Last discussion before proposal on KTON DAO new staking model

[SasoLithops]

Based on:

This poll: https://github.com/orgs/darwinia-network/discussions/1577#discussion-7095035
This reply: https://github.com/orgs/darwinia-network/discussions/1577#discussioncomment-11149843
This KTON DAO treasury account: https://explorer.darwinia.network/address/0x08837De0Ae21C270383D9F2de4DB03c7b1314632?tab=internal_txns
This ongoing debate: https://github.com/orgs/darwinia-network/discussions/1627
And this initial discussion: https://github.com/orgs/darwinia-network/discussions/1566#discussion-7052819

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IMPORTANT: At this time KTON stakers get 19000 RING while KTON DAO treasury gets 4650 RING every 6 hours.

ALSO: We are working on building an Index token which will highly benefit KTON stakers and governance and Github participants(Alpha). Any opinion on how we could implement it in staking rewards or its fees to KTON stakers, LP providers is welcome(check link above about ongoing debate). Most important KTON will be part of index token.

PLEASE READ THROUGH IT CAREFULY AND EXPRESS YOUR OPINION ON ALL 5 THREADS.

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1. The first thread is on ratio of rewards to treasury and LP providers

When determining how to allocate the 4,650 RING rewards that go to the KTON treasury every 6 hours, and also reward KTON/RING liquidity providers, it’s important to consider the strategic goals of the KTON DAO, as well as the need to incentivize liquidity and maintain a healthy treasury. The allocation should aim to balance both treasury growth and liquidity provisioning to ensure long-term sustainability of the KTON ecosystem.

1. Overview of the Allocation Problem

You have 4,650 RING that needs to be split between:

• KTON DAO Treasury (to support the DAO's future growth, operations, and governance)
• KTON/RING Liquidity Providers (LPs) (to ensure sufficient liquidity for trading between KTON and RING)

Both of these are essential to the ecosystem, but their roles are different:

• Treasury: This is crucial for the DAO’s operations, including funding for development, governance, and future initiatives.
• KTON/RING LPs: Liquidity providers ensure that there’s a healthy market for the KTON/RING trading pair, allowing users to trade the tokens without experiencing slippage or high fees.

2. Suggested Allocation of 4,650 RING Rewards

A. Reward Allocation to KTON Treasury:

The KTON treasury is crucial for funding the DAO’s long-term objectives (e.g., governance, project development, treasury reserves for strategic initiatives, etc.). A reasonable portion of the rewards should go here to ensure the DAO remains financially sustainable.

• Suggested Allocation to KTON Treasury: 50% - 60% of the 4,650 RING rewards should go to the KTON DAO Treasury. This will help build the treasury and ensure that the DAO can continue to fund development, governance, and other critical functions.
  • 50% of 4,650 RING = 2,325 RING to KTON Treasury
  • 60% of 4,650 RING = 2,790 RING to KTON Treasury

This ensures that the treasury receives a substantial portion of the rewards, maintaining a solid financial foundation for the DAO.

B. Reward Allocation to KTON/RING Liquidity Providers (LPs):

In order to maintain a liquid and efficient KTON/RING trading pair, it’s important to incentivize liquidity providers. However, the rewards to LPs should be balanced so that enough liquidity is available without overly depleting the treasury.

• Suggested Allocation to KTON/RING LPs: 40% - 50% of the 4,650 RING rewards should go to KTON/RING liquidity providers. This incentivizes liquidity provision without diminishing the treasury’s ability to fund key initiatives.
  • 40% of 4,650 RING = 1,860 RING to KTON/RING LPs
  • 50% of 4,650 RING = 2,325 RING to KTON/RING LPs

This allocation encourages liquidity provision without overburdening the treasury, and ensures that LPs are sufficiently incentivized to participate in the KTON/RING pool.

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3. Proposed Reward Distribution Summary:

Allocation	Percentage	RING Amount
KTON DAO Treasury	50% - 60%	2,325 RING - 2,790 RING
KTON/RING Liquidity Providers	40% - 50%	1,860 RING - 2,325 RING

4. Considerations for Both Allocation and Liquidity Providers:

A. KTON DAO Treasury Role:

• The treasury funds important DAO operations such as development, marketing, and ecosystem growth.
• A solid treasury also provides a buffer for unforeseen expenses and strategic investments (e.g., acquisitions, partnerships).
• By ensuring the treasury gets a substantial portion of the rewards, you are supporting the long-term viability of the KTON ecosystem.

B. KTON/RING Liquidity Providers Role:

• LPs are critical for ensuring that the KTON/RING pool is liquid, which in turn helps users trade between KTON and RING without high slippage or fees.
• The more liquidity in the pool, the more attractive the KTON ecosystem becomes to traders, increasing demand for both KTON and RING.
• LPs face impermanent loss risks, so the reward for providing liquidity should be attractive enough to compensate for that risk.
• It may also be worth considering whether to split the LP rewards between RING and KTON as dual incentives, with RING DAO providing RING rewards and KTON DAO providing KTON rewards. This would provide LPs with two tokens instead of one, enhancing the attractiveness of providing liquidity.

C. Balancing Liquidity and Treasury Health:

• The treasury must remain healthy to ensure that it can support the ecosystem, including staking rewards, future DAO governance, and strategic investments.
• Liquidity providers, on the other hand, are crucial for ensuring market efficiency for both tokens. If liquidity is insufficient, the trading experience could suffer, which could negatively affect the ecosystem’s health.
• A balanced approach is important to avoid putting too much strain on either the treasury or liquidity provisioning.

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5. When to Adjust the Ratios:

The exact ratio between treasury rewards and LP rewards can be adjusted over time based on certain conditions:

• If there is a drop in KTON liquidity or an increase in demand for KTON/RING trading, you may choose to increase the LP rewards to incentivize more liquidity provision.
• If the KTON DAO treasury needs more funds for a particular initiative (such as a large development project), you can increase the treasury’s share of the rewards temporarily.

Likewise, if the LP rewards are overly diluting the treasury or creating significant supply inflation, you may adjust the reward allocation to give a greater share to the treasury.

6. Additional Strategies for Reward Allocation:

You can also consider implementing dynamic reward systems based on certain KPIs (Key Performance Indicators), such as:

• Liquidity depth: If the KTON/RING pool has insufficient liquidity, the reward allocation could be skewed toward LPs until liquidity levels improve.
• Treasury balance: If the treasury is sufficiently funded and the DAO is focused on liquidity growth, more rewards could be allocated to LPs.
• Market conditions: If the market is under stress, the DAO might allocate more rewards to LPs to maintain liquidity in the ecosystem.

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Final Recommendation:

Based on the current reward distribution, the ideal split for the 4,650 RING rewards should be:

• 50% - 60% to the KTON DAO Treasury (2,325 RING - 2,790 RING).
• 40% - 50% to KTON/RING Liquidity Providers (1,860 RING - 2,325 RING).

This allocation ensures that both the treasury and liquidity providers are well-supported, and that the ecosystem can continue to grow sustainably. Adjustments to the reward structure can be made over time based on evolving market conditions, DAO needs, and liquidity demands.

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2. The second thread is should we incentivise or provide liquidity

Deciding whether to provide liquidity yourself or incentivize others to provide liquidity is a key decision for any decentralized project, and it depends on a variety of factors. Let’s break it down:

1. Providing Liquidity Yourself

Advantages:

1. Full Control:

   • By providing liquidity yourself, you have complete control over the amount of liquidity in the pool. You can manage the risk and decide how much capital to allocate to liquidity provision.
   • You can adjust your position based on your assessment of the market or your project’s needs.

2. Fee Earnings:

   • As a liquidity provider (LP), you earn transaction fees based on the volume of trades in the liquidity pool. If you have a substantial portion of the liquidity, this can be a good source of passive income.

3. Stabilizing the Pool:

   • If the market is small or there are few liquidity providers, your contribution can help stabilize the market and reduce slippage for traders. This can help improve the price efficiency and trading experience, which may attract more users to your ecosystem.

Disadvantages:

1. Capital Commitment:

   • Providing liquidity yourself can tie up a significant amount of your capital. If you’re providing liquidity in a KTON/RING pair, for example, you’ll need to provide both tokens, and this could be risky if either token’s price fluctuates significantly.
   • This could be a capital-intensive activity unless you’re able to deploy a relatively small amount of capital.

2. Impermanent Loss:

   • When you provide liquidity in a decentralized exchange (DEX) like Uniswap or PancakeSwap, you’re exposed to impermanent loss. This occurs when the price of one token in the pair moves significantly relative to the other, leading to a potential loss in value of your liquidity share. However, transaction fees can help offset this risk if there’s enough trading volume.

3. Opportunity Cost:

   • By committing capital to liquidity provision, you may miss out on other investment opportunities. If the rewards from liquidity provision (fees) are not sufficient, it might not be the best use of your capital.

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2. Incentivizing Liquidity Providers

Advantages:

1. Reduced Capital Commitment:

   • Incentivizing liquidity providers (LPs) allows you to leverage external capital without tying up your own. This reduces the amount of your project’s capital that is directly exposed to the market.
   • You can attract large liquidity providers (LPs) who have more capital and can provide more liquidity than you alone, resulting in a deeper pool.

2. Faster Liquidity Growth:

   • Incentives (e.g., liquidity mining rewards) can attract a large number of LPs quickly, providing rapid growth in liquidity. This can lead to better price stability, lower slippage, and a more efficient market, especially in early stages when liquidity is crucial for the success of the market.

3. Better Risk Management:

   • If liquidity is provided by others, you can minimize your exposure to impermanent loss and the risks associated with market volatility. You can also more easily adjust the incentives (rewards) to match market conditions or balance supply and demand.

4. Community Building and Engagement:

   • Offering rewards to LPs not only provides liquidity but also helps build a community of participants who are incentivized to stay engaged with your project. This increases the decentralization of your ecosystem and can build long-term support.
   • Community members who provide liquidity are more likely to stake tokens, participate in governance, and help promote the ecosystem.

Disadvantages:

1. Cost of Incentives:

   • The main downside of incentivizing LPs is that it comes at a cost to the project. Rewards need to be provided to LPs, typically in the form of the native token or another valuable asset. This could lead to inflation if not managed carefully.
   • If the incentives are too high, it can result in unsustainable token emissions and dilution of value for existing token holders.

2. Vulnerability to Farming:

   • If the rewards are too attractive or short-term focused, liquidity providers might engage in “liquidity farming”—providing liquidity only to capture rewards, and then exiting as soon as the rewards dry up. This can lead to liquidity volatility and poor price stability after the farming period ends.

3. Dependency on External Liquidity Providers:

   • Relying on external liquidity providers means you have less control over the liquidity supply. If external LPs decide to withdraw liquidity (e.g., due to changes in rewards or market conditions), it could cause slippage or price instability in the pool.
   • There's also the risk that LPs might not fully align with the project’s long-term vision, as their incentives are often driven by short-term rewards.

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3. When to Provide Liquidity Yourself vs. Incentivizing Others?

When to Provide Liquidity Yourself:

• Small Market or New Project: If you’re launching a new token and liquidity is thin, providing liquidity yourself can help bootstrap the market and attract users. Without liquidity, the token won’t have much utility, so having enough liquidity early on is crucial.
• Limited Resources for Incentives: If the project doesn’t have sufficient capital to fund liquidity incentives long-term or doesn’t want to rely on external liquidity providers, providing liquidity yourself can be a viable option.
• Active Participation: If you're heavily invested in the project and want to ensure price stability or are looking to manage risk, providing liquidity yourself allows you to directly control the liquidity in the market.

When to Incentivize Liquidity Providers:

• Scaling the Market Quickly: If you need to quickly increase liquidity and get a deeper pool, incentivizing external liquidity providers is often the best choice. Offering liquidity mining rewards (in the form of RING, KTON, or other assets) can attract more LPs faster than doing it on your own.
• Sustaining Long-Term Liquidity: Incentivizing liquidity providers helps you ensure there’s consistent and long-term liquidity in the pool, which is especially important as your market grows.
• Leveraging Community: If your project is trying to build a decentralized community or engage users in governance and decision-making, rewarding LPs with incentives can foster a sense of ownership and participation in the ecosystem.
• Cost Management: If your treasury is not large enough to commit significant capital for liquidity provision, incentivizing others with rewards is a more cost-effective strategy.

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Conclusion:

• Provide liquidity yourself if:

  • You want full control over the liquidity.
  • You're in the early stages and need to bootstrap the market.
  • You have sufficient capital and want to directly support price stability.

• Incentivize liquidity providers if:

  • You need to scale liquidity quickly and sustainably.
  • You want to reduce your personal capital commitment and rely on the community.
  • You're aiming to decentralize liquidity and build long-term engagement within your ecosystem.

In most cases, a combination of both strategies is ideal. You could start by providing liquidity yourself (especially in the early stages) to bootstrap the market and then transition to incentivizing external LPs to scale liquidity over time. By managing both approaches carefully, you can optimize liquidity for both stability and growth.

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3.The third is should both RING DAO and KTON DAO provide liquidity incentives, community already voted mostly yes on poll(link in the begining above)

The idea of having both the RING DAO and KTON DAO reward KTON/RING liquidity providers is an interesting one and could have several benefits, but it also requires careful consideration of how it would align with both DAOs' goals, reward structures, and long-term sustainability.

Pros of Both DAOs Rewarding KTON/RING Liquidity Providers

1. Double Incentives (Attract More Liquidity):

   • If both DAOs (RING DAO and KTON DAO) reward liquidity providers in the KTON/RING pair, it would create double rewards for those providing liquidity to this pair. This could attract more liquidity to the pool and increase the overall depth and stability of the KTON/RING market.
   • RING DAO could offer rewards in RING, while KTON DAO could reward liquidity providers with KTON. The dual reward structure would make the liquidity provision more attractive because providers would earn both tokens (RING and KTON), diversifying their holdings and providing incentives to maintain liquidity in the pool.

2. Strengthening the Ecosystem:

   • Offering incentives from both DAOs would align both tokens (RING and KTON) in terms of liquidity and use within the ecosystem, driving more activity around the KTON/RING pair. This helps grow the KTON and RING markets by ensuring both tokens have sufficient liquidity for trading and future use cases within the ecosystem.
   • Increased liquidity would reduce slippage in trades between RING and KTON, making the ecosystem more efficient, which is beneficial for both DAOs and the broader community.

3. Cross-Incentivization:

   • By involving both DAOs, you create a form of cross-incentivization where the success of one DAO helps the other. For example, KTON DAO rewards liquidity providers in KTON, potentially increasing the demand for KTON (driving up its price). Meanwhile, RING DAO can reward liquidity providers in RING, which increases the demand for RING.
   • This cross-rewarding could create a virtuous cycle where liquidity provision in the KTON/RING pair becomes a highly attractive strategy for users, leading to more trading, better price discovery, and deeper liquidity.

4. Attracting More Capital:

   • Providing rewards from both DAOs could attract larger liquidity providers, including institutional players, who prefer dual incentives because they get exposure to both assets and can hedge some risk between the two.
   • This would also improve the overall capital efficiency of the liquidity pool, as large liquidity providers are often looking for ways to generate passive income in DeFi, and dual rewards make it more enticing.

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Challenges and Considerations

1. Reward Inflation:

   • One concern is the potential inflationary pressure on both the RING and KTON tokens. Offering rewards from both DAOs could lead to excessive token issuance, which might undermine the value of these tokens over time if not carefully managed.
   • To avoid this, both DAOs would need to ensure that the reward distribution is sustainable and does not lead to excessive supply expansion. This can be addressed by implementing caps on the reward distribution or adjusting rewards over time to ensure they remain in line with the actual liquidity being provided.

2. Alignment of DAO Objectives:

   • While both DAOs might benefit from increased liquidity in the KTON/RING pool, it’s essential that the reward structure is aligned with the goals of each DAO. For instance:
     • KTON DAO might want to increase demand for KTON and strengthen its token’s value.
     • RING DAO might be more focused on expanding the use of RING in decentralized finance and driving network growth.
   • If the rewards aren't balanced or if they serve conflicting goals, it could create misaligned incentives that might lead to issues like too much liquidity in the KTON/RING pool and not enough demand for either token elsewhere in the ecosystem.

3. Complexity of Managing Dual Incentives:

   • The administration and tracking of dual rewards can become complex. The DAOs will need to have a clear mechanism in place to distribute rewards accurately and track liquidity provider contributions. For example, how would rewards be split between KTON and RING, and what metric would be used to measure liquidity provision (e.g., weighted by the amount of liquidity provided, or by trading volume)?
   • This also creates potential for governance complexity, where decisions about reward allocation or adjustments to reward programs may need to be coordinated between both DAOs.

4. Risk of Imbalance in Liquidity Pool:

   • If one token (e.g., KTON) has significantly higher rewards than the other, it could lead to an imbalance in the liquidity pool, with more of one token being supplied than the other. For instance, if KTON DAO offers much higher rewards in KTON than RING DAO offers in RING, liquidity providers might disproportionately provide KTON rather than RING, leading to an overexposure to KTON in the KTON/RING pool.
   • This imbalance could cause unstable pricing between the two tokens and reduce the pool’s ability to function effectively.

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Proposed Reward Allocation Strategy

1. Reward Caps:

   • Each DAO could offer rewards proportional to their supply and market cap, to avoid excessively inflating the supply of either RING or KTON. For example, each DAO could reward liquidity providers based on a fixed percentage of total liquidity in the pool, ensuring that the rewards are balanced and sustainable.

2. Weighting Based on Token Contribution:

   • The rewards could be weighted by the amount of liquidity each token contributes to the pool. For example, if liquidity providers are supplying more RING than KTON, the RING DAO might issue a larger reward to balance the pool.
   • This can be structured in a way that avoids over-concentration of rewards in one token, while still encouraging liquidity providers to provide an appropriate mix of RING and KTON.

3. Adjustable Reward Mechanisms:

   • To ensure sustainability, both DAOs could introduce an adjustable reward mechanism, where rewards are not static but are adjusted based on the total liquidity in the pool or the token price. If RING or KTON prices fall, rewards could be dynamically adjusted to incentivize more liquidity provision. Similarly, if liquidity in the pool becomes too high, rewards could be reduced to maintain balance.

4. Time-Locked or Vesting Period:

   • To prevent liquidity providers from exiting the pool too quickly, rewards could have a vesting period or be time-locked. This ensures that liquidity providers are incentivized to remain in the pool for longer periods, helping stabilize liquidity over time.

5. Governance Involvement:

   • Both DAOs could involve their communities in governance decisions around the reward structure. This would help ensure that the reward program is constantly evolving to meet the needs of liquidity providers while staying in line with the long-term vision of each DAO.

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Conclusion: Should Both RING DAO and KTON DAO Reward KTON/RING Liquidity Providers?

Yes, rewarding KTON/RING liquidity providers from both DAOs (RING DAO and KTON DAO) can be a strategically sound approach if done carefully. Here’s why:

1. Increased Liquidity: Dual rewards (RING and KTON) would likely increase liquidity in the KTON/RING pair, leading to better price stability, lower slippage, and more robust trading activity within the ecosystem.
2. Stronger Ecosystem: By rewarding liquidity providers, both DAOs can strengthen their ecosystems, supporting their tokens' value, utility, and market presence.
3. Cross-incentivization: This approach can create synergy between both DAOs, aligning their goals and increasing the overall liquidity in the combined market.

Caution:

• Both DAOs need to carefully monitor the reward distribution to avoid inflationary risks or imbalances in liquidity, which could undermine the value of either token.
• Governance should be used to regularly adjust rewards and ensure the system remains sustainable over time.

If implemented thoughtfully, the rewards from both DAOs can serve to attract more liquidity while rewarding participants in a way that benefits both RING and KTON holders, as well as the broader DeFi ecosystem.

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4. The fourth thread is about swapping 10% of both staking and treasury rewards to BTC on Hydration

Swapping 10% of both the 2,325 RING sent to the KTON DAO treasury and the 19,000 RING sent to stakers into BTC on Hydration is a potential strategy to diversify the treasury, stabilize the value of the assets, and reward stakers in dual tokens (RING and BTC). However, it requires careful consideration of several factors to ensure that the move aligns with the long-term goals of the KTON DAO and does not negatively impact liquidity or ecosystem health.

Here’s a breakdown of key considerations and an analysis of whether this approach is advisable:

1. Objectives of Swapping RING to BTC

The primary benefits of converting 10% of RING into BTC could include:

• Treasury Diversification: Adding BTC to the treasury helps mitigate the potential risks of relying solely on RING as a treasury asset. BTC is a more stable store of value, and holding BTC can protect the DAO against inflationary pressures and volatility in RING’s price.
• Stabilizing the Treasury: BTC tends to be less volatile than many altcoins (including RING). By holding BTC, the DAO can create more stability in its treasury and ensure it has a valuable, widely accepted asset that can be liquidated or used in DeFi strategies.
• Dual Token Rewards for Stakers: Providing rewards in dual tokens (RING and BTC) can make staking more attractive to participants, offering them both the potential upside of RING and the stability of BTC. This can increase staker engagement and long-term loyalty.

However, there are also risks and trade-offs that must be carefully evaluated.

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2. Key Considerations for Swapping 10% of Both Rewards

A. Impact on DAO Treasury and Liquidity

1. Impact on Treasury Liquidity:

   • 232 RING from the DAO treasury (10% of 2,325 RING) and 1,900 RING from staking rewards (10% of 19,000 RING) will be converted to BTC.
   • If the DAO uses RING for specific operational needs (e.g., further liquidity provisioning, governance incentives, etc.), reducing its RING holdings could limit its ability to fulfill these needs.
   • Consider whether holding BTC in the treasury could create more flexibility for future investment opportunities or partnerships, as BTC is more universally accepted and could be utilized in a wide range of DeFi protocols or exchanges.

2. Liquidity Risks:

   • Liquidity for Stakers: The DAO must ensure that it still has enough RING liquidity available for staking rewards, governance incentives, and for maintaining sufficient liquidity for RING trades on decentralized exchanges (DEXs). If too much RING is swapped for BTC, there could be a shortfall in the amount of RING available for other ecosystem functions.
   • Liquidity for RING/BTC Pair: The DAO will need to ensure that it has adequate liquidity in the KTON/RING and RING/BTC pairs on exchanges to facilitate trading without causing significant slippage when users want to exit or swap RING for BTC or vice versa.

B. Market Conditions for RING and BTC

1. RING Market Conditions:

   • Evaluate whether RING is in a bullish or neutral phase. If RING is in a bullish phase, converting 10% to BTC could mean missing out on potential upside gains. However, if RING is highly volatile or in a downtrend, converting some of the rewards to BTC might be a smart move to hedge against further RING depreciation.
   • If RING is experiencing inflation due to continuous reward distributions (like the 19,000 RING every 6 hours), converting some of the RING into BTC can reduce the pressure on RING’s price and create deflationary pressure in the RING market.

2. BTC Market Conditions:

   • BTC is typically more stable than RING, but it is still subject to market cycles. The DAO should consider the current BTC price and market trend (e.g., is BTC in a consolidation phase or a bull market?). Timing the conversion could have an impact on how much BTC the DAO ultimately acquires.
   • It might be beneficial to perform the swap gradually over time (e.g., monthly or quarterly) to avoid buying BTC at unfavorable market prices and to reduce the risk of timing issues.

C. Costs of Converting RING to BTC on Hydration

1. Swap Fees and Slippage:

   • Hydration fees: Ensure that the swap fees on Hydration are reasonable for converting RING to BTC. High fees or slippage could erode the value of the swap.
   • Liquidity on Hydration: Check that there is enough liquidity in the RING/BTC pool on Hydration to facilitate the swaps. Low liquidity could result in slippage, meaning the DAO may not get the full value it expects for its RING tokens when swapping for BTC.

2. Transaction Speed and Costs:

   • Consider the gas fees or transaction costs involved in executing these swaps. If RING and BTC are on different chains (e.g., Ethereum for RING and Bitcoin for BTC), cross-chain swaps could incur additional costs, which should be factored into the overall calculation.

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3. Proposed Strategy for Swapping RING to BTC

A. Proportional Allocation

The proposal to swap 10% of the RING rewards to BTC is a moderate approach that helps diversify the treasury and staker rewards without over-exposing the DAO to either RING or BTC.

• 10% of Treasury RING Rewards: 232 RING from the 2,325 RING allocated to the DAO treasury can be swapped into BTC.
• 10% of Staking Rewards: 1,900 RING from the 19,000 RING allocated to stakers can be swapped into BTC.

This keeps the conversion proportionate and consistent across both the DAO’s treasury and the staking rewards pool, allowing the DAO to stabilize the treasury and provide dual token rewards to stakers without risking liquidity shortfalls.

B. Consider Staggering the Swaps

Rather than doing a single large swap, the DAO could execute swaps in smaller increments over time to reduce the impact of market timing and to mitigate risks of slippage or unfavorable pricing.

For example:

• Convert 2.5% of RING rewards into BTC each week or month, instead of a one-off 10% swap. This way, the DAO can assess the impact of each swap and adjust its strategy if needed.

C. Balancing Dual Token Rewards for Stakers

Rewarding stakers in both RING and BTC can make the staking program more attractive, as it provides dual incentives:

• RING could be distributed as part of staking rewards for network growth, governance, and engagement.
• BTC offers stability, and BTC rewards could be seen as a long-term store of value that complements the more volatile RING rewards.

It’s important to ensure that the conversion of 10% of staking rewards into BTC does not drain liquidity needed for daily staking distributions or cause confusion among stakers. Clearly communicate the dual token reward structure, explaining why the DAO is making the conversion and how it benefits the ecosystem.

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4. Risks and Mitigations

A. Risk of Reducing RING’s Liquidity

• Mitigation: Keep track of how much RING is being swapped and ensure there is always enough RING available for staking rewards and liquidity provisioning on decentralized exchanges. A reduction of too much RING could reduce liquidity and impact stakers' ability to redeem their rewards.

B. Market Timing Risks

• Mitigation: Use a staggered conversion schedule to avoid unfavorable market conditions (e.g., when BTC is at a high price or RING is in a downtrend).

C. Swap Fees and Slippage

• Mitigation: Evaluate the liquidity and fees on Hydration, or consider using a more liquid platform if Hydration does not provide competitive rates or sufficient liquidity.

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Conclusion:

Swapping 10% of both the 2,325 RING rewards to the DAO treasury and the 19,000 RING staking rewards to BTC on Hydration can be a sound strategy to diversify the DAO’s holdings, stabilize the treasury, and reward stakers with dual tokens.

Key Recommendations:

1. Proportional Allocation: Stick to the proposed 10% swap to balance liquidity, treasury needs, and reward distribution.
2. Staggered Execution: Consider gradually executing the swap over time to reduce market timing risks and slippage.
3. Monitor Liquidity: Ensure that liquidity for both RING and BTC remains sufficient to avoid shortfalls for staking rewards and liquidity provision.
4. Clear Communication: Ensure stakers are informed of the new dual-token reward structure and the rationale behind the BTC reward.

By implementing this approach carefully, the DAO can achieve both stability in its treasury and increased participation in the staking program.

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5. The fifth thread is about buying back Kton

Deciding when the KTON DAO should begin buying back KTON from the market is a crucial decision that involves balancing multiple factors, including the DAO’s treasury health, the state of the market, the token’s price trajectory, and the broader economic conditions of both KTON and RING. The goal of a buyback program is typically to reduce circulating supply, increase the token's price by creating upward pressure, and increase the value for existing holders.

Here’s a breakdown of key considerations for when KTON DAO should initiate buybacks and how to approach it:

1. Market Conditions and Timing

The optimal time for a buyback generally depends on market conditions, especially the price of KTON and broader market sentiment. The goal is to buy back KTON when it is undervalued or when market conditions are favorable to accumulate the token at a lower price.

A. Low Valuation of KTON

• Undervalued Market: A strong indicator for starting a buyback program is when the market price of KTON is below its intrinsic value or when there is an undervaluation due to market overreaction, fear, or broader crypto market sell-offs.
• If KTON’s price is relatively low, and there’s a belief that it could increase in value over time (based on fundamentals, growth prospects, or upcoming developments), the DAO could begin buying back KTON at a discounted price, reducing the circulating supply and potentially increasing its price over the long term.

B. Stable or Declining Supply of KTON

• Stabilizing Circulating Supply: If the circulating supply of KTON is increasing significantly due to ongoing staking rewards or liquidity mining programs, a buyback can help counteract inflationary pressures by buying back tokens from the market and reducing supply.
• KTON DAO could implement a buyback program when the token’s market price is stable but declining due to inflationary emissions (e.g., staking rewards). This would balance the new issuance of tokens with the buyback strategy to keep KTON’s supply in check.

C. Strong Market Support for RING

• If RING is performing well in the market, the DAO may have a stronger treasury, allowing it to use its assets to buy back KTON while maintaining healthy liquidity for other operations.
• Strong RING performance could also signal investor confidence in the broader ecosystem, which might spill over to KTON as well, making it a good time to buy back KTON while the broader market sentiment is positive.

2. Treasury Health and Available Funds

A buyback program should only be started if the DAO has sufficient liquidity and funds to support it without jeopardizing its operations or ecosystem development. It’s critical to assess the DAO’s current treasury balance and ensure there’s enough capital available to execute the buybacks.

A. Sufficient Treasury Reserves

• Liquidity Reserves: The DAO should ensure that it has enough liquidity in its treasury to support the buyback without draining the funds needed for other ecosystem initiatives (such as development, marketing, governance rewards, etc.).
• If the DAO holds a significant amount of RING or BTC, it could use those assets to purchase KTON at a favorable price, but the buyback should not deplete the DAO’s operational reserves.

B. Clear Strategy for Buybacks

• The DAO should decide whether it will use a fixed amount per buyback or a more flexible strategy, such as buying back KTON gradually over time. This can help manage the impact of large buybacks on the market, reducing slippage and potentially minimizing the price volatility that might occur if the market detects a sudden large buyback.

3. Buyback Structure: Gradual or One-Off Purchase

There are two main strategies to approach the buyback process:

A. Gradual Buyback

• Dollar-Cost Averaging (DCA): One common approach is to implement a DCA strategy, where the DAO purchases KTON on a regular schedule (e.g., weekly, monthly) regardless of the token’s price. This approach spreads the purchase across different price points, minimizing the risk of buying KTON all at once at a high price.
  • This approach is less likely to cause sudden market shocks, and it allows the DAO to gradually accumulate KTON without over-committing at a potentially unfavorable price point.

B. One-Off or Large Buyback

• If the DAO believes that KTON is significantly undervalued, it might choose to execute a larger buyback in a single transaction or over a short period (e.g., a few weeks). This strategy could help quickly reduce supply and potentially trigger positive price action by signaling confidence in the project and creating upward pressure on the price.
  • However, this approach may have higher slippage (if there is insufficient liquidity in the market) and could potentially be seen as a market manipulation tactic if done too abruptly, which could lead to negative reactions from the community.

4. Technical Indicators

Monitoring certain technical indicators in the market can also help signal when it might be a good time to start a buyback.

• Oversold Conditions: If KTON’s price has dropped below key support levels and is showing signs of being oversold (using tools like Relative Strength Index (RSI) or moving averages), it may indicate that the token is undervalued and could be a good time to buy back.

• Volume and Price Divergence: Look for signs of price divergence (where price is declining but volume is also low), which might indicate that a bottoming out process is occurring. This could present an opportunity for KTON DAO to accumulate at lower prices before the market recovers.

5. Governance and Community Consensus

Since KTON DAO is a decentralized autonomous organization, it’s crucial to have community buy-in for any buyback program. Here’s how the DAO can ensure the process aligns with community goals:

• Governance Proposal: KTON DAO could propose a buyback strategy to the community via governance voting. This ensures that all KTON token holders have a say in whether and when the DAO should start buying back KTON.
• Transparency: The DAO should be transparent about the goals and mechanics of the buyback. This includes how much will be spent, the frequency of buybacks, and how it aligns with the DAO’s long-term goals.
• Feedback Loop: The DAO should periodically assess the effectiveness of the buyback strategy. If it’s not achieving the desired effects (e.g., price stabilization or increasing KTON’s value), the program can be adjusted or halted.

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Conclusion: When Should KTON DAO Start Buying Back KTON?

I would advise the KTON DAO to start buying back KTON when the following conditions are met:

1. Market Conditions:

   • KTON is undervalued and experiencing negative price pressure due to either broader market conditions (e.g., crypto market-wide sell-offs) or specific factors affecting KTON.
   • The price is near key support levels or is in an oversold condition based on technical indicators like RSI.

2. Sufficient Treasury Liquidity:

   • The DAO has adequate liquidity in its treasury to support the buyback program without negatively impacting other DAO functions or operations.
   • The DAO is confident in its ability to sustain operations and future development while executing the buyback.

3. Gradual Buyback Approach:

   • A gradual buyback strategy should be employed to avoid market shock and to take advantage of varying market conditions. Dollar-cost averaging can help minimize the risk of buying at an unfavorable price.

4. Governance Approval:

   • The buyback program should be approved by governance to ensure community consensus. Transparent communication about the buyback’s goals and mechanics will also help maintain trust in the process.

5. Sign of Market Recovery or Stability:

   • Start buying back KTON when there are signs of market stability or recovery in RING or broader crypto markets. This can increase confidence in the project and further strengthen the DAO’s position in the market.

By strategically timing the buyback, KTON DAO can both reduce circulating supply and support the long-term value of KTON, while maintaining a healthy treasury and building confidence among stakers, liquidity providers, and the broader community.

[SasoLithops]

I will be short in my opinions:

1. 60%treasury- 40% LP
2. Incentivise ( Conclusion says it all)
3. Both
4. YES
5. YES

[sonoferin2000]

this is a lot to digest.

[sonoferin2000]

a lot of good points made, that im on board with, just the way it is presented all at once, Like JDubs suggests, it would be much better to submit these points one at a time. But like I said, you put forward a lot of good points here.just the way they are presented together all at once,

[2xJDubs]

@SasoLithops I agree with sonoferin and this is a lot in one proposal. Maybe it would be best to break these into three separate discussions. One about KTON/RING LP, one for purchasing BTC and one for KTON buy back. If we try to get too much into one discussion it is hard to focus on the objectives of each which I think all are great ideas.

[SasoLithops]

@sonoferin2000 @2xJDubs Thank you both for your input. Absolutely agree with your points. I will divide this into three parts like proposed, so we can discuss each separately. Let me know if this is better.

Asking community for help on establishing a long term incentivised liquidity pool for KTON/RING
https://github.com/orgs/ktondao/discussions/35
Asking community for help on swapping 10% of both staking and treasury rewards to BTC on Hydration, so they both get dual rewards
https://github.com/orgs/ktondao/discussions/36
Asking community for help on buying back KTON
https://github.com/orgs/ktondao/discussions/37