The Patient Dumpling's War Economy

disclaimer, this proposal is debated amongst Guardians

This proposal hopes to outline a set of plans to be undertaken in hopes of building a more sustainable model for the ecosystem by:

  • Decreasing overall emissions

  • Adjusting Gauge emission shares, (Also touched on in another concept

  • Delaying Treasury BAO Lock

  • Treasury buybacks BAO & uses it to provide liquidity (Unsure, need feedback on ramifications. But it would jumpstart protocol-owned liquidity as BAOv2 is massively under the value of BAOv1)

These actions aim to lower the incentive to sell BAO and put us more in line with current market conditions by moving liquidity into the DAO’s control, reducing inflation, making veBAO revenue overall comparatively more lucrative which incentivizes BAO lock up more and increasing BAO’s exposure to other protocols.

Background)

Twoscore, and three days ago, Bao Finance had undergone a migration for the purpose of new infrastructure, making right on the locked rewards, and giving users true ownership over the protocol beyond just voting but also by giving 100% share of the earnings of the protocol as well as giving them favored emissions in gauges when they aligned towards long term participation in the ecosystem.

And now, a few things have been made clear within a month and a half of the migration being in effect.

  1. Our circulating supply is far lower than anticipated.

The swapper started with 166 million, which showed the DAO’s upper expectation, it is now 163 million excluding Gate.io who has not confirmed migration the current circulating supply is 5,690,854.

  1. From projections, BIP-21 assumed a roughly 50-200% dilution based on varied circulating supplies.

Assuming 80-166 million was claimed and converted, BAOv2 annual emissions were set to be around 230 million and are currently set for that. From here, that means from 5.7 million, we can expect inflation of 4035%.

Conclusion)

With these figures in mind from a month and a half of operation after the migration, It is this writer’s opinion that the DAO needs to alter the model’s parameters that were heavily influenced by a model made shortly before the bull markets start and accelerate protocol-owned liquidity underlined in the Annual Roadmap. We have to built around the market we are in and 4000% inflation is just not going to make it in this economy.

Actions in order)

  1. Adjust the percent of weights of each Gauge
  • BAO/ETH - 50%

  • baoUSD/3crv - 40%

  • bSTBL/DAI - 10%

bSTBL’s heavy lower of emissions account for the inherent yield it gets from underlying assets while being extremely low risk and not needing liquidity as much to be used as collateral for baoUSD.

  1. Use the Control Gauge to reduce overall emissions from 230 million to a range of 12-25 million BAOv2 a year. (Adjustable in the future, i.e., Influx of conversions from BAOv1 to BAOv2, need to expand emissions to cover more gauges from other protocols, etc.)

  2. Treasury buyback BAOv2 from the market and LPs it (TBD)

Conditions)

The treasury of the DAO delays staking of its BAO holdings into veBAO until the annual revenue of all veBAO reaches 250,000 as currently the revenue to be made on veBAO for the treasury is small and only would damage its viability to potential users.

There are too many changes for one proposal here. Also the overlap of the other concept seems unnecessary. As it is the gauges have been filling up with TVL, the main issue as of now is the dumping into the bao/eth pool. I prefer to go with my concept that will change the base gauge weight of the bao/eth pool.

Treasury buybacks and burning are a great plan to consistently increase the Bao price and create excitement and incentive to buy the token. As revenue increases and more funds are available to do this, this will help the project gain mass adoption.

At this point we have seen what consistent small sell orders can do to the price. The same action can be done in the other direction with treasury buybacks.

I understand that it may seem unnecessary to have all these pieces al together but they all work together best in this conjunction, parameters and order.

There will be more proposals needed likely to expand on some of the items.

agreed - i think emissions should stay the same for now and we go with the weight changes already being discussed.

I think you are putting too much emphasis on the swapped token amount and the percentage of inflation related to that when those metrics don’t really make much direct bearing on the current price and liquidity issues.

This might in your view be a master plan to solve everything but it’s hard for me at least to make sense of each change and the direct result that will come after the change. It would help if you broke down each change into a separate proposal and outline the reasons and expected result from it so it can be discussed in more detail.

The swapped token amount does matter, it’s our current circulating supply vs what our annual emissions will be. We are currently at 5.7 million tokens and will be moving to 235.7 by the end of the year.

You’ve got a point, I’ll try to give more context between how this all interacts with each other and more into how they individually matter as well as matter working together.

As you mentioned in the header of the concept, this concept is indeed being debated amongst guardians.

First and foremost, I don’t necessary disagree on some of the points here, but I believe this concept

  • Is too soon as the emissions only started less than 15 days ago.
  • Doesn’t account for the growth of the protocol and the markets
  • Will potentially render less attractive all the gauges without predefined parameters on how emissions are controlled
  • Overlap, as you mentioned with another concept. It would be best to agree on those parameters in a single vote.
  • Changing tokenomic at a fast pace isn’t necessarily good for the many community members who aren’t actively following the project’s changes.

In the business world, two different approaches collides when facing this kind of situation

  • Controlling expenses (here dilution)
  • Increasing revenues (here TVL & fees)

When we look at successful protocols like Frax (See their gauge dashboard), they successfully built their TVL by implementing cross-chain gauge across many protocols and chains. The road to be as successful as they are will be hard of course, but I believe the salute of baoUSD and bao Market are through integration and liquidity with pairing with other tokens on many protocols.

We are already in talk with other DAO like Saddle Finance, looking for POL with Bond Protocol and possibly building our own with Arrakis / Uni V3.

I could argue that we see slowly old DAO members who are day to day converting their BAO to BAOV2. it should be slow progress, but its still progress we are seeing.

I agree that in the future, we could see some treasury buyback of BAO, but with clear parameters (like baoUSD obtained through veBAO from the treasury…) Buyback parameters should be defined clearly also.

In conclusion, I believe that the patient dumpling should be focusing on increasing revenue and TVL, building new products like our roadmap mentioned (bETH, baoETH, etc.) rather than controlling emissions.

What growth of the market and protocol is there to account for when there is an inflation of 4035% our growth depends on all pieces working together, if people do not trust they can put their assets into BAO/ETH without serious loss they won’t. This isn’t the bull run this isn’t when BAO first started we can’t just throw out huge Apr without anything to back it and do well.

This proposal does not make growth Impossible or limit attractiveness you don’t need triple digit APR to be successful and I do not believe frax accomplished their growth by doing so.

These changes are hardly affecting anyone who isn’t following along. Nor should they be our priority.

This outline does not affect increasing revenue and TVL as you make it out to. A scale back to represent our current situation only seems logical in my eyes.

Also, about the part about clear parameters. We still voted the Annual Roadmap in without clear parameters on the BAO dim sum house. This proposal if goes through will have followup proposals that or establish them here as it is a concept and may still be altered.

If you are going to measure the inflation you should do it based on the existing BaoV1 tokens that will eventually migrate to BaoV2. The 4035% inflation sounds like you are dramatically exaggerating the inflation rate to make your point.

I can see the bao/uni pool grow quickly if the gauge weight increases. We already see some reduction of the selling and more people joining the pool from the mere discussion of increasing the gauge weight and the potential for treasury buybacks.

Its hard to get an idea on how many conversions may happen, I wouldn’t see many for as long as the price of BAOv2 is under BAOv1, considering that the price is off peg by 9-10x value of BAOv1 with supply reduction. I could be wrong, but I’m going off my best assumptions I can make.

What growth of the market and protocol is there to account for when there is an inflation of 4035% our growth depends on all pieces working together, if people do not trust they can put their assets into BAO/ETH without serious loss they won’t. This isn’t the bull run this isn’t when BAO first started we can’t just throw out huge Apr without anything to back it and do well.

Some protocols like Curve / Convex / Frax / Aura are now buying their governance token to try to bribe and redirect where the emissions goes. More gauges and TVL equals a risk some projects may need a gauge with us.

We could even try to be “exotic” and try to have trading pairs for bETH / ETH and then bETH / (insert your popular staked ETH token). That could redirect a lot of trading fees for LP stakers too from aggregators.

This proposal does not make growth Impossible or limit attractiveness you don’t need triple digit APR to be successful and I do not believe frax accomplished their growth by doing so.

I understand your point. But if we are wondering why there’s no liquidity in BAO/ETH in 3 digits APR, we will have the same question for sure at double digits or single digits. For sure it will be harder to sell rewards, but will also attract less liquidity. We may end up (emphasis on may) in the same situation in the future.

My point about revenue is that If we decrease emissions and inflation, it will also reduce the share of the pie of the new gauge we will implement. I’m not sure having our hands on controlling emissions based on many factors isn’t what i envisioned for a DeFi product. In fact, i would like we almost not use our manual gauge proposal if possible. .

We still voted the Annual Roadmap in without clear parameters on the BAO dim sum house. This proposal if goes through will have followup proposals that or establish them here as it is a concept and may still be altered.

Indeed. But every product we have are still introduced as a detailed concept and accepted through governance. The annual roadmap is giving the galaxies the permission to work on a set of general milestones and give a direction for the next year. It’s not a blank check to do whatever we want :)

Going forward if i take the 4 original points of this proposal :

  1. Decreasing overall emissions ==> Debatable
  2. Adjusting Gauge emission ==> I propose we continue working on @R11 concept
  3. Delaying Treasury Bao Lock. ==> Debatable on its own as it is not staked currently. Staking it would give the treasury the power to influence the gauge too without changing contract’s parameters. We could however not stake them, but for how long ?
  4. Treasury buyback ==> Too soon IMO, but we could discuss and brainstorm separately about the conditions (where funds are coming from, when, how much, manual process or automated, etc.)

As for POL, as this is part of the annual roadmap, i suggest the DAO look at this point sooner than later.

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Delaying Treasury BAO lock parameters are said in this proposal, wait for 250k Annual fees. The fact is not staked is the point of the delay.

I would like to hear debate regarding the against decreasing overall emissions. I do not think high APR is a selling point or even that attractive, especially if there is nothing to back it. That’s a mindset of 2020 when everyone could throw a dart, hit any token, and still profit. Look at it from the optics of others, veBAO currently does not give many rewards and we have an extremely high annual inflation rate I think there is no liquidity because of 3 digit apr not because APR isn’t high enough. All we are doing by trying to attract liquidity in this way is relying on mercenary capital, which was against what we set out to do for this year anyway and high apr isn’t that attractive anymore to mercenary capital either way. I think we are overly paying for our liquidity these are my opinions though.

I’ve heard echoes of the same thoughts from a few community members who were expecting emissions to drop with BIP-27, 10 days after emissions started.

I also have some concerns about centralization during our early stages from few people getting a majority of rewards that will in less then a year overtake our currently staked locked BAO.