TRIBE Buyback Pilot Program

Reposting as a separate thread.


Authors: @Bruno, @cryptozen, @fei.saver

Summary
Introduce a TRIBE buyback pilot program by establishing a bonding curve that buys TRIBE with FEI.

Abstract
This proposal would be a pilot for the FEI V2 design and introduces a TRIBE buyback program. A percentage of PCV equity (PCV - user circulating FEI) is used to purchase TRIBE from the market. This is a profitable arbitrage for the protocol, aids price discovery of TRIBE, and makes a direct connection between FEI and TRIBE.

Motivation
A buyback signals the community’s confidence in FEI protocol, and a positive price action could raise FEI awareness in the DeFi community and bring in new investors. In the end, the best marketing is price action. More awareness about TRIBE could increase the use of FEI.

A buyback program brings value to TRIBE holders who believed and invested in the protocol. They take the risk to backstop FEI, if needed. It contributes to tightening the relationship between FEI and TRIBE, which is essential for the long-term sustainability of the project.

TRIBE has been grossly undervalued relative to the value of PCV. PCV is worth around $850M, while user circulating FEI is around 280M. Even if we were to wait until all 700M TRIBE is issued, redeem 280M FEI at $1 each, and then divide the PCV pro-rata among TRIBE holders, each TRIBE would be worth more than 80 cents. This is of course only a lower bound on valuation, since it does not consider the fact that 1 TRIBE today is worth more than 1 TRIBE tomorrow due to staking rewards. Nor does it take into account the growth potential of FEI protocol.

On the other hand, TRIBE has consistently traded around 65 cents in the recent bull market.

A buyback program would also contribute to price discovery and help the price of TRIBE to be closer to its intrinsic value.

As this is a pilot program, and considering the collateralization ratio of the protocol, we suggest a buyback of 2% of PCV equity calculated from Q2 (April, May and June).

Specification

Set up a bonding curve with the following parameters.

Asset sold to the bonding curve: TRIBE
Asset issued by the bonding curve: FEI
Scale: 10M
Cap: 10M
Discount: 50bp

References

Joel Monegro, Stop Burning Tokens - Buyback and Make Instead

Yearn forum post discussing the rationale behind their buyback program

4 Likes

I am against a TRIBE repurchase as mentioned before. I believe it would be better to distribute either PCV profits or newly minted FEI to existing TRIBE holders. I believe the increased centralization from TRIBE buybacks is a large concern for a decentralized stablecoin that will face regulatory scrutiny in the future.

1 Like

I see where you are coming from, and I am neutral about what we should do that is equivalent to a ‘buyback’, but I have to comment on the centralization of TRIBE. In a perfect world we would have more or less equally distributed TRIBE tokens to as many as possible, but in the current system/reality the top 15 TRIBE holders hold about 80% of all TRIBE circulating supply - and most of them are contracts (approximately top 40 holder).

How would you (or @fei.saver ) propose a further decentralization to get as much TRIBE to as many people as possible and the current trend for people is to sell it rather than hold it?

Agreed with regulatory risk to the stablecoin sector as a whole - but the biggest risks would probably go to BUSD and UST.

1 Like

A lot of good points being raised. I don’t think a buyback naturally increases centralization. The number of TRIBE circulating doesn’t matter, what matters is how much percentage of it is controlled by whom. If a buyback ends up buying TRIBE mostly from the IDO (VC + team), it would actually help decentralization. And this is quite likely because the IDO provides 2/3 of TRIBE liquidity, and this percentage will increase as non-IDO investors move their TRIBE in response to TribalChief. A buyback could also transfer ownership to long-term investors as @pavel mentioned in discord.

I think giving grants to contributors with a vesting period could help. Grants don’t necessarily go to whales (unlike LM), and vesting could align long term incentives.

Regarding dividends vs. buybacks, I prefer buybacks because

  • Buybacks take advantage of TRIBE undervaluation (which I believe still exists despite the recent rise).
  • Dividends are costly to implement on chain. If we give out dividends to staked TRIBE, we crowd out other usages of TRIBE such as posting as collateral or providing liquidity.
3 Likes

I don’t think dividends are necessarily costly. The xSushi model has done it successfully. Also dividends dont necessarily need to be given out only to staked TRIBE, as per xSushi.

The xSushi model is different in that it is tied to an ongoing revenue stream and is part of the overall model of the token and protocol. In the case of Fei, we are talking about implementing the pilot program using balance sheet funds based specifically on the notion that TRIBE is undervalued based on the balance sheet. While I acknowledge that crypto investors have been rewarding dividends more than buybacks in the current market, in this particular case where TRIBE is trading below the most conservative implied valuation of the balance sheet, a buyback is the path that accrues the most value to TRIBE holders in the long term and thus it is the one we should pursue at this time.

To be clear, this does not necessarily mean that we need to arrive at buybacks as the long-term value accrual mechanism for TRIBE. I think a veTRIBE model that incentivizes long-term staking would be very compelling. If we go down that path, I would still support future one-off buyback programs should TRIBE again trade at a discount to its intrinsic value.

6 Likes

Taxwise, buybacks are far superior to dividends - at least for US residents

4 Likes

I agree with this. We should keep discussing the long-term mechanism for value accrual - I believe both buybacks and dividends would benefit the protocol, it’s just a matter of which one works best. Meanwhile, we can run a simple pilot buyback program to capture the opportunity of TRIBE undervaluation.

An important point. I believe this applies to some other jurisdictions as well.

2 Likes

We are in a high growth project, so I would prefer in general the buyback than the dividends, especially when market is offering TRIBE at discounted prices.

For the dividends alternative would be important to have some legal opinion, as this could bring not only taxes but also some regulatory risks.

Like traditional companies launch their programs to purchase their stocks when the market is ignoring its intrinsic value. We could have one-off buybacks when we have interesting TRIBE prices. This could work independent of our decision on Fei Protocol v2 for dividends or continuous buybacks.

I dont see a difference in terms of centralization between dividends and buybacks as we are buying from the general market. If all investors sell part of their TRIBE, we keep the same decentralization level. Buybacks drive price increase that can attract new investors and more interest on the project. Sustainable price increase is the best marketing.

1 Like

True, as a pilot program the easiest way to implement is a simple buyback.

But, the long term way to transfer protocol value to TRIBE holders is an important consideration. I would think that buybacks would be like ‘performance bonuses’ where the protocol initiates one-offs or batch buybacks in times where it is favorable to the protocol (note that there may be scenarios where we do not want buybacks). Whereas, I expect that Fei should have a continuous revenue stream (we should also look at this from a business standpoint) and that we should strive to deliver continuous value growth to TRIBE holders via dividend streaming or a interest-bearing token model.

Here is another way to estimate the value of TRIBE. This model is slightly less conservative than the estimate in the proposal, but still extremely conservative.

PCV equity is worth around 570M. Eventually, there will be 700M TRIBE tokens that collectively own this equity. Some of these are already circulating, some are still vesting, and others are being distributed as LM rewards (around 130M).

LM rewards serve a dual purpose: they are vesting to retail TRIBE holders, and they also incentivize behavior that increase the value of the protocol. The former increases the value of TRIBE today, while the latter element shouldn’t reduce the value of TRIBE (otherwise we really should stop LM). So, to make things simpler while being conservative, let us assume that we immediately stop all LM.

Then, suppose we call it quits and dissolve the PCV after redeeming all FEI. Even if we honor all TRIBE that hasn’t vested yet, we now have roughly 570M TRIBE that will share $ 570M. Therefore, 1 TRIBE should be worth at least $1 right now even if FEI Protocol is worth nothing more than its assets.

3 Likes

Good gesture, i think this project is going places

I agree that the buyback pilot program would be an excellent way to take advantage of the current low value of TRIBE. I don’t see how a buyback can increase centralization. I think it is quite the opposite, as @fei.saver mentioned.

One note on the “price discovery” part. One reason why I think TRIBE didn’t follow the recent bull market is that most of its liquidity is tied to the FEI-TRIBE LP. As FEI = $1, there is no opportunity to leverage the ETH price increase. One way to increase price discovery could be by incentivizing ETH-TRIBE liquidity and rewarding that pool.

The taxes issue is an important consideration. We want to rewards long-term holders not penalize them with taxes on dividends

Let’s bump this initiative a bit. Temperature check poll is below.

With the recent deployment of FIP-20/23 and TribalChief, we are in a more robust economic position. To reward TRIBE holders thus far, as the pilot should we move ahead with:

  1. Calculating 2% PCV equity to buy TRIBE at current market prices, with TRIBE to be held in the Treasury?
  2. Calculating 5% PCV equity to buy TRIBE at current market prices, with TRIBE to be held in the Treasury?

Some other options that I would like to consider:

  1. A simple purchase of 5M TRIBE tokens at current market prices, with TRIBE to be held in the Treasury?
  2. Scratch TRIBE - double the FEI amount distributed as ‘dividend’ from FIP-24 to FEI-TRIBE LPs.

In all scenarios, no permanent burn of TRIBE is suggested.
The bought back TRIBE (if chosen) would be retained in the Treasury or to extend the TribalChief runway and/or fund other initiatives via the rewards program.

What type of buyback or revenue distribution would you prefer?
  • Calculate 2% PCV equity to be bought back in TRIBE
  • Calculate 5% PCV equity to be bought back in TRIBE
  • Simple buyback of 5M TRIBE regardless of equity
  • Do not buyback TRIBE - pay FEI-TRIBE LP stakers double the FIP-24 amount in FEI
  • More discussions needed

0 voters

When you say held in the treasury, you mean like a balancer pool controlled by the DAO which has the PCV equity(PCV- use circulating FEI) printed in FEI and TRIBE in it, which automatically buys TRIBE based on certain threshold in that pool. I would support a 10% PCV Equity buy back, 850,463,033 - 240,398,005 = 610,065,028
610,065,028 * 0.1 = $ 61,006,502.8
Per current rate of Tribe = 61,006,502.8 /0.62 = 98,397,585.2 (Will remove 98 mil Tribe from circulation). Since the price of tribe is too depressing and protocol CR is 353%, the first buy back can be 10%. We can also skip the next quarter buy back if the price and volatility comes back and then continue back buy the following quarter. Thoughts