PDP15: Buyback & Make pool creation (MIP-8)

Posted by a representative of the mStable protocolDAO

It is proposed that MTA’s long term utility and tokenomics can be improved by implementing a buyback-and-make strategy driven by an MTA/ETH/mAsset liquidity pool on Balancer Finance v1. In future, this pool could also be used in mStable’s re-collateralisation mechanism (in the event of an asset de-pegging) or as an incentivisation tool.

Note that it is possible to enable this in the very short term, providing there are no large changes proposed here.

Abstract

A new smart contract will be deployed that deposits a portion of mAsset into a Balancer MTA/ETH/mAsset pool. A percentage of protocol fees that would normally go to savers is proposed to be be diverted into this pool, which will serve as a source of demand for MTA already in circulation.

The Protocol DAO proposes that the pool have the following specifications:

  • Private Balancer pool, with the protocol as the only valid liquidity provider. Its utility will be voted on in future governance polls.
  • MTA/ETH/mUSD/mBTC, initially at a 50/10/20/20 and sliding to 78/20/1/1 over time as the pool matures. Feedback is sought on the ideal ratio to maintain longer term.
  • A percentage of revenue generated across all mAssets on the mStable protocol will be deposited directly to the pool.
  • Pool swap fee - 5%, sliding to 2% as the pool matures
  • As mAssets build up in the pool, it will effectively buy MTA to return it back to the correct MTA/ETH composition.

This pool would be created and maintained by by the mStable protocolDAO and its signers. Consequently, the mStable Genesis team will not have control over how this buyback-and-make strategy is implemented or improved upon over time. Any significant changes here could be proposed and voted on by Meta Governors and ratified by the mStable protocolDAO.

Motivation

This proposal creates long term value for the protocol, through bolstering of MTA liquidity and the reflexivity of capturing system value. Buyback & make provides the following key benefits:

  • Immediate effect on token liquidity and demand. This causes both immediate and sustainable demand for the system token. As opposed to simply burning the token and taking it off the market, this value can be re-cycled and used as a liquidity pool to support trades through Balancer
  • In addition to the immediate effects on liquidity, the value can be used to fund mAsset re-collateralisation for example. This is a decision that could be made by MTA governors as the pool grows in size.
  • The reflexivity caused by an increased demand for the token causes a positive feedback loop between other incentives across the protocol, for example providing more powerful rewards for EARN pool participants
  • The capturing, storing and utilisation of fees provides long term system value, as opposed to only providing immediate incentives for SAVE participants, which has little lasting impact

MIP

Full implementation details available here

Config

Which portion of system revenue (if any) should be diverted to this Buy and Make pool? Proposal is somewhere between 20-40%

6 Likes

The capturing, storing and utilisation of fees provides long term system value, as opposed to only providing immediate incentives for SAVE participants, which has little lasting impact

It seems like the upside in value for system tokens outweighs the benefits for SAVE participants. Any reasonable objection to the contrary?

1 Like

Excited for this! Got my full support.

2 Likes

Full support from me. Happy to see this happen!

Not that I can see, I feel the benefits outweigh costs, especially with Save participants now earning MTA rewards in the Vault too.

Great to see this! The range between 20-40% is sensible to me, should we structure the vote to be in 5% increments? ie:

  • 20%
  • 25%
  • 30%
  • 35%
  • 40%

The value of this Buyback and Make pool will compound in value over time. It will be a fundamental part of the mStable ecosystem a few years from now, glad to be planting the seed now.

4 Likes

how did that 20-40% number come about? is there any data behind it? if not maybe it’s worth rolling this out in smaller stages? is this partially meant to address inflationary concerns due to the somewhat aggressive vesting schedules? :zipper_mouth_face:

I assume the pool swap fee increase is to discourage selling from deflationary measures here? I guess this also means better rewards for liquidity providers?

1 Like

Hi, I’m reposting this from Discord just to spite the person too lazy to make an account. I’m going to read the thread and see if I have anything to contribute too. I’m a new user coming from the RabbitHole campaign so I’m not caught up on everything just yet.

"So, let’s have a look at some market rates for savers from an opportunity cost perspective: Harvest: 30%+ CRV:Compound or USDC Pools Alpha: 42%-43% Earn pools Yearn: 45% CRV:COMP 29% USDC ValueDefi: 29% USDC Compare this to earn rates on mStable at the moment: 22.83% So you want to take a protocol that’s already offering about 50% under market rates and then siphon off 20%-40% of those rates?

The obvious response will be liquidity going to where it is treated better"

@DefinitelyNotAWizard @RichAndCreamy Very valid arguments here. There are obviously trade-offs, but its important to note that the system benefits from circular effects, and simply diverting 20% of revenue elsewhere does not necessarily translate to a 20% loss in revenue for savers. With the argument of reflexivity, the benefits of creating demand & a large and liquid pool for MTA (+ mAssets) causes an increase in the incentives to use mAssets outside of SAVE. This causes the utilisation rate in SAVE to decrease, thus potentially increasing the overall revenue for savers.

The figure of 20-40% came about after understanding that it would take a decent stream of revenue to get these circular effects in motion, although we are certainly open to discussing other options and starting slower if there is consensus. It is also worth noting similar rates in the ecosystem with Curve’s admin fee set to 50%. With regards to comparitive rates against the ecosystem vaults as mentioned by Discord user, it is worth noting my previous comment, and the risk profile of SAVE - with no IL and a risk adjusted mAsset, versus potentially risky strategies (although I cannot comment on specific ones).

4 Likes

I think for reasons of fairness it should be stated that a lot of these APYs from the competition come through a much more aggressive and risky (i.e. leveraged yield farm from Alpha Homora) deposit of one’s collateral or an inherent valuation of their own governance token included in the APY, which is what SAVE doesn’t do.

Also, I agree with @ScarceJim and @alsco77 that one cannot simply look at the funnelling of these percentages as a net loss, as MTA is still a key ingredient of mStable, and has to be discounted at least to some extent, even if you’re not actively staking MTA, you might still benefit from appreciation of it as a saver.

Overall, I think starting with a conservative number is always best, and then feel our way out from there as we’re moving forward.

What I would also like to add is the fact that we should really start considering moving other rewards into the DAO treasury over time to establish partial voting power in the external protocols we as a protocol use ourselves, hinting back at the “planting the seed early” saying.

More precisely, I’d highly welcome some Balancer and Compound token rewards to be making their way into our treasury, which could be utilized for meta-governance further down the line for all MTA stakers. It feels important to have a say in how these protocols develop which we ourselves also rely on to some extent.

If we start this process early, we also cause passive appreciation on MTA valuation, which in turn feeds back positively into this proposal, without trying to derail this thread too much now :wink:

6 Likes

I think the options should be 5, 10, 20, 40, to give those with more conservative opinions the opportunity to voice it.

2 Likes

Fully support this. 20% seems reasonable, which puts mStable much lower than Curve’s admin fee of 50%. This will drive reflexive value to token (i.e. MTA will likely appreciate as a result of this proposal), which will offset lost revenue for savers. In addition, creating another pool for MTA and mAssets will drive more actual usage, generating more swap fees for savers. In addition, the farmed BAL could be converted to mUSD and distributed to savers, converted to MTA and distributed to stakers, etc etc.

2 Likes