$JADE introduces Backing Treasury and Price Floor — all you need to know, and more.
$JADE recently presented their take on a DAO’s “Backing Price” with the introduction of $JADE’s “Price Floor”.
SmartCoin (JadeProtocol) attempts to revolutionise the current widely accepted DAO “Backing Price” concept which they claim is “bullshit” — Einstein’s words not mine, but I must say that I do agree.
In order to achieve this, JadeProtocol introduces the concept of a “Backing Treasury”, which is simply a portion of the total treasury set aside for the purpose of conducting $JADE buy backs if the market price falls to the Price Floor.
This write-up aims to delve deeper in explaining:
- How this works
- Its sustainability
- What are the Advantages and Disadvantages and what does it mean for long term DAO prosperity
but it also aims to…
- Propose changes to this mechanism and outline how these might impact DAO longevity and benefit its treasury balances.
From this point on, I present my understanding of this subject matter. This is meant solely for educational purposes and is not in any way financial advice. Consider this to be a discussion with a friend, not a financial advisooor. Advantages and disadvantages below are not financial advice either, but simply an interpretation and explanation of how I understand what the Price Floor and Backing Treasury imply in theory. I’m not Einstein and did not attend Harvard, so question everything you read as it could be total “bullshit” — as we’ve established Einstein likes to say.
For those who have not yet read the official Medium announcement unveiling the release of the “Price Floor” & “Backing Treasury” please take a few minutes to do so now as it will help you understand this article better.
How does the “Backing Treasury” maintain $JADE’s Price Floor?
The idea here is simple. JadeProtocol divides the total treasury balance into two sub-treasuries;
- Investment Treasury, used as a Venture Capital fund to generate ROI (return on investment) for DAO holders.
This is the value/revenue creation part of the treasury. - Backing Treasury, used to purchase $JADE when market price falls to the Price Floor, where Price Floor is calculated as (Backing Treasury / Circulating Supply).
This is the price control part of the treasury.
Based on the above figures the Price Floor is $26,560,501 (Backing Treasury) /1,269,016 (current $JADE supply) = $20.92
When $JADE market price falls to $20.92, JadeProtocol will activate BuyBot and purchase all the $JADE being sold at the floor price until no more $JADE is being sold at $20.92 and price starts increasing again. This is done in order to absorb the sell pressure and preserve the market price at and eventually above $20.92.
JadeProtocol then burns the $JADE it has bought back. The reason for the burn is to maintain “parity” where the ratio between Backing Treasury $ and $JADE supply in circulation is constant, pre and post burn, ensuring that the price floor remains at $20.92.
If BuyBot is triggered, all purchased $JADE will be immediately burned — thus removing it from the circulating supply permanently. This burn mechanism will offset the fact that the Backing Treasury goes down in value during a Buyback.
It is important to understand what happens to the DAO during such a buyback event.
To do so, assume that 269,016 $JADE were sold at $20.92. JadeProtocol purchases and burns all of those before the price resumes its upward trajectory.
DAO starting position (before buy back):
- Investment Treasury Balance
$47,760,124 - Backing Treasury Balance
$26,560,501 - Circulating Supply $JADE
1,269,016 - Price Floor
$20.92
DAO ending position (after buy back):
- Investment Treasury Balance
$47,760,124 - Backing Treasury Balance
$20,932,687 = ($26,560,501 initial minus $5,627,814 required for buy backs) - Circulating Supply $JADE
1,000,000 = (1,269,016 initial minus 269,016 bought and burned) - Price Floor
$20.92
BuyBot spent $5,627,814 from the Backing Treasury to purchase the 269,016 $JADE sold at the $20.92 Price Floor. This preserved the Price Floor successfully and price begins increasing again.
The 269,016 $JADE ($5,627,814) bought back were burned and are now out of circulation, with the $5,627,814 spent never to be seen again. You are welcome J Powell.
Advantages, Disadvantages & DAO implications
Advantages;
- 1. Price Floor introduces a “guaranteed” minimum price that investors can “rely on” to calculate their total risk, since in theory we should never go below this Price Floor.
In other words, even if there is a mass sell off (bank run) the minimum investment value will be fixed at # of $JADE owned * Price Floor. Once word of this spreads, it will drive up demand for $JADE immensely — or more likely a bunch of $JADE forks will come about...
On the other hand, our Floor Price is a guarantee. If the token value of $JADE dips below the floor, a buyback is initiated to “defend” that price. — JadeProtocol
- 2. Price Floor in theory should be increasing over time. As the Investment Treasury is deployed and starts generating revenue (ROI), a portion of those funds will be transferred to the Backing Treasury.
As the Backing Treasury value increases, this will drive the Price Floor higher and higher as there are more and more funds backing each $JADE. This introduces a mechanism in which the DAO has control over minimum price and can reward holders by increasing the minimum value of their investments when it finds it viable to do so, by moving funds from the Investment to the Backing Treasury (as explained above). For further explanation on this, and value creation money flow click here (Twitter thread).
Over time, profits from JADE’s VC Fund investments, yield farming, trading desk, and bonding will be deposited into the Backing Treasury, growing it. Every time this happens, the Floor Price of $JADE increases. — JadeProtocol
- 3. Price Floor burns control against supply inflation. As we have established from the most recent bank run, increasing supply and increasing price do not go hand in hand and as such it is important to keep supply in check. Since BuyBot burns $JADE, this will decrease supply every time we hit the Price Floor, keeping it under control and preventing supply inflation.
Disadvantages;
- 1. Burning $JADE is burning hard-earned treasury money. It may seem okay now but consider when price, marketcap and volume are all 10x and instead of burning $5.6M to defend the Price Floor (as per the above example) we are burning $56M. What if there was a $SMRTr way, in which the DAO treasury would grow as it defends the Price Floor
- 2. Price Floor, despite being a “guarantee” is not 100% safe! This point is more of a disclaimer than anything else, but important to raise awareness to risks investors might not have considered: coding errors, rug pull events, failure to grow treasury, treasury wallet being hacked, all are potential risks that will negate the effectiveness of the Price Floor, leading to a loss of the “guarantee” JadeProtocol promises.
My thoughts on how to improve the current Price Floor mechanics, and yield further benefits.
I think the Price Floor mechanics are great as they are, but in this section I wanted to explore some tweaks to the current mechanism, which may (or may not) improve the longevity of the DAO, grow our treasury balances and benefit holders.
I hope these can encourage some debate among our community. The below may not be viable at all, as at the end of the day I did not attend Harvard.
I’ve tried to consider these proposals from many aspects, but there still are many unknowns to me, and I assume to the $JADE community in general, which may negate the effectiveness/viability of the below ideas. I ask for constructive feedback and suggestions on how these may work in reality, if you consider them not viable as presented.
Here we go…
- Disadvantage 1; Burning $JADE is burning hard-earned treasury money.
Suggestion;
As mentioned under Advantage 3 above, burning has immense benefits as it protects against supply inflation. However, this feels like a huge waste — burning millions of $ worth of potential investment capital.
What would happen if instead of burning 100% of the bought back $JADE, we only burned a certain % and the remainder was kept in the Investment Treasury?
It makes total sense to me why we are burning the bought back $JADE — to maintain the Price Floor formula at parity (constant) and ensure that the Backing Treasury can successfully preserve future Price Floor retests.
But would it make any difference if for example 50% of the bought back $JADE was not burned but instead deposited in the Investment Treasury? In other words, the DAO would act as a depository during times of uncertainty and will sell the same deposited $JADE supply back to the market, once confidence in the protocol has been regained and market price is trading at a premium.
I don’t think it would… the deposited $JADE would be in the “safe hands” of the DAO depository and the Backing Treasury would not need to have funds backing it anymore — as it won’t be at risk of being dumped.
Lets understand this better by re-enacting the above example where $5,627,814 was used to purchase 269,016 $JADE at the Price Floor of $20.92… but this time instead of burning it, lets deposit it in the Investment Treasury!
DAO starting position (before buy back):
- Investment Treasury Balance
$47,760,124 - Backing Treasury Balance
$26,560,501 - Circulating Supply $JADE
1,269,016 - DAO $JADE depository
Assume 0 - Price Floor
$20.92
DAO ending position (after buy back):
- Investment Treasury Balance
$53,387,938 = ($47,760,124 initial+ $5,627,814 in DAO $JADE depository) - Backing Treasury Balance
$20,932,687 = ($26,560,501 initial minus $5,627,814 required for buy backs) - Circulating Supply $JADE
1,000,000 = (1,269,016 initial minus 269,016 bought and removed from circulation) - DAO $JADE depository
269,016 - Price Floor
$20.92
The most important thing to demonstrate here is that burning $JADE and depositing it into the DAO $JADE depository would not hurt the ability to defend the Floor Price. The 269,016 $JADE are safe in the vault, meaning we don’t require the $5,627,814 we already spent from the Backing Treasury.
Now the remaining 1,000,000 $JADE in circulation is backed by $20,932,687 in the Backing Treasury, meaning that we can still preserve the Floor Price at $20.92 = ($20,932,687/1,000,000).
Assuming this is correct, we have just saved $5,627,814 — and millions of future burned $$$.
But wait, it gets even better…
Now that the Backing Treasury has defended the Price Floor effectively, we have obtained 269,016 $JADE in the Investment Treasury. When market sentiment changes from sell to buy, prices start to increase again… and with it the value of our 269,016 depository $JADE.
Selling depository $JADE back to market slowly over time grows the treasury as this $JADE was bought at the Price Floor and sold at a “premium” market price. This obviously puts some down pressure on $JADE prices.
— key outtakes, grows treasury, decreases prices.
End result is no different to bonding, which also grows treasury while decreasing prices due to inflating supply… BUT this prevents the DAO from burning/losing millions of treasury funds and generates a further revenue stream for the DAO. This could be used in combination with depository $JADE supply burns, to preserve a healthy market without excessive depository $JADE sell pressure. For example a combination of 50% burn 50% depository, or 75% burn 25% depository — whatever the DAO is trying to achieve at a time, further expanding its tool set to encourage a prosperous eco-system.
Now, I know what some of you will say “Einstein will dump on me, this is no good”… Einstein will dump on you slowly over time, it may or may not even be noticeable once they develop their proprietary “SellBot”.
IMPORTANT: This mechanism allows all the profits generated from buying $JADE to protector the price floor, and slowly selling them while the market price is trading at a “premium”, to be converted back to stable-coins $BUSD, deposited back from the Investment Treasury into the Backing Treasury and raising the Price Floor significantly over time… Rinse and Repeat…
EDIT: After posting this Medium on Twitter, CapricornCrypto proposed an even better, absolutely genius addition to the above proposal.
The $JADE that has been stored into the depository can be used to provide the necessary $JADE for bonding — rather than minting new $JADE to pay off bonds and instead of selling this $JADE at a premium to build out the treasury!
This allows the DAO to grow its treasury without having a negative impact on price, and bonding not having a negative impact on supply… Absolutely elegant solution.
Signing off
What started as a little explanation write-up of how the “Price Floor” works, turned into a huge brainstorming piece.
I hope some of you find value in the above.
I also hope some of the new ideas I present above can encourage debate within the community.
If you don’t think they are viable, please let me know why — I accept all constructive feedback and I acknowledge that I don’t know everything to be able to present the above ideas with absolute certainty.
If you think they are viable, please pass them on to Jon and Einstein — I’m brain-storming and making propositions for the greater good of the DAO and the community.
