TLDR
The core contributors propose adjusting the structure of the money flow within the ecosystem by using Rebates instead of Realized Profits for buybacks, operations, and R&D. This shift is due to Rebates being more stable, less reliant on market cycles, and consistently generated through market making activities. Additionally, liquidity provision allows for increased volume and more rebates over time. As the TVL grows through the Bonding Treasury, partnerships with exchanges will yield even higher rebates, leading to sustainable buybacks.
Proposed Changes:
Realized Profits
- Allocated fully to the DAO treasury (TVL).
Rebates
- Utilized as follows:
- 65% for buybacks of $RFRM added to the Bonding Treasury
- 25% for DAO operational costs
- 10% for research and development
Authors
Core Contributors
The why of the proposal
The proposal aims to adjust the fund distribution within the DAO by prioritizing Rebates over Realized Profits in the money flow structure. In this new approach, Realized Profits would be used solely to maintain the TVL of the DAO treasury, while Rebates would cover token buybacks, operational costs, and R&D. Over recent weeks, we have consistently published trade reports outlining the volume, number of trades, Realized Profits, and the newly introduced Rebates. These reports have highlighted the inconsistency of Realized Profits due to fluctuating market conditions, whereas Rebates have shown consistent performance, providing clearer predictions for the weeks ahead.
The motivation for this change lies in the stability of Rebates compared to Realized Profits. Additionally, the Reform DAO has the ability to influence the amount of Rebates earned through partnerships with exchanges, allowing for more frequent token buybacks based on trading volume. This shift also provides the opportunity to develop algorithms that generate increased trading volume, leading to higher Rebates. With future market conditions expected to be more bullish and characterized by higher volumes, Rebates could outpace Realized Profits by a significant margin. Given that Reform consistently provides 2-4% of exchange volume, greater trading activity will lead to more order fills, thereby increasing the Rebates received.
While Realized Profits tend to perform better in range-bound markets, they are less effective in trending markets, whether bullish or bearish. The proposed adjustment would enable Reform to adapt its market strategies more effectively, ensuring greater volume and more substantial buybacks, contributing to long-term stability. In support of this, we have included a comparison of buybacks over a 20-week period and Rebates over a 5-week period, clearly demonstrating the difference in volume between these two revenue streams, further justifying the shift towards prioritizing Rebates for a more sustainable ecosystem.
The longer explanation of the proposal
The proposal suggests replacing Realized Profits with Rebates as the primary mechanism for managing the flow of funds. Under this new system, 65% of rebates will be used for token buybacks and added to the Bonding Treasury, while 25% will be allocated for operational needs, and another 10% will go towards R&D. The primary reason for this change is to prepare for future market conditions and enable Reform to develop strategies that adapt to market trends, such as delta-neutral approaches during downtrends or liquidity provision strategies in both uptrend and downtrend markets. The goal of these strategies is to ensure that Reform provides consistent volume to exchanges, meaning that as a market maker, it will always earn rebates, regardless of market conditions. This shift allows Reform to rely less on Realized Profits and more on volume, which has always been a core strength of Reform.
As previously mentioned, rebates are not tied to the market perfectly ranging; they are always provided by exchanges in return for volume. Reform can implement various strategies to generate this volume on exchanges. By moving away from the limitations of Realized Profits, Reform can adjust its strategies according to market conditions while maintaining a consistent flow of rebates driven by volume. This same logic applies in cases where global market volumes increase: more volume on the exchange will lead to higher rebates.
Currently, Reform’s algorithms are designed to prioritize generating Realized Profits, focusing on larger grind sizes and maintaining wider spreads to limit downside risks while providing liquidity. By shifting to Rebates, Reform can adjust these algorithms to focus primarily on volume trading. While this may limit the potential for large Realized Profits, it reduces risk and enables exponential growth in volume, resulting in higher rebates received.
Additionally, Reform benefits from its public Bonding Treasury, which provides a continuous inflow of funds, allowing the TVL to grow. As the TVL increases, Reform can form more partnerships and diversify liquidity provision across more exchanges. This growing TVL, combined with a successful track record on exchanges like Bybit, will also attract other exchanges interested in offering higher rebates for similar volumes of trade.
By changing the financial model to emphasize rebates over Realized Profits, Reform can provide more consistent buybacks and develop algorithms that generate more volume. This shift will lead to an increase in monthly buybacks, resulting in a more sustainable financial ecosystem. Token holders will benefit from continuous buybacks, with more tokens being added to the Bonding Treasury and removed from circulation for at least one year. Raised funds will be reinvested to generate further buybacks, establishing a self-sustaining circular economy.
Budget
No Budget is needed, just the input of the DAO participants.
Poll
Please vote and reply why below if you are “for” or “against” the proposal before it proceeds to vote.reformdao.com
- For
- Against
