Like the rest of the world and crypto, DXD has had a wild 2020.
In May, DXdao launched the DXD bonding curve, which mints new DXD with ETH deposits at an increasing linear ETH/DXD price. DXD can be burned in return for ETH from the bonding curve’s buyback reserve. At the moment, it costs 1.0203 ETH to mint 1 new DXD and 1 DXD can be redeemed (or burned) for 0.0335 ETH. Of course, the secondary market price has traded in between these and sits at 0.175 ETH/DXD at the time of writing.
There has been ample discussion on the bonding curve and a signal proposal passed last month to halt the bonding curve. While the community works to implement this, it won’t change the current predicament: the $ value of ETH in the treasury has skyrocketed, but this has not been reflected in the price of DXD. The treasury is intended to fund development, but at the end of the day the treasury’s financial value should be reflected in DXdao’s liquid financial token: DXD.
Swapr’s DXD/ETH pool
Simultaneously, DXdao is launching Swapr and plans to use its treasury to seed liquidity in Swapr pools to help drive volume and revenue, which should accrue value to DXD holders (through a new bonding curve or another mechanism). The AMM market is competitive as a whole, but the emergence of aggregators and arbitrage bots means that individual pairs can be targeted as long as Swapr has the deepest liquidity for that pair.
We have discussed several strategies to attract liquidity in a host of pairs, particularly with DXdao partnerships and redirecting liquidity from Mesa IDOs, but there is one pair that DXdao can and should own: DXD/ETH.
Across Uniswap & the two Balancer pools, DXD/ETH averaged ~$250k in daily volume from 11/7 - 12/4. If this volume occurred on Swapr, it would generate $65 in on-chain revenue a day for DXdao (assuming 1/10th of 0.25% swap fee).
Still, even though 20k of the DXD premint has vested, the community has been reticent to use the premint at a price lower than the bonding curve. The reasoning being, how could DXdao market make DXD at a price 1/5th of what it recently sold DXD to investors?
To me, the solution seems clear: given the appreciation of ETH in the treasury and DXD’s current low market price, DXdao should purchase DXD on the open market using ETH from the treasury and then use this DXD to seed a Swapr liquidity pool.
To ‘win’, imo Swapr will need at least 1,000 DXD as it won’t have as much as the organic trade flow that Uniswap (yet) but it will have significantly lower fees than Balancer.
It’s not clear that all of this needs to be supplied by DXdao, but I think a DXD buyback would better align interests of DXD holders and make Swapr the home of the DXD/ETH pair.
How? And How much?
Here is where my knowledge wanes. Some extremely back-of-the-envelope calculations (checking 1inch), shows that with the current liquidity pools, 400 ETH would purchase ~1000 DXD. This would represent just over 2% of the ETH in the treasury and about 2% of the current DXD circulating supply.
A 400 ETH <> 1000 DXD purchase would be more than double the current ETH/DXD ratio, and although a buyback of this size will surely increase the price significantly, I imagine there could be a more efficient way to purchase, and there are additional complications given any buyback would need to go through the proposal process.
Luckily, @nico has built a Gnosis Protocol Relayer to address this and allow for trades from proposals to use the market price at the time of execution and define the oracle to reference. He created this sample flow:
More details in his excellent post, although I wonder if there needs to be any extra precautions considering how illiquid DXD is and that the price could easily be manipulated.
So, to me the next steps/questions are:
- Do we want to do a buyback of DXD?
- If so, how can we technically accomplish this?
- How much DXD to buyback?
Given the progress we are making on the multi-call scheme, a DXD buyback seems possible in the next month?
Disclosure: I (Caney Fork) hold DXD.