Expelliarmus: Accumulating CRV and not interacting with external projects
Summary/Scope:
First of all, I would like to thank the team for working on solutions how the future of the protocol can be successful. However, I feel like the “Expecto Patronum” proposal is not the best option possible and would therefore like to propose the following option how Abracadabra could accumulate CRV without the mixup with other projects and potential problems of arbitrage and supply shocks. I look forward to comments.
As of now, protocol rewards are used to purchase SPELL on the open market to then distribute them to sSPELL holders. I propose to:
Not buy SPELL on the open market but from Abracadabra’s treasury.
This way, Abracadabra can use protocol proceeds to purchase CRV on the open market.
sSPELL holders still receive their share in the protocol’s revenue.
Once “enough” CRV has been acquired or the treasury assets are all distributed, this process stops and protocol proceeds are again used to buy back SPELL on the open market.
Obviously, this would need to be structured in detail (e.g. using TWAP prices to calculate fictive buyback amounts, share of SPELL allocated to buybacks and share allocated to bribes etc.), but I have full confidence in the team’s ability to do so.
This option would be less complex compared to purchasing other DAO’s - potentially illiquid (e.g. BSGG) assets.
The option would not be an arbitration game where either SPELL holders or DAO token holders must loose out.
The option would be less risky compared the the other proposal: How many DAO holders will actually sell, for what price etc. Abracadabra is profitable and has clearly predictable cash flow.
It would also not result in a potential positive supply shock, which usually results in sell-offs.
Newly distributed SPELL would actually be allocated to the very stakeho(d)lers with the biggest skin-in-the-game, thus potentially making the process largely market neutral.
Obviously, it would be very important that such a procedure only runs for a limited amount of time, so that actual market buybacks commence after a while.
I would like to point out that essentially, by not buying from the market, the SPELL inflation would increase (more tokens issued), I think it is a not fully applicable solution, also for properly supporting the spell market price
I think this idea is awesome and solves a lot of issues regarding the future of the project. It gives Abra a long-term, sustainable way to incentivize liquidity while staying on the road to 0 emissions. While we are still emitting spell, it will go to stakers who have already shown themselves to be believers in the project so there may be less sell pressure. This mechanism also gets rid of the issue of people front and back running the Merlin candles.
Importantly, this allows Abra to stay flexible. Since the crv accumulation will be slow, we will be able to adapt to changes in the market. If it’s more efficient to buy cvx, we could do that. If uniswap takes over stable coin liquidity, we won’t have our entire treasury in crv tokens (at least not for a while). This will also be helpful if we go to ecosystems where there is no curve like Solana.
I already stated what I think about this in the AIP #7 post : Link
Still in favor, but I am not against acquiring a good chunk in one go from other protocols or OTC.
Buying like 50m in one go to start up the process wouldn’t be bad in my opinion as it could help fix the current liquidity imbalance ( 80/20 at the time of writing with a gauge weight of 10.2% ) in the MIM pool.
That’s a yes for me anyways, would love to see Abra have a treasury they can use to solidify/expand.
So what you suggest is instead of burning unallocated emitted SPELL, the unallocated SPELL should be bought back from protocol fees and distributed to sSPELL holders.
Maybe to make it more appealing for sSPELL holders to support this proposal, the buy back price could be 10% lower compared to the spot market price.
A rough timeline based on historic protocol earnings would be great.