MTA Buyback Optimization

Smart Buybacks:

Currently 10% of revenue for MTA is used for buybacks. Revenue in mUSD/mBTC is sent to a private Balancer pool and balanced according to an [82/10/4/4] MTA/mUSD/ETH/mBTC allocation. This is an aggressive MTA portfolio. But, is it what is best for MTA stakeholders?

Summary :

A less aggressive portfolio actually increases the amount of MTA absorbed from the market in the scenario where MTA price decreases. In a simplified sense, if the AMM is aggressive for small dips there will be less mUSD available to purchase MTA if there are price dumps. I will show a simple case where this is true.
Furthermore, when mUSD is held on the open market two things occur: 1. the yield for mSave increases which draws in TVL from which the protocol earns 10% 2. the protocol earns yield revenue on mUSD even when it is not in mSave unlike any user so it is the least financially burdensome for the protocol to own mUSD. Any analysis which includes point (1) would be speculative but estimates are in the works however adding point (2) to the analysis is quite simple and so will include that.
The last main point involves an abstraction from point number (1) above. As mUSD supply increases, the yield opportunities greatly improve. In order to maximize those yields it is required to stake MTA in return for the 3x booster, it is my current thinking that the desire for that boost would likely exceed the impact of buybacks for upward MTA price. That implies holding more mUSD and mBTC is better for the protocol than buying MTA.
An additional minor point is that buybacks should be less frequent in order to save gas costs.

AMM_Curves

Strategy:

Originally, I presented a formula for the percent of the revenue to be used for buybacks can be derived as a function of the ratio of current RFV (Risk-Free Value) to MTA. However there is not a large supply of non-MTA which is owned by the protocol and it is a large change. So instead the focus will be on (i) an optimal allocation for the MTA/mUSD/ETH/mBTC pool and (ii) the possibility of breaking apart this private pool into three public pools: MTA/mUSD, mUSD/ETH, mUSD/mBTC.
In point (ii) there are several concepts at play (a) protocol trade fee revenue on MTA dumps (b) introducing arbitrage opportunities for ETH and BTC traders will motivate traders to mint mUSD and mBTC in order to take advantage (c) mSavers (and MTA holders) are indirectly motivated to use mUSD in place of the underlying assets because it would increase the yield on their mSave (and protocol revenue) so it would benefit those groups particularly

Bonding:

The strategy of splitting the AMM allocation for governance fee into three pairs could be complemented by bonding. As stated before, the protocol is the only entity directly benefiting from mUSD on the open market (mSavers and MTA holders also indirectly benefit) but these markets are difficult to bootstrap. In order to bootstrap these markets for all the parties which would benefit the protocol could issue MTA bonds for LP pairs.

Pros:

  • Increase Yield → Increase mSavers → Increase MTA demand
  • In the long run scenario where MTA price decreases, absorb more MTA off the market and have a larger AMM portfolio
  • In the scenario where the MTA price increases, the protocol will be aggressively accumulating mUSD and thus improving yield for mSavers and driving demand for use of the protocol and MTA.

Cons:

  • Pairing mUSD:ETH and mUSD:mBTC will increase mUSD supply via arbitrage opportunities if the prices of ETH and BTC go up but will create arbitrage opportunities for redeeming mUSD if they go down.
  • In a long run scenario where the price of MTA goes up, the protocol will have bought less early on.
  • I am only just realizing that mUSD:mBTC has a redeem arbitrage opportunity if BTC goes up or down.

(Note I apologize to the commenters, as this post has already undergone a serious facelift and will continue to do so).

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Generally like this idea, although not sure how it can be added on chain. Maybe an oracle with spot price vs 90 day TWAP would make more sense, to detect when price is low, idk

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The current strategy is to allocate 10% of revenue to [this pool]. This balances the earnings of mUSD and mBTC to allocate to 82% MTA 10% mUSD 4% ETH 4% mBTC. This is according to MIP-8 and is quite beautiful. My only improvements would be to 1. make the buy-backs less frequent in order to save in gas (sometimes close to 10% of the buyback costs) and 2. Alter the % [e.g. 60 20 10 10] allocations to reflect the observation that mUSD and mBTC make the protocol more attractive to users and actually are effectively producing yield in the tool for the protocol akin to imUSD because 10% of all yield goes to Gov Revenue.

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This buy back strategy is being replaced by a strategy which buys back and rewards stakers.