In a decentralised protocol, the owners (shareholders) of the protocol are the token holders. Therefore, the revenue generated by the protocol should directly benefit the token (share) price.
The founders of Liqwid were compensated with LQ tokens, aligning their financial interests with the protection and growth of the LQ token’s value. Similarly, investors, governance participants, and LQ accumulators all share this incentive to safeguard and enhance the LQ token’s value.
The success of Liqwid should directly benefit the LQ token and its holders. Given the decentralised nature of the protocol, its success should positively impact the LQ token’s price, creating a self-reinforcing system. As Liqwid flourishes, it generates more fees, resulting in increased purchases of LQ tokens from the market, subsequently distributed to stakers.
Recent governance proposals underscore the team’s focus on reducing LQ emissions to safeguard its value and alleviate selling pressure.
To ensure that the LQ token directly benefits from Liqwid’s success, I propose redirecting all programmatic distributions to purchase LQ and distribute it to LQ stakers instead of distributing ADA.
The implications of swapping ADA for LQ as the programmatic distribution are manifold:
- Upward Buy Pressure: This shift will exert upward pressure on the LQ token’s price.
- Weekly purchases imply perpetual buy pressure stemming from the revenue generated by the protocol.
- Weekly Buy Pressure Linked to Protocol Revenue: The amount of weekly buy pressure will correlate with the protocol’s revenue, amplifying with its success.
- Liquidity Squeeze: Purchasing LQ from the market will reduce its liquidity, benefitting hodlers and tightening the availability of LQ.
- Impact on Sell Pressure: By diverting LQ away from sellers and into the hands of accumulators, this method accelerates the liquidity squeeze, potentially increasing the token’s value and accelerating the increasing price of the token.
Consider the following scenario to gauge the potential impact:
(Numbers provided below may be inaccurate)
For instance, during a recent staking rewards period (e.g., March 11th to 17th), approximately 9,657 ADA were rewarded to stakers. Over a typical 4.33-week calendar month, this totals approximately 41,814.81 ADA, which could be used to purchase LQ. At the current price of 3.18 ADA per LQ (price at the time of writing this), this translates to an additional 13,149 LQ worth of buy pressure per month. While this may seem modest initially, as Liqwid’s Total Value Locked (TVL) potentially reaches nine digits, the impact becomes substantial. For example, with a $51 million TVL, this generates around 40,000 ADA of buy pressure per month. However, at a hypothetical $500 million TVL, this would equate to over 400,000 ADA of monthly buy pressure, corresponding to approximately 125,000 LQ per month. This represents roughly 5.7% of the current LQ sell pressure over the past 30 days, further compounded by the removal of LQ from exchanges due to accumulation. Such dynamics accelerate the liquidity squeeze, contributing to an increase in the token’s price.
