Anchor/Mirror should burn a percentage of buybacks instead of returning all of it to stakers

General
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Currently:

  • Anchor uses surplus yield to buy back ANC tokens. These tokens are then distributed to stakers
  • Mirror uses fees from minting to buy back MIR tokens. These tokens are then distributed to stakers

By buying back tokens and then distributing 100% of the bought tokens back to stakers, these protocols are simply creating ephemeral buying pressure without permanently accruing any value to the underlying tokens.

My proposal would be to return maybe 75% to stakers, and burn the remaining 25%.

This would cause both tokens to become deflationary in nature and permanently increase the value of the underlying tokens.

4 Likes
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hey @bluebar

thanks for making the post. i was talking about something similar the other day. i fully support the idea of burning x% of the buybacks as they will ultimately lead to the assets being deflationary. one of the thing that people love about Luna is the built-in burn mechanism based on stables demand and 10/20/25% of buyback being burned is great way to make Anchor/Mirror follow a similar path

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First of all I’d like to know how much fees generates Anchor and Mirror. Is there any website I can check the numbers? And yes I fully support idea of burning part of ANC/MIR tokens.

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Buyback and burns are de facto deflationary though - it results in 100% of the cashback in market buys for each native asset, and results in significant slowdown of money velocity by allocating dividends to people with significantly less propensity to spend.

Sufficient slowdown of money velocity is de facto deflationary.

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It would seem as though de jure deflation via permanent burn would accrue significantly more value to the underlying token than de facto via slowdown of money velocity though.

Also, the narrative of actually declining max supply counts could be extended to the entire terra ecosystem rather than be limited to the $LUNA token.

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Agree with you. Only thing I’d add on dividends is:

  1. Some stakers will inevitably sell dividends (whether that is 10%, 20% etc of stakers)… but if buybacks are burnt then 100% is obviously never returning to supply.
  2. Dividends are a taxable event as income in many jurisdictions whereas buybacks are not and you only get taxed as a gain when you crystallize a sale. Income tax can be an extremely significant number and wipe out a large amount of the dividends.

https://tradingeconomics.com/country-list/personal-income-tax-rate

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I can only speak for myself, but I’m dumping my MIR and ANC as soon as I get it so I can buy more Luna for this very reason.

I like the idea of a small percentage being set aside to burn.

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So do I. I see absolutely no reason to hold MIR/ANC comparing to hold Luna. Little buyback and burn would definetily make holding of these tokens more reasonable

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I was think of the same basic problem when I posted about anc utility.

Anc and Mir both could additionally deflationary via burns to enhance scarcity. This would benefit the mir buyer on coinbase who otherwise has no concept of the governance or other functions of the token.

I am unsure of the long term negative consequences of this but right now there is defintely considerable incentive to simply convert to luna or to ust as rewards are claimed.