Whales have an upper-hand in the bond redemption process given the high eth gas fees and the ability to push the price back down below the positive expansion phase to start a negative phase again. This sends the protocol into an extended period of debt generation.
A solution is to implement an early bond redemption tax. This can be implemented in 2 ways.
1.) a tax starting at 20% (same as the discount given) that decreases at a 1/X rate measured against time. My suggestion is 10 epochs.
2.) a tax starting at 40% that decreases at 1/X rate measured against the total debt pool. An individual is taxed the maximum amount if s/he claims more than the pro-rata amount from the quota available for redemption.
A more stringent model would be the application of both 1 and 2, where in we discourage early complete redemption of bonds by any individual and further disincentivize them from selling quickly.
The points to come to an agreement would be on the taxation amount and duration.
I like the first option ! we need to incentivized bonds for ppl who believe on the project long term, not whales farming for fast profit ,like we currently are exposed at. and I think the taxes should completely go as reward for a LP of ARTHB-ARTH so we can stimulate also the secondary market of Bonds.
I agree to a certain extent though I have reservations and adjustments that can be considered for both scenarios;
1). In scenario 1 where the discussion of a 20% tax is to be applied that would take 20 epochs or 10 dys before allowing for redemption would make the purchasing of debt to onerous on investors with deep pockets an unattractive, however if the tax is imposed for a shorter period(say 1-2 epochs it would allow for the price to remain stable or enter expansion within 2 epochs which would allow for repayment of the debt whilst simultaneously allowing for network growth and minimizing the need for over reliance on bonds. With this approach we can either add more utility for maha via burner redistribution the funds to the community pool for marketing or other events so that it remains in the ecosystem as opposed to being erased from existence.
2). This is overly cumbersome and will scare off large investors.
I think 5 days would be enough time, 2 epochs its way too short, plus with community growing fast, we don’t need crazy whales just to farm fast, the community will be able to do it, especially once the gas problem be fixed in eth. Just think we have as much holders of Arth with 3m mk cap as other elastic coins have with 150m mk cap, and we want keep the ratio like this, we want community and decentralization focus, if not soon well have a few whales manipulating even more the price.
I do like this because this does prevent the price from getting dumped at on right upon hitting the target price per epoch; further we can also extend this to even the expansion rewards as well since we’ve seen that during expansion also people tend to dump their rewards right away.
Guys, don’t you think that additional taxation and overcomplication of the system may deter the investors? Also, don’t you think that punishing whales just for being whales may lead to a situation when small investors would not be able to lift the price when the market cap increases as they wouldn’t have enough funds?
I don’t agree with those who say that it’d be better to hold redeeming bonds. It’d be a situation that favors upholding the debt which I think wouldn’t be good for a system as it’s goal should be, first of all, to get rid of the debt while staying stable. Upholding the debt would just introduce delay in the system response which, to me, would create even more instability in the system as it’d become less predictive and harder to regulate.
Well, to me what’s crucial right now is automatic redemption of bonds. Along with current functionality, wouldn’t it be better to create a mechanism that would let people lock-up their ARTHB on ARTH - World's first Valuecoin so that the protocol buys it back whenever new ARTH is minted? It seems to me that in the long run it won’t be profitable for people to stabilize the ARTH price with bonds as it requires too much attention from them while, on the other hand, expansion phase was smooth and easy and required just to lock-up your ARTH or LP tokens as the reward generated by itself.
Just take a look at this from a perspective of someone that buys ARTHB, freezes their DAI, and has to be on time every time the new epoch kicks in, constantly observing the price, to redeem their ARTHB and unlock the DAI. Considering the fact that at the beginning of a new contraction phase epoch the price reacts dynamically, it’s just easier to buy ARTH for the lowest price just before new epoch starts and sell it whenever one feels like to. Without a need to wait for the price to hoover above the target price for at least an hour and keeping an eye on a number of ARTHB available for redemption at the moment. For me as an end user, it just seems to me that the bond discount of 20% would not incentivize people enough to make them freeze their funds in bonds. Also, if what I say is pertinent, it might eliminate one of the use cases for MAHA paid as stability fee.
One more idea that came to my mind while writing this - mechanism of preemption for bonds holders. In the expansion phase, first the locked-up bonds are bought back for newly minted ARTH, then the rest is distributed. Otherwise we’d be minting new ARTH while still being in debt if the bond holders won’t come on time to have their bonds redeemed.
I do agree with what was said here, its not a bad idea including the tax, but it does seem to put a big disincentive to those who would be reading about this project for the first time, It also complicates it a bit further.
The point that we are trying to achieve is in the last paragraph of the original post "where in we discourage early complete redemption of bonds by any individual and further disincentivize them from selling quickly."
We can achieve both of these things with the ARTHB pool concept. Not only are defi crypto investors already familiar with pools, it solves what we are trying to achieve without making it look like you are being punished in anyway for buying ARTHB.
Correct; I believe that vesting along with pooling seems to be the best solution so far here since we don’t want bond token holders to dump the token price but nevertheless we also don’t want potential bond token buyers from being disincentivized from buying bonds as well to keep the price stable (keeping in mind that buying bonds is always a high risk decision).
By allowing for pooling as mentioned in this AIP MIP.C2-0003: Automated Bond Redemptions we can also fairly distribute the ARTH or DAI rewards given to the ARTHB holders.
However my only issue to debate is how quickly should the withdrawals happen?; 2 epochs, 10 epochs, 8 hours? etc… We should probably consider for the time being keep it at 1 epoch since ARTHB hodlers were the ones that took the most risk.
So the solution should be to vest ARTHB rewards along with have it distributed fairly using a pool. (As mentioned in AIP3)