DOUGH / eDOUGH buyback redesign

Summary

The following proposal builds on the feedback provided by the community after the execution of the initial buyback program. Redesigned buyback mechanisms, parameters and time windows are proposed and discussed below.

Authors

@Gabo_o, @Bennet

Passing Thresholds

5% or more of veDOUGH supply must participate (21,939,254 * 0.05 = 1,096,962) 60% or more of participating tokens must vote FOR

Motivation

To start, the goal of the buyback program was mainly twofold. First, it was meant to offer liquidity providers a slippage-free exit for the Dough side of their LP positions given the termination of the Doughpamine incentive program. Second, it wanted to provide Dough holders who did not wish to upgrade to Auxo with a similar type of exit. The complementary goal of this offering was to avoid LPs and Dough holders from selling to the open market thus further depressing the price of Dough. Ultimately, all Dough bought back by the DAO will be burned along with the Dough already present in the treasury.

What happened

While the buyback program was intended to serve the purpose and participants mentioned above, it failed to fulfill such purpose given how a number of system mechanics and parameters were selected. Perhaps one of the main fallbacks came from the very issuance of funds methodology. Instead of topping up the buyback contract by streaming funds, which would have allowed multiple participants to participate in the program, funds were deposited in the contract in a single transaction thus allowing for a ‘first come first serve’ circumstance where a small number of small addresses took basically the entire deposit. Fortunately, as a risk mitigation effort, the team had only deposited a mere fraction of the entire buyback budget and therefore there is still plenty of balance for users that still wish to participate.

Another issue derived from the utilisation of the past 30 days average market price (TWAP) as the price set for the buyback. This time length was selected to avoid the buyback price from being too sensitive to sudden price movements. Nonetheless, as the market crashed - and Dough price accordingly - a few days before the start of the buyback, the market price of Dough turned out to be 30% to 40% lower than the buyback price right at the start of the program. The arbitrage opportunity obviously did not go unnoticed and increased the incentives for early buyback participants to participate in the buyback. As a matter of fact, even a trading bot took advantage of the arbitrage.

With all this being said, it becomes evident that the buyback program did not serve who it was intended to and that some of its aspects had to be redesigned. The following sections will outline such design improvements, a number of which were proposed by the DAO.

Scope

In light of the events that occurred and the purpose of the buyback initiative, the design changes that would be implemented are the following:

1. Instead of depositing funds into the contract as done previously, funds will be streamed to the contract with a certain streaming rate. Streaming will be conducted utilising llamapay. The latter being a function of the buyback budget for the specific epoch and the length of the epoch, aka 14 days. The implementation of the streaming should guarantee that the buyback won’t be participated only by a few addresses but by a larger number of users instead. As it was initially intended to be.

2. The TWAP utilised for setting the buyback price will be reduced from 30 days to 3 days. This will also result in the buyback price being updated every three days. The main rationale behind this choice is to avoid substantial arbitrage opportunities as they occurred last time. As arb opportunities may still be present if the price of Dough swings considerably in short time frames, these should be mitigated both by the streaming of funds described above and by the price update happening every 3 days. Moreover, while on one side this may lead to higher buyback prices (less capacity for all outstanding Dough), on the other it could also mean lower buyback prices (higher capacity) shall the price of Dough fall further.

While the streaming of funds is an ideal solution for allowing a larger number of users to participate, it may not be as ideal for wallets holding larger amounts of Dough. For the latter, participating in the buyback could come at a risk of being very time-consuming and not having the guarantee of being able to sell their Dough to the contract. For this reason, the team has also decided to offer wallets holding more than 200,000 DOUGH a buy-back deal over the counter (OTC). In this respect, the OTC buyback price would be equal to the one offered by the buyback contract the moment the OTC transaction is taking place. Furthermore, the budget that would be utilised for OTC buybacks would be taken from the budget allocated to later epochs of the buyback, starting from the very last one. Please reach out directly in Discord DMs to @gabo_o or @bennet if you would like to perform an OTC transaction. In sum:

1. For holders of > 200k Dough, an OTC deal will be granted at a price equal to the same buyback price offered by the contract the moment the transaction is taking place. Participants who wish to opt for this deal can directly DM @Gabo_o or @bennet on the PieDAO discord server.

Benefits & Risks

Benefits:

• Higher amount of users will be able to participate in the buyback
• Reduced arbitrage opportunity risk
• Tailored solution for larger holders

Risks:

• Potential higher buyback prices (less buyback capacity for budget)

Next Steps

Shall this proposal pass, the program will commence again on the 13th of December, 2022 and epochs will last two weeks as set in the program's previous iteration. Discounts have also been revisited and will follow the ones listed in the table below. Finally, the budget and pricing for the buyback of eDOUGH remains totally unchanged.

Dough

eDough

Closing notes

We hope that the adjustments proposed will level the buyback playing field and allow a larger set of users to participate in the program. We would also like to take this chance to thank all DAO members that participated constructively in the proposition of new execution mechanisms.

Let us know if you support it, or not, or even if more information or further discussion may be needed

FOR - Support the changes, and agree to proceed with them

AGAINST - Do not support them, and want to halt their implementation

MORE INFO - Need more information