Introducing a buyback mechanism will give the $AADA token a more sustainable utility. The solution aims to tackle downward pressure that reduces the token retention rate. The overall procedure encompasses the following steps:
Use the locked $ADA to delegate to stake pool
Use the collected $ADA rewards to buy $AADA through an AMM DEX platform;
Store and accumulate $AADA in a treasury wallet;
Introduction
After collecting valuable feedback from the community, the team decided to dumb down the buyback procedure and propose the following solution:
This thread aims to introduce a simplified buyback strategy to the Aada V1 protocol. The latter will tackle AADA’s price volatility and serve as an incentive for the token holders. Last but not least, it will lay the foundation of the Aada DAO treasury.
Motivation
The initial $AADA token utility was to serve as the centerfold tool of allegiance with the project, as well as participation and improvement of the protocol through DAO voting. However, those features proved too idealistic and insufficient to retain a steady token price.
Moreover, the increased price volatility poses a high risk for the protocol users that borrow assets using $AADA as collateral. As a result, big holders are de-incentivized to hold onto their tokens, whereas smallholders are de-incentivized to increase their positions and submit loan requests using $AADA.
Rationale
To counter the negative price trend and incentivize community members to hold onto the token, the platform will use the locked $ADA in the app’s smart contracts and delegate it to earn rewards. The feature is easy to implement as it does not require creating a new smart contract. Moreover, it’s risk-free because the stored $ADA will not have to leave the smart contract.
Ultimately, the feature will help the DAO accumulate wealth while assisting Aada Finance’s native token in maintaining economic stability. The latter will also decrease the risk of mass liquidations of loans where $AADA is used as collateral.
Benefits of the abovementioned strategy:
Utilizing the $ADA locked in the platform smart contracts in favor of the community;
Token holders will be incentivized to hold their $AADA and take part in the DAO more actively;
$AADA will be bought off the market, which will offset excess price volatility;
The DAO will be able to propose and increase the treasury holdings;
The proposal seems promosing at the first glance but I see some bad implications long term.
One of the beautiful things about Cardano is its native liquid staking mechanism. One can already see, that the first protocols like Indigo protocol or dexes like Minswap and Wingriders are making use of it in a way, where the user that deposits ada into a smart contract, benefits from the staking rewards that this locked ada generates while beeing locked. This way, protocol yields are additional to the risk free rate of ada staking rewards and the user benefits from it directly.
Now, lets have a look at this proposal. If implemented, staking rewards will benefit Aada token holders but not protocol users, making it less attractive to use the protocol and more attractive to hold the token. I think these are wrong incentives. It would be better to have a mechanism like this: users benefit when locking ada on the platform, meaning they get staking rewards directly added to their collateral dept position, thus more users would use the protocol. As a result income from protocol fees increases (if there are any), protocol fees could than be used to buy back Aada on the open market.
First and foremost, the protocol needs users to create revenue. With the proposed model, I don’t see them coming, when others protocols let them keep their ada staking rewards.
Hope this comment is helpful in the thought process to decide on future changes
I like the proposal, especially as it is a “phased” approach - first approve the buy-back program and then there could be another discussion what to do with the treasury.
Youre over complicating it. Keep it simple or it just wont get passed. Specifics on what happens within the treasury can come later, but for now lets agree to found a treasury.
I also think going for staking rewards for TVL is a bit of a cop out and should only be consider as an addition to a platform/service fee for V1and2 instead of in place of platform/service fee.
i think we can do better, we can get a more stable and usable treasury, incentivize community and strengthening liquidity while creating more buyback power.
delegate ada locked in aada platform and platform fees to aada pool + incentivize community to delegate to aada pool.
nota bene : i think an nft giving reduced platforms fees, bonus on future aada stacking and governance staking will do the job but let discuss this in the future as we can start without incentive to give time to community to find the best one and time to the team to implement it.
use 70% of staking rewards to buyback aada. send the other 30% to a separate wallet as treasury (holding ada in the treasury prevent us to dump aada when we use our own treasury and it is also a way more stable asset wich means a more usable and powerfull treasury)
provide liquidity on dexes with 85% of aada, send the remaining 15% to a separate wallet (to be held as treasury first but to decide later how to use it as there is a lot of options like incentives, burn, liquidity or just treasury)
Use non-aada LP rewards to fund buyback wallet, use aada LP rewards to provide more liquidity.
note that all percentage can be changed by dao voting in the future if needed.
also note that liquidity provided to dexes are also the property of the dao and can be seen as “active treasury” while strengthening liquidity on dexes and offering rewards to be transformed into more buyback power. we can start with no incentives for ada delegators and start a discussion to find the best incentives as my nft idea maybe does not suit to everyone.
(i am the same person as the account “jorgpanzer”, this was only way to be able to post my message)
