A proposal that outlines the creation of a Balancer Smart Pool (--> Rari Smart Pool) that will receive earnings instead of a buyback and burn. This pool would serve similar purposes but would provide much better long term alignment between token holders, protocol users and the value derived from each.
Rari's goal is to deliver sustainable yields to users for years to come. For that to happen, we need to ensure two things: 1) The $RGT needs to have a clean model and 2) The protocol needs to be ready to sustain itself for years. This proposal aims to innovate on both of these ends and drive the Rari Protocol forward in many directions.
Rari Capital currently allocates earnings to two different locations: 50% to buyback and burn and 50% to funding the Endaoment DAF. While the buyback and burn has proven to be fairly efficient in its two occurrences thus far, I question the long-term viability of running a buyback and burn. Many different parties have pointed out similar concerns, culminating in Placeholder VC even writing a piece called, "Stop Burning Tokens – Buyback And Make Instead." The following describes a mechanism that we can switch to that creates a much more efficient model for our token (heavily inspired by the Buyback and Make model created by Placeholder).
By reducing the number of outstanding shares, buybacks improve certain valuation ratios (e.g. earnings per share, etc.) for all remaining outstanding stakeholders in the market. This justifies paying a higher price per share. But actually destroying treasury stock after a buyback is not economically useful. The buyback alone does all the work because what affects the price is how many shares participate, not how many exist – and treasury shares don’t participate. [by placeholder]
I propose creating a Balancer Smart Pool to serve as the basis for the new Rari Treasury (--> Rari Smart Pool)
This pool will be a 80/10/10 split between RGT (Rari's Governance Token), RSPT (Rari Stable Pool Token) and ETH. This pool would serve as an automatic buyback machine and is where 50% of where earnings would go. When earnings are added to the Balancer pool it will buy RGT (and RSPT and ETH to maintain indexes) from the market. With no sellers, this would mean a higher RGT price. The smart pool can establish a high trading fee (somewhere between 5-15%, ideally dynamic and editable by the DAO) to discourage buyers as this would also be serving Treasury functions.
This sets us up perfectly for any potential future issuances / inflation which can be conducted on behalf of the smart pool. Additionally, now we have a treasury that is accumulating true value and can be deployed in various different ways (ie restarting liquidity mining without inflation, spending on dev talent, etc.)
- Creates a treasury that helps long-term protocol sustainability
- More liquidity on RGT / ETH / RSPT (since you can always trade against the smart pool)
- Price appreciation for RGT
For: Create Balancer smart pool and redirect buyback and burn funds there
Against: Keep buyback and burn
LMK YOUR THOUGHTS!!