Better VALUE to Govt Vault holders - Burn VALUE or Pay ETH

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.

  1. The gov vault buys VALUE and slips the price ups.
  2. VALUE goes to current people in the gov vault.
  3. Farmers sell emissions and slips price DOWN
  4. 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.

3 Likes

I also don’t really see the point of govt vault. We could use funds in their to provide liquidity and make money for the protocol, rather value token just sits there doing nothing.

Also, like you mentioned passing on Value to governance may reenter the market although we hope that governance vault folks will hold on to it which is a fallacy really. Its going to be race who sells first to get the best apy and the price won’t increase too much if this happens.

Buy and Burn guarantees token price increases even though market cap may remain constant. The token price increase brings momentum which gets noticed by other people. High price is the best marketing we can do. Even traders jump on looking at that trends which means it would amplify the effect of the burn.

2 Likes

I would agree with the above. Increasing the price and getting all initial investors back in profit will be a great marketing tool in itself. Proposal 3 seems most efficient, although I would add a target to which we would burn the supply. Do we cut supply in half once YFV is phased out? Maybe a community vote would be the best thing after someone does the math to calculate what’s best for the protocol short-medium & long term. Also a vote on whether a stable coin (i.e USDC, DAI…etc) or a volatile currency such as ETH would be best paid to Gov Vault holders. :+1:

I personally would suggest burning 50% of all Value profits given to Gov Vault until we reach 50% of current supply; beginning once the transition from YFV to Value is complete. Buy ETH with the other 50% therefore putting Value back onto the open market but rewarding Gov Vault stakers with a guaranteed appreciating asset that is not only the currency for the network, but the gas for us to do all txns. Once we reach 50% of current max supply, we can reevaluate the market then. The Gov Vault can then begin to receive 50% Value as rewards once the max supply has been halved.

2 Likes

100% agree with this

I actually very much disagree with this proposal. I completely understand where you are coming from and agree with your desire to add value to VALUE. So many of us invested early and have seen the price continue to decline over the last two months. I do appreciate also that significant thought went into this suggestion.

Using the governance vault gains to buy VALUE and give it to gov vault holders create buy pressure. This is a small amount now, but imagine much larger TVL and DEX transaction volumes and this can become significant. Buy pressure should help drive up the price. Also, buying Value and adding to the vault and automatically compounding those gains increases long-term income for the vault. You have a hands-free income source just be parking your Value in the vault.

If you want to be paid in ETH, take some out every month and swap for ETH. The swap fees will help feed the vault again, keeping the cycle going.

Emissions will end within a few weeks, I believe. So, farmers dumping VALUE emissions will no longer be a thing to deal with. For better or for worse when it ends, farmers, whales or anyone else can no longer dump free VALUE. So, that sell pressure will be removed.

But the Gov Vault will continue to buy. Always buying and always compounding into the Gov Vault. Yes, the Gov Vault holders will eventually have to sell some. That is and should be part of the process. Will everyone dump their VAlue all at once? probably not. so will the selling outweigh the vaults’ buying long-term? You must allow people to take profits. That’s why we are here in the first place. but again, those swap fees help feed the vault.

Burning tokens just shrinks the size of the VALUE pie. You still have your number of tokens, but the total has decreased. It looks like you have more, but you have more of less. If you buy back VALUE, you have more of the same size pie. You actually get more in the end. There is a great article in the #Dev-Clarifications channel of the Discord that explains Buybacks vs. Burning. It is a fantastic read and highly recommended. In the end, burning is a gimmick used to artificially inflate token prices, much like stock buy back plans for big blue chip companies.

Instead, I would recommend finding highly safe and stable methods to put those locked up funds to work. The challenge is that the investment cannot put the vault’s funds at risk - we cannot lose those funds whatsoever. So, options are much fewer for super safe lending products, and surely returns will not be as high as we have come to expect in Defi as a result.

Regardless, some portion of the Gov Vault’s locked-up funds can and should be used to lend out or invest in something that generates additional income. That income should be used to buyback VALUE and compound within the Vault.

Lastly, if the Gov Vault only paid out in ETH, VALUE would truly become worthless as there would be no market to sell it to as there would be no utility. Governance tokens have no intrinsic value.

3 Likes