and pwrd users it would be best to have more incentive for them to hold gro. For someone who isn’t interested in participating in the dao, but wish to use vault currently there are no incentive to need to hold gro token. Hence the value of gro token is low compared to the product outside the dao.

However much governance is important, not everybody feels they have the power, interest or time to be worth investing in the token. Add to this the dilution. The only inventive at the moment is pools that offer decent returns and 500 gro to use labs.

Wouldn’t it be great to use the quality of the product vault and pwrd not only to reward gro users but also to incentivate people to lock some gros ?

For instance higher return in labs in relation to amount of locked gro, or higher deposit capacity in pwrd and vault. Some gro could automatically be bought and locked when purchasing pwrd or vault instead of paying a fee to holders. Adding value to the token instead of adding more token to holders.

This would need to be explored and there are far more qualified people that I’m sure would bring better ideas. But I feel this project has one of the best hardworking transparent team and a great product however we are not seeing a lot of traction for the token making it frustrating for gro holders when looking at labs, pwrd and vault participants.

Have a nice day everyone !

[chagsy]

Thanks for taking the time to reply, and my apologies for the delay in responding.

I have had a chance to familiarise myself with a number of different DeFi projects since I posted this and hope I have a slightly better understanding of Tokenomics in general.

There would appear to be a natural tension between enhancing liquidity and devaluation of the governance token.
I do not pretend to understand where that balance lies with Gro.

However, what is clear is that there is currently little incentive to lock/vest Gro other than to avoid a negative outcome: losing 70%. There are currently no significant positive outcomes attached. Currently, being able to access multiple Lab pools with >er than 5k is not something I would consider a bonus. This is not meant as anything other than a statement of fact that the current ROI is not market beating; there are plenty of other options offering rewards in excess (if not in pure stables, at least in tokens that are in themselves not inflationary). And those protocols are fully audited, which Labs isn’t.
Which brings us back to “why hold or earn Gro?”
And I can’t really find a compelling reason.

Consequently, I think Jackie’s suggestion is a good one: that if Gro continues to be an inflationary token, which seems likely, there needs to be some other incentive to attract investors to want to hold it. And rewards those incentives can’t just be more Gro itself.

Lastly, whilst there are many good reasons why gunning for liquidity may be superior to burning tokens and creating scarcity, there is the whole optics of the thing:
I now screen potential projects with a checklist which includes a number of points, one of which is whether the token is inflationary, whether the TVL is increasing and what the ratio between the inflationary and demand pressures are likely to be. Given the large number of opportunities to screen, I don’t take too long, the graphs have to be heading in the right direction. Unless potential investors can see that this protocol is going to earn them tokens that are likely to confer some financial advantage it is going to be challenging to stand out in a cluttered market.

I have only been in this game for a few months so do not have a deep understanding, but I worry that the opportunity window is not going to remain open forever. Either TVL will need to increase due to risky, inflationary APRs or further incentivisation to own Gro is required.

As always, this comes from a place of very superficial acquaintance with both DeFi in general and Gro specifically. I hope this discussion engenders reflection and constructive thought despite my amateurism!
Best wishes to all
C