EE05 - Does using PolyCUBs Treasury to burn instead of grow make sense?

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(Edited)

Soon is (almost) Now

I have been (im)patiently waiting for the launch of Cub Finances extension to Polygon for quite some time now. While the slow and steady decline of CUB since March has been somewhat painful to digest, the combination of inflation and willingness of this community to hodl has kept me optimistic. Comparing the price action on CUB to a lot of other yield farms that have been around for just as long should make you feel pretty good about where we're at. The fact that development is still happening should make you feel pretty good about where we're going.

While I knew PolyCUB would be here eventually, I did not expect one specific part of the announcement:

A Treasury

The concept of a reserve currency backed by a Treasury was championed by Olympus, and OHM. The model invites fascinating game theory mechanics, and uses high levels of inflation to reward users who continuously hodl. The success of Olympus is a testament to the power of combining a community that never sells with an ever-growing Treasury that utilizes inflation as a vehicle to drive wealth.

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When it was revealed that a Treasury was an integral part of PolyCUB, I was incredibly excited. There is something special about creating a price floor by having the value of that token backed by a basket of assets. What I didn't exactly care for, is that the treasury would be mostly used to buy back and burn PolyCUB.

Burning is Bad

I think I'm at ends with most of the Cub Finance/Leo Finance community when it comes to how I feel about burning tokens. While I understand the idea of reducing supply, I'm a believer that utilizing yield to generate higher returns makes more sense than simply using it to burn. This is why inflation works in the real world, and why it is crucial to a growing economy. No nation grew wealthy by setting its assets on fire.

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Playing Pretend

If I could decide how the Treasury's yield is used (wen Cub DAO?), then I'd vote to have it compound into and continuously grow the Treasury as time goes on.

Staking PolyCUB would entitle you to a part of that Treasury. Olympus pays out this entitlement in the form of additional inflation of $OHM. The longer you stake, the more of the growing treasury you will receive in the form of $OHM tokens. PolyCUB could operate in a very similar manner. Just as your liquidity pool position grows as fees are collected, your xPolyCUB could represent a higher share of the Treasury. The value of PolyCUB is now tied directly to the value of the Treasury, and the more it grows, the higher the risk-free value of PolyCUB becomes.

By using Treasury yield to burn PolyCUB, we are now diminishing the beautiful thing that is compounding interest, and does that make sense?

I'm struggling to find an argument where it does.

I don't think you would see a higher return on your PolyCUB investment by utilizing yield to burn tokens over utilizing yield to build up the Treasury that backs PolyCUBs value.

Large Treasuries Provide Significant Upside

  1. Real value now backs the protocols token. Farm tokens, at the end of the day, are just farm tokens. This is why you see yield farms have their token drop to pennies. Cub is a major outlier in this category for avoiding that fate.
  2. Ample investment opportunities are available by leveraging those assets. Large funds attract attention, and the Treasury can jump in on new opportunities with significant capital, capturing the upside of being early.
  3. The ability to flex holdings in governance voting of outside protocols. For an Ethereum example, if the PolyCUB Treasury invested heavily in CRV, and then stakes it for veCRV, the Treasury could then utilize those voting rights to push for changes on Curve that benefits PolyCUB.

Playing Pretend (Again)

At the end of the day, let's pretend that we want the Treasury yield to continuously buy up PolyCUB. Why burn it? If you're permanently bullish on this ecosystem, wouldn't you expect the value of your PolyCUB to rise? To paraphrase, let's pretend your PolyCUB stake represents a specific percentage of the Treasury, and the yield from that percentage leads to 5 PolyCUB being purchased (and burned) per day.

Would you rather that 5 PolyCUB be burned, or would you rather receive it as incentive for staking? You could put me in the latter bucket.

Icons used in these graphics are couretsy of Freepik and Eucalyp.

Posted Using LeoFinance Beta



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I wouldn't mind the extra PolyCUB in my pocket but there are plenty of users who would just cash it out immediately, creating further selling pressure. So they payout shouldn't be in Polycub then but rather a different token. But I do see the benefit of having a compounding treasury.

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That is a good point, and I'm inclined to agree that having payouts in different tokens is nice.

The only way it would work nicely is if a really large percentage of your community holds. The increased buying pressure (from swapping X > PolyCUB) would outpace the sales, but then you're missing out on the potential upside of those other tokens.

Posted Using LeoFinance Beta

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