Implement LQ token buyback program

Temperature Check
1

Proposal description
This proposal aims to implement an LQ token buyback by redirecting the current protocol revenue, which currently allocates 50% to LQ stakers and 50% to the DAO treasury, to be used exclusively for LQ token buybacks. This would effectively end the so-called “programmatic distributions” paid out to LQ stakers each month.

Suppliers will continue earning 80% of all interest across all markets. These proposed changes will not affect the 80/20 net interest margin ratio but only redirect how the 20%—currently split between LQ stakers and the DAO—will be allocated in the future.

The LQ buybacks will follow a 30-day Dollar-Cost Averaging (DCA) approach, utilizing the total interest repaid, loan origination fees, and voting rewards generated in the previous month. All LP fees generated from the Minswap POL position will also be applied to buybacks. The buybacks will begin in October, using revenue from September, and will continue until June 30, 2025. After that, a new vote will determine how this portion of the protocol’s revenue will be allocated moving forward.

The purchased LQ will be added as collateral to the Core Team Financing Loan, improving the position’s health factor until the loan is fully repaid.

Proposal reasoning
The current method of distributing protocol revenue to long-term, DAO-aligned LQ holders uses historical stakes to reward LQ stakers with boosted ADA yields. However, with these historical stakes being phased out in January 2025, a more strategic approach aligned with the DAO’s vision for growing the Liqwid ecosystem should be adopted. Without the current multiplier rewarding long-term staking, the protocol would treat short-term and long-term LQ stakers equally.

LQ buybacks present a simpler, future-proof solution for rewarding long-term, DAO-aligned LQ stakers, offering a significantly less complex rewards model.

This proposal does not modify the current staking rewards, as established in last year’s Proposal 48. As a reminder, all LQ stakers are earning a 5% annual base yield, applied equally to every stake and user. The Aquafarmer boost remains the only multiplier that allows users to earn a higher LQ staking APY beyond the 5% base yield.

To summarize, the LQ buyback program enables the DAO to:
A. Future-proof the LQ rewards model in preparation for the end of historical stakes at the beginning of next year.
B. Implement a more strategic approach for rewarding long-term, DAO-aligned LQ holders.
C. Strengthen the health factor of the Core Team Financing Loan.

Note: In addition to these benefits, the LQ buyback approach offers a more tax-efficient solution for most LQ holders compared to programmatic distributions. Buybacks are typically taxed only on capital gains from the actual sale of LQ tokens, whereas programmatic distributions may be subject to taxes ranging from 15% to 20%, depending on the country of residence.
This is not financial, tax, or legal advice. You should consult a tax professional in your country or region for confirmation.

Risk considerations
There are no significant risks associated with this proposal, as it only affects the distribution of the net interest margin.

Specifications
If this proposal passes, LQ buybacks will begin immediately after the voting phase concludes. Upon adoption, the program will start in October 2024, using revenue generated in September 2024, and will conclude on June 30, 2025.

Conclusion
The Core Team recommends implementing this proposal and initiating the LQ token buyback program.

Do you support this proposal?

  • Yes, I support this proposal.
  • No, I do not support this proposal.
0 voters
2 Likes
2

I don’t support removing the programmatic distribution reward.
I would support keeping it and using only 50% of the revenue towards $LQ buyback. And actually I would rather still keep 25 % for DAO treasury, and have only 25 % of revenue for $LQ buybacks.

  • Point A : I don’t really care about long term future proofing the 5% $LQ rewards, I care about earning from real protocol revenue sources directly. The idea of governance token emissions in the first years is to attract involved users and to eventually stop at some point anyway. Using not 100 % of protocol revenue but just a portion of it for $LQ buybacks would still allow some degree of more longevity for these $LQ rewards. Given a max token supply, who really expected these 5% rewards to last anyway ? I don’t mind seeing the % decrease, and eventually stabilize and maybe grow again if the protocol has high usage, so more revenue, so more $LQ buybacks thanks to a portion of it.

  • Point B : DAO-aligned $LQ long-term holders don’t really want to sell, they want to keep their $LQ to keep voting power and earn straight from revenue protocol, so it’s not more strategic for them to help the $LQ price with buybacks, it’s not what they care the most about.

Reading between the lines, it feels like a proposal mainly to try support the $LQ price and grow the DAO $LQ share, which from a protocol/DAO perspective is good just for allowing the DAO to take larger loans against its shares of $LQ or do a $LQ sale to keep funding running. Some other ways might be better.

I am a long-tern supporter and the price of $LQ don’t matter much to me, I keep the same share of voting power and the same share of revenue. And if I want more I can buy (here cheap $LQ is good for me actually).

If holding and staking $LQ is just about voting power and gaining more $LQ, it’s less interesting to me.

Finally, the notion of “future-proofing” the $LQ rewards sounds like a buzzword to me. The situation is already going to be better with less emissions in 2025. Future proofing until when ? Show me data and projections. Is it actually a desirable or needed goal to have (5%) $LQ rewards forever.

Curious to read others’ thoughts, counterpoints, etc.

9 Likes
3

Agreed, this destroys the whole incentive of holding LQ, I want to earn ADA and this was the most interesting part about it for me, earning real yield.
The only one who benefit from this proposal are the DAO who wants to help with their collateral price to keep the loans healthy.
Also that was the main utility of the token - programatic rewards, you want to just take it away like its no big deal, what about trust?
Very unfair to long term holders.

5 Likes
4

I am in favour of this proposal, I think it’ll help provide security to loans which help further development but also but significant pressure to accelerate price appreciation as we move into alt season. Will be a net benefit for stakers

5

Hi Gil. I partially agree with you. Thanks for sharing your thoughts.
I like the idea of 50% for buybacks. What I don’t like in this proposal is next step. There should be at least an idea to what would happen after the buyback period.

I propose we return to the programmatic distribution in a optimized form. It might be more frequent deposits directly to the staker wallet? Just an idea… the team will have plenty of time to reshape it

2 Likes
6

Hello friends, i did not made up my mind yet.
But i want to people realize something. If you hold LQ it makes you the DAO. So if the DAO buys back it means you own that token.

Every LQ out circulation we decide not to distribute, sell etc… makes our share of the protocol bigger.

7

If the main objective is to offset sell pressure, the proposal should be phrased differently.

See this emphasized sentence written in bold characters :

“LQ buybacks present a simpler, future-proof solution for rewarding long-term, DAO-aligned LQ stakers, offering a significantly less complex rewards model.”

It would sound clearer and more honest to me to have instead in bold :

" LQ buybacks present a solution to offset sell pressure and put the DAO in a better position to use its LQ shares to fund itself. "

The proposal is presented as coming from a necessity to improve the LQ rewards system, while, as I understand it, it might be more about better funding opportunities for the DAO.

We would all benefit from a clearer discussion.

2 Likes
8

The proposal needs more details for LQ voters to be empowered to make the best decision for Liqwid.

  1. Is the Fee Switch being turned off? Does this require new contracts?
  2. List the calendar months of 20% revenue for all of 2024(Jan =x amount of- ADA) and so on : This allows voters to see the impact of this proposal
  3. What is the accruing Monthly loan interest (Team, POL)? We need to see how adding more LQ to the HF/LTV impacts this.
  4. Is accrued interest greater or less than monthly revenue( at full 20%)

Projections of what this looks like are needed. Currently, as a long-term holder, I am unclear how to proceed without this information.

3 Likes
9

DAO also needs to provide the transactions for the repayments on the loans for August.

2 Likes
11

As stated in the Liqwid discord governance discussion channel: I disagree that the primary utility of staking is programmatic distributions. Primary utility from my perspective is staking unlocks voting power and ability to delegate or vote directly on proposals.

I would also argue receiving LQ staking rewards is a larger utility of LQ staking than receiving programmatic distributions which launched last August.

12

I think this proposal is too much of a burden on LQ stakers and the benefit does not outweigh the loss of 9 months of protocol revenue share for them. Especially considering the OTC proposal would already buy back a large amount of LQ for the DAO as well as reduce significant sell pressure.

I don’t support it.

2 Likes
13

I do not support this proposal.

This proposal does not “future-proof” the LQ rewards. This only walks back what was proposed in proposal 48. We should use the time between now and the end of this year to solidify a plan for the LQ rewards model as you stated in point B. One that is sustainable, consistent, and scalable. If anything the programmable distribution should be phased out at the same time as the historical stakes at the beginning of the new year as stated in proposal 48.

This contradicts point B in your summary.
How is removing the utility of getting real yield in ADA supposed to support rewarding long-term, DAO-aligned LQ holders? Replacing that utility with the buy-back is assuming that this will increase the price of LQ. But that doesn’t take into account disenfranchising long-term stakers (again) and the reduction of utility in the token itself. Let alone the trust in the core team. How can old or even new stakers trust anything if there have been multiple occurrences of the team going back on their word by changing proposals? Who would invest in a very risky asset for no dividends/yield/rewards for 9 months? This removes a material utility of LQ as it will become a governance and collateral/staking token only. Given, the lack of governance participation as of late, I doubt people will be rushing to buy LQ as the value proposition of LQ will be reduced to just governance and collateral/staking. I’d argue that the buy-back benefits do not outweigh the risks of eliminating programmable distribution rewards for LQ stakers.

I’d also argue this proposal is for the core team and not the DAO. In my opinion, the only true goal of this proposal is to increase the HF for the team loan at the expense of long-term stakers. This proposal seems rushed and unnecessary as well if the OTC proposal passes. This material of a change should get the proper time for all DAO members to review. 3-4 days is not long enough for people to make an informed decision.

4 Likes
14

I do not support. I think there has been a continued erosion of supporting long term holders. I understand the direct benefit of a higher LQ price on long term holders, but the entire impetus for this protocol was a revenue sharing model since day 1. I also think that at some point in time in the future when the price is higher, the team will use the LQ token and execute another private sale to fund development (or maybe sell on the market). That is speculative, but seems to be a logical conclusion to support needed development funds until DAO income is high enough to support the development, admittedly, this is a long time away. Thus, the “benefit” to long term stakers is transitory and speculative, since the token price will probably go down at some point in the future from renewed selling.

Also, I cannot help but notice many terms in this proposal that are undefined and unexplained:
Future-proof the LQ rewards model in preparation for the end of historical stakes at the beginning of next year.
What does “future proof” mean? This seems like a buzz word.

Implement a more strategic approach for rewarding long-term, DAO-aligned LQ holders.
What is the strategic approach? There is nothing strategic here in my opinion, it is remove one reward to push up the price and it may or may not benefit LQ holders later if another token sale is pursued to fund development. “strategic approach” appears to be another buzz word without concrete explanation.

I might consider supporting this if the APY for staking with LQ was modified to account for the drop in protocol revenue supported. For example, long term stakes over 12 months receive a higher APY in conjunction with Aquafarmer. This would account for the reduction, but offer another benefit in exchange. This proposal appears to be taking away a commitment that was made in the beginning (sharing protocol revenue).

I also want to point out (I have in previous proposals) that this decentralized governance is doomed to fail if changes keep whipsawing in a short time frame. Traders are going to trade. Investors are long term thinkers and planners over a 12 month to 5 year (or longer time period). I am an investor and I cannot make a plan using liqwid because things keep changing rapidly. This is inevitably placing a higher risk on the protocol, using the protocol and holding the token.

I propose to get a more regular cadence and restriction on proposals. For example, place certain parameters into “buckets” or categories. The DAO is only able to change a parameter in a category a certain amount of times per year. 1 or 2? Of course, emergency changes due to black swan events are different. But, in my opinion, the “terms” with long term stakes (rewards structure, token distribution, etc.) should not be changed more than 1 per year. Just a thought on trying to get a more even and consistent cadence of changes.

5 Likes
15

Prop. 48 gave the LQ Stakers LESS LQ tokens for the supposed benefit of a higher price.

This current proposal will give LQ Stakers less revenue (LESS ability to buy tokens), and again, the supposed benefit is a higher token price.

If this proposal passes, you must sell your LQ tokens to realize the benefit of the higher token price, which means, ultimately you will have LESS TOKENS.

You, LQ token holder, must ask yourself in the long term whether more tokens or fewer tokens are most advantageous to you.
Consider the token-holding Value Proposition promoted by this project at its inception: PASSIVE INCOME and GOVERNANCE. This proposal removes the Passive Income and necessitates the gradual loss of your governance influence if you are ever to realize any gains from holding the token in the first place. There are only 21M tokens for a reason. Is it NOT about accumulation? #Protect Your Interests

2 Likes
16

I humbly disagree regarding the importance of programmatic distribution to Liqwid. I would argue that it has been an integral part of its historical narrative.

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“Every protocol has a governance token. Every protocol has staking.”

For many users (see screenshots below), this has been Liqwid’s main selling point. In fact, I’ve been using the programmatic distribution as a differentiator to onboard new users. To be honest, I’d rather sacrifice the staking rewards rather than the programmatic rewards due to their scaling, and introduce the latter in the constitution.

I’m not sure a weak impact on price is worth it. $LQ will likely pump during the bull market, but unrelated to this proposal.

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6 Likes
17

For me best scenario to please protocol, LQ stakers and DAO. Buy back but half of it goes to LQ stakers, just substitute $ada for $LQ Some of we will sell a little, accumulate, use as collateral. This is good, create volume and buy pressure. Yes DEX will like but we need to support defi too, it will attract lp farmers, speculation, maybe CEXs. Would be less buy pressure than the Team want but is more than halfway. I 100 % sure a lot of us will hold!

I support the proposal that way.

2 Likes
18

Yeah right … :joy: :-1: :x:

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2 Likes
19

I’m not strictly opposed to the buybacks, especially when the loans depend on LQ price and it’s a big risk. However, this proposal cancels the boost in programmatic rewards to long term LQ stakers that was supposed to last until EOY, right? So we’re reducing rewards to long term stakers, again…

At least meet long term stakers in the middle. Either do 10% for buybacks and 10% for programmatic distribution, or 20% buybacks but starting on january 2025 when the boost ends.

1 Like
20

Thank you all for your feedback and responses.

I would like to clarify the effects of a buyback, as I’ve noticed some misunderstandings about its impact:

  1. Increase in LQ Value, Benefiting All LQ Holders
    A buyback increases the value of LQ, benefiting all holders. This is a common practice in traditional finance (TradFi), where buybacks are often used alongside dividends to reward shareholders. The effects of buybacks have been widely documented, and their value largely depends on investor preferences.
    For example, see this reference: McKinsey on Share Repurchases and Dividends.

It’s incorrect to claim that buybacks do not create value for holders, especially when compared to programmatic rewards (a “dividend-like” system), which similarly increases the wealth of LQ holders.

  1. Improved Collateral for POL and Team Loans
    Buybacks improve the collateral value for the Protocol-Owned Liquidity (POL) and team loans, which can either allow for higher borrowing or a better health factor for the loans.
  2. Better Price Development to Attract Future Investors
    A stronger price trajectory helps attract new investors, further supporting the fundraising’s ability of Liqwid.

Quantifying the effect of a buyback depends on several factors, including:

  • Cardano price, which is influenced by the global market and Cardano’s organic growth as a Layer 1 blockchain.
  • Liquidity volume within the ecosystem.
  • Cardano/Liqwid user base, which depends on the Cardano ecosystem’s growth, other projects being built on this L1, its use cases, and general blockchain adoption.

Simulations may not accurately predict the future, as the most relevant factor to assess the efficiency of a buyback is market timing—whether we are heading into a bull or bear market, and whether there will be additional buying or selling pressure.

Updated Proposal :
Reallocate 10% of the DAO treasury to conduct LQ token buybacks until December 31, 2024, while maintaining the 10% allocation for programmatic rewards (unchanged) until the same date.

Protocol paid interest allocation Current Proposed from Oct to 31.12.2024
DAO Treasury 10% 0% (changed)
Buyback 0% 10% (changed)
Programmatic rewards 10% 10% (unchanged)
Market reserves 0% 0%
Suppliers 80% 80%

A future vote on both programmatic rewards and staking rewards will take place before January 1, 2025 (most likely in late November or early December). Both programs are set to continue in their current form until December 31, 2024, as per proposal 48.

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3 Likes
21

Here is the revised version of the proposal.

Implement LQ token buyback program

Proposal Summary
This proposal aims to implement an LQ token buyback by redirecting the current protocol revenue, allocated to the DAO treasury, to be used exclusively for LQ token buybacks.

Protocol paid interest allocation Current Proposed from Oct to 31.12.2024
DAO Treasury 10% 0% (changed)
Buyback 0% 10% (changed)
Programmatic rewards 10% 10% (unchanged)
Market reserves 0% 0%
Suppliers 80% 80% (unchanged)

The LQ buybacks will follow a 30-day Dollar-Cost Averaging (DCA) approach, utilizing the total interest repaid, loan origination fees, and voting rewards generated in the previous month. The buybacks will begin in October, using revenue from September, and will continue until December 31, 2024. After that, a new vote will determine how this portion of the protocol’s revenue will be allocated moving forward.

The purchased LQ will be added as collateral to the Core Team Financing Loan, improving the position’s health factor until the loan is fully repaid.

Proposal Reasoning

Buyback have the effects of generating an:

  1. Increase in LQ Value, Benefiting All LQ Holders
    A buyback increases the value of LQ, benefiting all holders. This is a common practice in traditional finance (TradFi), where buybacks are often used alongside dividends to reward shareholders. The effects of buybacks have been widely documented, and their value largely depends on investor preferences.
    For example, see this reference: McKinsey on Share Repurchases and Dividends.
  2. Improved Collateral for POL and Team Loans
    Buybacks improve the collateral value for the Protocol-Owned Liquidity (POL) and team loans, which can either allow for higher borrowing or a better health factor for the loans.
  3. Better Price Development to Attract Future Investors
    A stronger price trajectory helps attract new investors, further supporting the fundraising’s ability of Liqwid.

This proposal does not modify the current staking rewards and current programmatic rewards, as established in last year’s proposal 48.

Risk Considerations
There are no technological risks associated with this proposal, as it solely impacts the allocation of DAO treasury funds.

Specifications
If this proposal passes, LQ buybacks will begin immediately after the voting phase concludes. Upon adoption, the program will start in October 2024, using revenue generated in September 2024, and will conclude on December 31, 2024.

Conclusion
The Core Team recommends implementing this proposal and initiating the LQ token buyback program with the DAO treasury revenues.

8 Likes