AIP9: Recirculating Penalty Fees into Rewards

Currently with the new changes to Mahaswap, we can observe that the penalty fee while under target price has successfully discouraged further supply pressure the further we go under target price. However, in contrast to this, the reward for purchasing Arth while under the target price is rather minimal.

The maha fees paid are 100% burnt from the maha supply, however the maha rewards for purchasing arth are coming out of the ecosystem fund. Also, each hour there is a limited amount of rewards that can be allocated, and 5 maha or less appears to be the ceiling for each transaction.

What I propose is two-fold;

  1. 45% of the fees paid in maha (Selling while under target price), are burnt from total supply.
  2. 45% of the fees paid in maha, are redirected back into a funding pool that increases the maha rewards earned for buying arth under target price.
  3. 10% of the fees paid in maha, are added to the ecosystem fund to help with future development, marketing, and growth of both maha and arth.

What does this achieve?

  1. Greater rewards that incentivize buying arth on mahaswap when under target price. Rewards can be adjusted as equal to the fees depending on distance from target price.
  • For example:
    Selling 5000 Arth @ $0.80 wears a 400 maha fee. 45% of that 400 maha is burnt, and 45% is added to the rewards pool.
    Buying 5000 Arth @ $0.80 rewards a 180 maha bonus (45% of the counter-part fee of 400 maha). This is paid directly from the rewards pool that is supplemented by penalty fees.
  1. Maha rewards for purchasing arth under target price, no longer drain ecosystem fund, and are no longer limited to a fixed amount per hour - but rather in balance with accumulated fees from sales.

  2. Maintains the same level of discouragement for selling below target price, while utilizing any selling as “fuel” for the incentive to buy arth under target price.

Whilst extra maha rewards may place downward pressure on maha price, in an equal sense, the burning of maha supply counters this (45% burnt of fee & 45% of fee redistributed to buyers).

Thank you for your time reading, and please feel free to give your input.

EDIT*

Based on similar question coming up. “How do we pay the buyers once we are already below the target price? e.g. implementing it while price is below target”

We implement it once Arth has returned to the target price. This allows opportunity for the rewards fund to ‘fill up’ with any price depreciation prior. Fill the fund up with 45% of the fees, and that is used to pay the rewards for buying back up.

With these variables consistent - Volume, Price Point, Price Impact
-The seller pays 100 maha fee, 45 maha is burned, 45 maha is sent to rewards pool, 10 maha is sent to ecosystem fund.
-The buyer who does the opposite to the seller in terms of volume, price point, price impact - they receive 45 maha.

3 Likes

Solid proposal Michael. I feel this is a much more sustainable model that will incentivize the purchasing of ARTH while also burning a good deal of MAHA. It’s a balanced approach that I see having a lot of positives for the entire ecosystem.

1 Like

I second this proposal but maybe the % of rewards can be tweaked further. We have successfully deterred selling but the rewards for buying ARTH is … not amazing. However, I don’t think burning will equalize the selling pressure at least not in the short term. Giving out massive Maha rewards is a double edged sword imo. Our community is already split into maha and arth. Giving out massive Maha rewards might be upsetting to some of our community members.

2/
Also we don’t see selling activity after the penalty is implemented. So when there’s no selling, how are we going to pay buyers through this mechanism since we need the MAHA penalty fees from selling?

Thank you Michael. Good idea!

So the idea would be to implement this change at the point where Arth is at Target price (Not Below). This means that as people sell arth under the target price, 45% of the maha fee is redirected into a funding pool. This funding pool is then used to pay maha rewards.

To implement this after we have had price depreciation below target price, means that there is a discrepancy in trying to fund buyers from a pool that has not been given the opportunity to ‘capture’ fees. My suggestion here would be to implement it once price is above $1, to give the funding pool the chance to be funded in order to pay out rewards for buyers.

Sure, we certainly could approach it with minor tweaks to the %, and have a heaver lean towards burning maha. However I think this would result in a longer time spent in contraction rather than bringing more incentive for a shorter period as we return to expansion or stable.

In regards to how community may feel about maha rewards for buying arth - they have equal opportunity to participate if they wish to, I don’t feel they are excluded in anyway except by their own choices and or preference.

Actually this could work, we will probably not have so high penalties with bigger volume and liquidity. It could rebalance rewards so ppl are more incentivized to buy arth in contraction period. It will keep more maha in loop so that rewards are not drained so fast.

1 Like

As suggested by @rob_mac in TG, we could also adjust the ratio of how the maha fees are recirculated. Given the performance of Arth after an injection of 1000 maha was added to buying incentives, and that only an approximate 500 maha was burned at the current 100% burn rate of fees. I think this change would better serve it purpose by reducing the burn rate further, too supplement the rewards greater.

At 20% burn and 70% rewards - this would further increase the incentive to purchase below peg, while still reducing maha supply. The remaining 10% would still be used to increase the development ecosystem fund.

2 Likes

If we cannot edit the AIP, I propose combining both AIP 9 and 10 into one proposal.

I am obviously in support of AIP9, and I am also in support of AIP10 which is being discussed now.

Can certainly merge the two proposals into one, however I am not sure if AIP10 will require more or less time to implement, and if it requires more time, I would prefer to see AIP9 applied in the interim period.

Much like our last vote - both can be put up simultaneously for a dual vote, if both are voted in - then AIP9 can be implemented sooner if by any chance the changes in AIP 10 require more time.

from what Steven has mentioned, all can be implemented in short order :slight_smile:

Awesome :smiley:

Well in that case I would still be in favor of splitting the proposal as while they do relate to each other, they are fundamentally different in what they are attempting to do.

AIP9 focuses on recovery of arth price with buying from spot market, and supplementing the ecosystem fund.

AIP10 focuses on extending the ‘trigger’ price point of rewards/fees so that Bonds have greater opportunity to be cleared.

If the community desires to see AIP10, but not AIP9 implemented, than it’s probably not best to effect each set of changes by putting them all together as a single package. I hope the community will vote both proposals in, but isolating them into different votes gives a more accurate measure on what the community preference is.

only issue I can see is your proposal cannot be edited. So to implement the 70/30/10 this needs to be edited or a new proposal needs to replace the current proposal.

Yes Ill leave this as last comment underneath and Steven can add it to the proposal.

Subtract:
"

Replace with;
What I propose is two-fold;

  1. 20% of the fees paid in maha (Selling while under target price), are burnt from total supply.
  2. 70% of the fees paid in maha, are redirected back into a funding pool that increases the maha rewards earned for buying arth under target price.
  3. 10% of the fees paid in maha, are added to the ecosystem fund to help with future development, marketing, and growth of both maha and arth."

Subtraction #2

Replace:

  • For example:
    Selling 5000 Arth @ $0.80 wears a 400 maha fee. 20% of that 400 maha is burnt, and 70% is added to the rewards pool.
    Buying 5000 Arth @ $0.80 rewards a 280 maha bonus (70% of the counter-part fee of 400 maha). This is paid directly from the rewards pool that is supplemented by penalty fees.

Subtraction #3

No replacement for subtraction #3 as it is speculative that the rewards would be sold off.

Subtraction #4

Replace:
We implement it once Arth has returned to the target price. This allows opportunity for the rewards fund to ‘fill up’ with any price depreciation prior. Fill the fund up with 70% of the fees, and that is used to pay the rewards for buying back up.

With these variables consistent - Price Point & Price Impact
-The seller pays 100 maha fee, 20 maha is burned, 70 maha is sent to rewards pool, 10 maha is sent to ecosystem fund.
-The buyer who does the opposite to the seller in terms of price point & price impact - they receive 70 maha.

Additional Add:
Fee and Reward is calculated only on;

  1. Price Impact
  2. Distance From Target (GMU)

Reason being is the variable of +/- Liquidity can result in different price movement based on a constant in volume. Volume should not be factored in as it is already balanced with the variable of liquidity - whereby the primary goal is to reward/discourage price movement.

This is an awesome suggestion.

A few important points have been noted here which is that the MAHA rewards for buyers does add additional sell pressure to MAHA whereas burning MAHA adds deflationary pressure but it is much weaker than the sell pressure.

So you could see this system get gamed if the buy rewards suddenly increase and MAHA starts absorbing all the volatility of ARTH which is not good long term.

It is always ideal to be burning more MAHA than that which is being added back to the redemption pool. So the first suggestion of 45-45-10 is pretty good imo.

Further, since every month the community/ecosystem already gets a budget of 50,000 MAHA; it’d be more applicable for allocate some % to the rainy day fund (a fund used to protect the maha ecosystem from a rainy day as mentioned by @Ace in AIP8 (AIP8: Create a MAHA/ARTH trading pair and a rainy day fund);

So let us put to vote the following changes:

  1. 45-45-5-5 distribution; That is 45% burn of fees, 45% redirected back to the funding pool, 5% to the rainy day fund & 5% to the ecosystem fund.

  2. buy rewards to take from the 45% pool which is taken from the fees

  3. Change fees and rewards to be taken on price impact and distance from the target; instead of just using volume.

Moreover we shall keep these variables dynamic so that it can be changed at any time by governance if we find that the numbers are not working out.

I believe this proposal is good enough to be put up for a vote.

2 Likes

Awesome, glad to see it move ahead.

There is one point here that I wish to provide an alternative speculation on. That is, that any increase of rewards would put downward pressure on Maha. In retrospect, that same Maha initially is being redirect from another user who is paying it as a fee - therefor I don’t necessarily see the increased rewards as something that may have a direct result on any downward pressure. What changes is the Maha is moving hands from someone exiting Arth, and putting it into someone elses hands who is Entering Arth. You could speculate that the same maha could of equally been used for downward pressure regardless of it moving through a fee, or that the buyer may have a greater desire to hold the reward as they are also buying into Arth.

Lastly, the seller had to acquire the maha for the fee - which we can assume has initially provided upward pressure on the market. With all these things considered, the net results is a decrease to the existing circulating supply of maha via the burn portion, while the reward portion has simply changed hands.

Thank you for your feedback, and I’d be glad to see if the 45% reward model is sufficient in achieving the overall goal, while this also is favorable to maha holders aswel with a higher burn rate. As you said, if it needs adjusting, we can better gauge that by first getting feedback from the 45/45 split.

Looking forward to the voting results :smiley:

1 Like

Good proposal Michael. It has a balanced approach to incentivize buyers and supplementing the rewards pool.

With Arthb and MahaSwap burning Maha we’ve amped up or deflation a great amount.