This proposal ideates upon the concept of a contraction fee which is a special kind of fee done for sellers who try to front-run bond purchasers. The proposal here suggests three different solutions, each of them innovative with various consequences.
The problem being addressed here is that there are market manipulators who are aware that during every bond redemption cycle, there will be people who will buy bonds and in effect push the price of ARTH up. Since the time of purchase is known and the volume is known as well, the frontrunners can easily time their buy and sell orders. They’ll basically buy the dip and after bond purchasers have pushed the price up, they will immediately sell which totally reverses the efforts done by bond purchasers.
Note that this fee/incentive is only applicable when we are below 1$
What is a contraction fee?
The contraction fee is a fee that’ll only be enabled to sellers depending on any negative price that sellers make when we are below the peg. The fee is determined by three factors;
- How far we are from the peg (the further below the peg, the more the fee)
- How much of a negative impact is the seller making. (The bigger the sell order below the peg, the more the fee)
- Is the 12hr TWAP below the 1$ mark. The fee will only be applicable to orders if the 12hr TWAP is below 1$
This is just a basic post that explains the idea to penalize sellers and is open for further discussion. Further, this idea can also be extended to reward buyers below the peg as well.
Implementation #1: Forking Uniswap and creating a custom pool that applies the fee
This is the least intrusive option. It requires no hard forks and it means that we can create a custom Uniswap pool where the incentives are based more towards the peg. Sellers who sell below the peg can get charged in ARTH and buyers who buy can get rewarded in MAHA.
The fork can further borrow the liquidity from Uniswap.
Some very rough but similar ideas:
Implementation #2: Frontrun sell orders and burn the ARTH before the sell order is executed
The team has created a working implementation of a smart contract that can fee a sender if it finds a pending transaction that is basically a sell order on Uniswap.
This code is innovative however it requires a hard fork of the ARTH coin, which can be very hard to execute.
Cons: Will require a hardfork and may not 100% work
Implementation #3: Embed the fee directly into the code
This implementation will again a hard fork of ARTH, wherein the ‘transfer’ function is modified to implement the sales fee whenever a transaction is made to Uniswap. However, modifying the “transfer function” is a bit dirtier and it can have possible unintended long-term consequences. Moreover, this requires a hard-fork of the token.
Cons: Requires a hardfork of the token
These are the three implementations that allow the protocol to basically create better rules for the price action when we are below the peg.