With current de-facto standard to buyback protocol tokens, in ideal scenario, this model provides benefit to stakers in two ways:
- Price should be continuously increasing from buyback.
- Stakers get more tokens and returns.
This means when the price goes up, staking token will earn more than just holding token. This is supposed to be a very good model for stakers.
Then, what is the problem with buyback?
- Since we do not burn, supply does not decrease and equilibrium price cannot go up from buyback.
- If the equilibrium price cannot go up, but buyback money keep going into LP pool, then who sell first get realized return.
- When the price goes down, buyback model will even creates sell spiral, since stakers will only have more cheaper tokens. Sell might be better option to realize profit or remediate loss.
But why sell spiral not happen in some other protocols?
Inflation is the main trigger for Spectrum. While other protocols reward around 25–40% of token supply for LP providers. Spectrum rewards 75%! More supply will only drive the price down despite Spectrum has a strong Gov income compared to other protocols.
- SPEC stakers will receive realized return (UST) rather than more SPEC from buyback.
- Setup Burn Vault for buy back and burn.
Realized return as UST
The mechanism is simple, rather than using UST from protocol fees to buyback SPEC, the UST will be distributed directly to stakers. We will deposit protocol earnings to Anchor to accumulated interest while your UST is idle, and you can withdraw UST (or aUST) at any time from both locked or no-lock staking pools.
This will create value proposition similar to LUNA. When the price goes up, stakers have asset with higher value. When the price goes down, the staking returns get higher and there is no need to sell since you still have a revenue stream.
Current 2x% APR (and up to 1xx% APR in bull market) is considered a good investment, owning SPEC will be like owning high-yield investment, so this will encourage people to hold and buy even more SPEC. With current P/E ratio of one digit, SPEC token price has a lot of room to grow.
Please note that, if your SPEC are auto-staked in vaults, you need to move your SPEC to Gov in order to earn UST.
Out of 2.5 SPEC emission per block, 1.25 SPEC will go to burn vault. Basically, we will reduce emission by 50%. These SPEC will stay with burn vault only 1 month and get burned. Short-lived SPEC will be staked to 30-day locked staking pool to earn income and use that income for SPEC buy back and then burn. Effectively, we will burn more than 50%. The more gov income, the more SPEC will be burned.
With growing protocols on Terra and incoming products from Spectrum, the protocol will definitely grow. This tokenomics adjustment is our commitment to continue improving our platform and building stronger foundation for next release.
Thank you to our community for initiate and ideate this tokenomics improvement together. We take this as priority and we will keep listening and moving forward.
Wen? And how do I push this change?
Now. Please stake your SPEC and vote at https://terra.spec.finance/gov/poll/23