Proposal: A Treasury Tax for buyers below backing price to maintain backing and reduce leverage

How to potentially prevent liquidation cascades on Wonderland and incentivise buyers to stay above the backing price.

Implement a treasury tax on buyers below backing price where they pay the different between the backing price and the actual price of the token. Buyers are more incentivised to buy above backing than below backing. Current arbitrage trade removed where buybacks by the treasury are going straight back to 20k within minutes. It is in the buyers interest to buy at backing. Of course it would only work if the treasury and revenue being generated by Wonderland was completely true and auditable 100% of the time by users to verify.

Liquidation cascades are a huge problem in crypto. Whales are hunting for them. People (like me), don’t use the appropriate risk. I believe Wonderland is in a unique position to prevent these happening for one reason - the backing price.

As we have seen in the last week the solution to the price of $wMEMO falling below backing was for buybacks from the treasury and then burn the tokens. This looked to work the first time (kind of) on 17th January but not in the next couple of cascades.

CT and the FrogNation has vilified sellers below the backing. In my opinion this is not fair. Most people selling are doing so for their livelihoods, they can’t take the risk of losing it all. They believed we did have a price floor.

We have had numerous calls for a “sell tax”. My suggestion is to twist this around and incentivise buyers to buy above backing price and not below.

We talk like we are a community but when push comes to shove we are selfish people who look after our own interest. I’m sure there are people with plenty of money taking a chance and loading up on $wMEMO right now. How about we benefit the community when buying below backing?

The example - let’s pretend the last week has not happened. Let’s pretend backing is at $40,000. How about making it a better option for someone to buy at above backing than wait for it to drop below the backing price of $40,000?

If price drops to $39,000 there is a $1,000 difference between price and the backing. Why don’t we add a fee or make a “Treasury Investment” token where the difference between price and backing price + fee percentage must be paid to the treasury by anyone buying below backing. See table below.

For example if price was to drop to $30,000 while the backing was $40,000 and the budget you have is $40,000 rather than being able to buy 1.33 $wMEMO with your $40,000 you would only be able to buy 0.83 $wMEMO, aka the same amount you could’ve bought when price was $48,000 only you wouldn’t be giving $15,000 to the treasury if you’d bought above backing!

The lower the price goes below backing the worse your investment and the big winner is the treasury as they are taking the delta + fee. The community wins, not the whales.

The arbitrage trade is gone below backing. If you spend your $40,000 when price is $20,000 you will only break even when price hit’s $80,000! As the table shows your $40,000 will only buy you 0.5 $wMEMO when price is at $20,000, when buybacks occur to get price back above backing even when you hit $50,000 and sell you get $25,000, $40,000 - $25,000 = $15,000 loss.

Buybacks and burn of tokens becomes second layer of defence. Sellers less likely to sell below backing as they are confident that price will go above immediately as more buyers will want to buy above.

How does this help with liquidation cascades? Well people can more safely use leverage. If I have the option of having my liquidation set above backing price or below backing price, I will set it below as I’m more confident that that area will be defended.

This then means that there’s less liquidations above backing as most leverage will be below and the incentive is not there for whales to attack liquidations below backing as they will be paying the treasury big to do so.

This may also be a way out of the current predicament. When the buybacks happens sellers are offloading, we can’t get above backing. So rather than dump on the market again when below backing, people would hold and sell way above as it would be too costly to just buy again below backing and expect the treasury to save the day.

I believe it would also help if there was ever a future vote to shut down Wonderland while the huge treasury was still there, price would be maintain at the backing. The worry would not be there like now around who gets what, what people get help etc. It would be clear, there is no advantage to buy below backing so price will not go below it. A % of treasury will always be there to go back above if needed but the main thing is the it is against anyones best interest to try get price below.

Any wMEMO bought back by the treasury could be either burnt or redistributed to holders.

Feedback welcome!

  • In favour of a Treasury Fee to buy below backing price
  • Not in favour

0 voters

If you discourage buyer below backing price, no one will buy until the discount becomes even wider. Or maybe just nobody buys period. The last thing you want to do is discourage oppornustic buyers unless you want the thing to just stop trading.

Would this not make the opportunistic buy to be at backing price? The only reason trading would come to a halt is if we found ourselves in the position we are in now where we are directionless and we don’t know if it’ll be wound down or not. At least we would know our get out price if we settled at a true backing price.

No it will lead to no buy.

People are selling below the backing price because they have doubts about the backing.

People are not willing to buy at the backing price because they have doubts about the backing.

The only way to remedy the discount is to assuage the doubts. A treasury tax only grows the doubts.

Could it be tweaked do you think? I suppose my proposal only works if we have full confidence in a completely audited DAO, the most transparent DAO out there.

The only solutions are either remove the doubts (easier said than done) or allow people to redeem into underlying backing at a discount, like what ohm proposes. Those who believe the backing and stay get the benefits.

Completely understand and have gone through that thought process too. To move forward I do think that we should remove the need for “trust” or “belief” we should be able to simply verify ourselves what is there. With that verification the backing would be clear.

Just a follow up, wouldn’t the scenario just look more like what trading has been today? In a disaster scenario price barely moving. Not the panic and dramatic movements we had Wednesday and Thursday with the arbitrage trade.

How do volumes compare to pre crisis? It could be that we’ve reached a point where remaining holders are simply unwilling to sell at a price that anyone wants to buy. A tax on buyers or sellers would drive a further wedge between supply and demand, leading to even less volume.

Volume has pretty much gone back to pre-crisis levels. Crisis level volumes were dramatically increased by liquidations to people who thought they were safe below the backing price. Right now it looks like there will be no point but if Wonderland is saved, a mechanism to allow safer leverage and confidence in the backing price (even if that is backing price minus wMEMO in treasury) would be great for the protocol.

Again I don’t say that what I have proposed is exactly right, but the community that had been built up is now obliterated. The winners are whales buying to simply sell at backing. The community gets nothing. If they were adding to the treasury while buying below backing that might at least help increase revenue sharing for everyone in future.

Just on the comment “no one will buy until the discount becomes even wider”. That’s not true. The lower the price goes below backing the higher the cost of an individual to buy. For example if using the numbers I had above a buyer would need $80,000 to buy a full wMEMO when price is at $20,000. That same $80,000 would buy 2 wMEMO if put to use when price was at backing price of $40,000. The incentive is for buyers to buy as close to backing as possible.

These mechanisms are everywhere. In Bitcoin mining miners will shut off machines if price goes too low. We can use the backing price to be a powerful part of the protocol with the right mechanism in place.

You’re right. The comment should ready “no one would buy at all” - so either nobody would buy and the liquidation would occur at a $0 price because nobody would bid any more (and if they were willing to pay backing, they would have done so when it was at backing) or the market freezes. Maybe that’s the intention, basically don’t let the market go at all and therefore liquidation can’t work? That’d make the token inherently insuitable for lending, which maybe a better outcome altogether.

Something like a time period based sell tax can work. Look at something like Titano or Thor Nodes for examples

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