There is no economic benefit to VALUE holders for profits from VALUE being used to BUY VALUE and pass the VALUE to govt vault. That basically just moves money around without actually increasing the value of an individual VALUE token. In fact, it is net harmful for those in the VALUE vault (and net beneficial to yield farmers).
Let’s say (for example) that the price of a VALUE token is defined by some classic pricing formula:
Let profit = profit per year that accrues to VALUE holders. These include VAULT APY sharing, and exchange fees
Let multiple = some multiple on that profit. We can look at different DEFI projects and their profits to determine some average DEFI multiple. Projects where profit is growing very fast might also have higher multiples.
Market cap = profit * multiple. And price = profit * multiple / supply.
CURRENT SYSTEM => BUY VALUE and distribute
Now, assuming that neither profit or multiple changes. What is the impact of the vault “buying” value and from profit and distributing to gov vault holders?
There is no impact! The market cap doesn’t change, neither does supply. All that changes is that we have subsidized liquidity farmers of emission who can sell at a better price. Example - assuming that AMM liquidity doesn’t change.
- The gov vault buys VALUE and slips the price ups.
- VALUE goes to current people in the gov vault.
- Farmers sell emissions and slips price DOWN
- When the vault holders decide to sell (now with higher # VALUE tokens), they get the remaining AMM slippage [basically the remaining amount of non-VALUE token in the VALUE-WETH or VALUE-DAI pair]. Because the farmers have sold at a higher price, even less of the WETH or DAI is left for the vault holders!!!
The bagholders are those who staked in the Gov Vault. Eventually, the VALUE that we give to the govt vault WILL be sold (especially since many holders purchased VALUE at a higher price). Most of these holders are currently staked in the govt vault, and will sell the tokens (causing very little net benefit).
PROPOSAL 1 => BURN VALUE WITH PROFITS
In this case, because price = profit * multiple / supply, burning supply will increase price. Eventually, if profits are high enough, supply will steadily decrease to 0, and price => infinity.
PROPOSAL 2 => BUY ETH (or a more stable currency) and pay to GOVT vault.
Instead of paying govt vault with what is staked in the govt vault (moving money around), we can use profits to buy a stable FX to pay vault holders. Right now vault “profits” are correlated to the price of VALUE. VALUE decreases means that the government vault APY decreases. That is NOT what we want. We want the APY of the governance vault to INCREASE (in dollar terms) as value price decreases (spurring more VALUE buying).
We can do that by using a more “fixed / stable” currency like ETH or USDT/USDC. corr(VALUE, USDT) = 0 < corr(ETH, VALUE) < corr(VALUE, VALUE) = 1.
That way, if the price of VALUE drops, APY increase in the government vault in dollar terms. Making it economic to buy VALUE and stake. If the price goes up, well the price goes up.
PROPOSAL 3 => Some combo of current/1/2
We can also do some combination of current/1/2 (suggested by @MarcoDallas).
As it stands, the team is doing a fantastic job of trying to increase the profits (new vaults, FAAS, etc) and increasing the multiple (by moving fast with projects). Kudos to them. But the benefits of being a VALUE holder currently isn’t terrific because of how profits are allocated.