[Proposal] Seigniorage Deflation

There are currently two ways to distribute new seigniorage.

1: Pro-rata distribution like we do currently. Share token holders do nothing and receive new seigniorage automatically

2: Auction-style

I wanted to discuss the pros and cons of each.

Specifically, for #2, an auction style payout would require users to burn their Share tokens to receive USD or whatever type of Seigniorage.

I believe both 1 and 2 to be economically equivalent but the nice side effect of 2 is that Share becomes deflationary with growth. This may counteract the negative rebase cycles by allowing the supply to contract once again during positive rebase cycles.

A positive rebase cycle would work as follows:

1: the protocol calculates the seigniorage needed to payout (similar to burn during negative rebase)
2: the protocol attaches a default exchange rate (at market prices) and every day there is a positive rebase, the exchange “bonus” increases. So maybe day 1, 1 Share = 10 USD, and day 2, 1 SHARE = 10 USD + 5% and so on.

The bonus can also be algorithmic if the community wishes.

I don’t have a particularly strong preference of either but i think this merits a discussion.

Like we discussed on telegram, I am of the opinion that having both options would be cool. We could reduce the pro rata amount (rebase lag) and have a daily bonus for those who want to burn SHARE for extra USD. That way not just arbitrage bots would win.

I really like the magic of the pro-rata solution.

Nevertheless, the auction style is more efficient as you will be able to get a bot that trigger a flashloan (at some point) and the USD is put directly into the market, not sitting in many wallet (most of which are contract that will delete the USD anyway). Not sure the arbitrage cost will be that high.

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I think having both would make it very interesting.

so treasury can get 10% of the positive rebased USD and other 90% can be split 50/50. 50% should be pro-rata distributed to SHARE holders. other 50% can be up for auction where people burn their SHARE to get these USD.

The one issue I have with splitting the distribution is complexity. More complexity = friction and potentially more errors/confusion

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Definitely the biggest factor in this type of decision. If that is the case then it makes sense to leave the system as is for now (least amount of complexity). Although it would be nice to bring the number of SHAREs down, it would have the added side effect of acting like a stock split and making the price look more appealing to buy in for retail (human psychology). We’ll just have to do our best to be stewards of the protocol and make sure we don’t get diluted too much (treasury, etc).

One idea that could be cool is the insert an auto “burn” of shares proportional to the amount of USD they are going to claim. The proportion would dictated by the price of USD to SHARE.

The alternative is to use a similar scheme to how burning USD works with a dashboard tx

This auto-burn means for all users or the one that opts to burn his shares?

If latter, would be v useful as it saves gas.

Would be a cool experience if the Share Holder who initiates the Rebase is given the option for this

I prefer #1 because of its simplicity. We can always move from simpler options to more complex options, but not the other way around. If #1 gets 80% of the job done, then go with #1 and leave #2 open for future improvement.

I’m thinking in order to reduce the shares in circulation and make it more attractive for mining, to auto burn Shares for USD whenever there is a positive rebase. In this way, share serves as a deflationary asset.

The price at which shares are swapped for USD will be determined by the twap Oracle price.

Potentially making this manual is also another option but shares should be deflationary with growth, otherwise it is unattractive to mine

I absolutely agree with the above

I would say manual, complex tokens are a pain in DeFi, for instance in a Uniswap LP.

Again, I think the algorithmic treasury is the better solution here (as you can be sure the buying pressure is done but keeping SHARE token usable in DeFi protocols.