Temp Check: How to Allocate the LENFI from Buybacks

Temp Check: How to Allocate the LENFI from Buybacks

Summary

Recently, the Lenfi team announced a DAO buyback of 6,201 LENFI worth 20,000 ADA.

The following event marks the first buyback initiative as approved by the DAO in the following proposal from 2022: Buyback Proposal #3: Implementing $AADA buyback mechanics

In short, the DAO approved a simple buyback mechanism that involves using the ADA deposited in the V1 (P2P Market) smart contracts to delegate it to an SPO. The accrued staking rewards would then be used to buy LENFI from an AMM DEX.

Problem

The target of this proposal is to bootstrap a discussion and decide how to allocate the LENFI that’s been bought back using the V1 ADA rewards. So far, the following options have been discussed with the community:

Option #1: Distribute the 6,201 LENFI to the LENFI depositors in the DAO-owned LENFI/ADA V2 pool in a 3-month period.

Option #2: Distribute the 6,201 LENFI to the Minswap LENFI/ADA liquidity providers in a 3-month period.

FYI: The Telegram & Discord polls show the following results:

  • Telegram - 71% (34 votes) to 29% (14 votes) in favor of Option #1
  • Discord - 26 votes to 4 votes in favor of Option #1

Further Overview of The Possible Solutions

However, I would like to start a discussion on the following considerations:
Option #1 Pros: Users will be able to deposit their LENFI to the pool and receive a guaranteed APY on their deposits while boosting the protocol TVL.

Option #1 Cons: Currently, the pool has 0.19% Utilization Rate, which shows low usage of the pool.

Option #2 Pros: The rewards will incentivize more people to provide liquidity in the Minswap LENFI/ADA pool. Increasing the DEX liquidity of the token will reduce the price slippage.

Option #2 Cons: Some users voiced their concern over using the tokens to incentivize the LENFI liquidity pool on Minswap. While this is where our biggest liquidity pool is, some community members are reluctant to give the platform incentives after the controversial turn of events regarding the Minswap proposal to deploy funds to Lenfi V2.

Additionally, I would like to introduce 2 extra options that might be of interest to some:

Option #3: Burn all LENFI tokens bought back from V1 staking rewards.

Option #4: Deposit the LENFI tokens to the Safety Module.

Conclusion

The following temp check aims to collect more feedback on how to proceed with the LENFI boughtback using the staking rewards from the V1 smart contracts. After a thorough discussion, the 2 most preferred options will be put together into a formal proposal, of which only one will go on-chain.

10 Likes

If we deposit to the SM would we pull the rewards regularly or just let them grow?

4 Likes

I will go for
Option #1 - Distribute to Lenfi Depositors directly. To incentivise Lenfi holders. More will come in to buy up Lenfi.

For other options:
Option #2 - Not favour of Option #2
Option #3 - We cannot burn Lenfi token forever, we only have a limit of 29.5M, since we talk about substainability.
Option #4 - Not much information on Safety Module. Ultimately, I would prefer to incentivise the Lenfi holders.

2 Likes

Option 1 means more lenfi to borrow and more selling pressure (shorting). If the community wants to short lenfi, let’s do it.

Option 2 and option 4 are best option for Lenfi Holders.

2 Likes

Let’s wait to make a decision until there is more information on the SM.

1 Like

There are only 6,201 Lenfi tokens. Not all will seÄşl, even if all sell it, it wont put a dent in the price. Look at Taptools transactions, how many Lenfi change hands daily.

2 Likes

i think one of our priority should be to attract TVL, in first we want ada in the protocol so maybe we can consider giving buybacks to all ada lenders ? I am waiting more info on safety module to try to have a good idea about how to incentivize ada lenders in the best way possible in the future (maybe allocate a part of token supply in treasury to ada lenders)

other wise i like option 1 (it is nice to incetivize lenfi lenders regardless of utilization) and option 4 (obviously good for protocol safety and scarcity of supply). dont like option 2 and 3, option 2 will incentivize minswap liquidity provider but they allready receive a good enougth incentive so not needed and will not be so good i think. option 3 is just good for scarcity but feels a kind of a waste.

1 Like

I think Option #4 is the clear choice to benefit ALL LENFI holders, although there needs to be way more discussion about the staking module in order to understand the best way to utilize these LENFI tokens.

#1 - Only benefits LENFI depositers in an under-utilized pool.
#2 - Only benefits LENFI/ADA LPers/YFers
#3 - Burning is what projects do that have bad tokenomics.

1 Like

Hi there,

I was wondering if we would bring back the lenfi awards for V2 and put some or all of the buyback lenfis as price money for the users/wallets that utilize V2 the most.

It could serve as an incentive for users to use our platform?

Would be nice if that’s a regular thing to attract new users.

A live leaderboard for each award would be awesome for that.

I agree with everything Beardseye said. It should benefit all LENFI holders.

In addition, the amount is small enough that it doesn’t provide much incentive for options 1 or 2.

As for incentivizing ADA deposits, other than being an insignificant amount compared to ADA deposits, we shouldn’t need to incentivize ADA deposits beyond offering a much better rate of return. The parameter change should take care of that. For attracting ADA deposits, we need to find a way to target and attract some SPOs as a way to increase their SP. Also, just targeting and attracting regular stakers - earning 8 to 10% instead of 3.5%.

1 Like

For me option 4 makes the most sense, as it benefits the security of the protocol and can perhaps be distributed later to stakers in the SM or even used as an initial incentive for the first x Month. So that the SM can establish itself well

Burning shouldn’t be an option. Option 1 would also make sense to reward Lenfi holders directly, but here I see the risk that the high inflow of loanable Lenfi in the pool means that Lenfi can be borrowed and shorted cheaply.

Another idea: Provide the LENFI as additional rewards in the ADA / LENFI pool. Earn ADA and LENFI. This makes it more attractive to provide ADA in this specific pool and at the same time LENFI holders can get cheaper loans because the pool gets more liquidity. That could be a WIN WIN for everyone

1 Like

Full degen and long Lenfi :grin:

Buying tokens to give them back out to increase sell pressure doesn’t make any sense to me.

Giving them to an LP pool makes a lot of sense; I struggle to find a negative

Burning them is what generally happens with buybacks; all win. Team, holders, LP providers…

Using fees to shore and power the safety module makes a tonne of sense. It’s not on the user to make the protocol secure; the protocol does it itself

2, 4, 3, 1 in that order is my vote

2 Likes

Yes, that’s a good idea. I mentioned it on discord too, to incentivize the ada providers for ada/lenfi pool, in order to get more ada tvl and, better rates to borrow with lenfi