HDX buyback with Treasury H2O - Tranche 2

Maybe add some logic that causes more buying over a shorter period of time if the price goes lower. Having it kick in between 0.004 to 0.007.

I didn’t mind the 11days for the last ref so would have been happy if was 11days again but wanted to comment that it’s great to see that the feedback was listened to and the time extended this round.

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Missed the 11 days, but okay

I am against these buybacks.

As a marketing tool, the ‘Green candle strategy’ is untested, mainly, and an irresponsible use of protocol capital.

Historical data is limited, and perfect analogies are even more so, but promotional buybacks like this tend only to create short-term gains. They appear ineffective at helping spark sustainable growth and are generally neutral or negative long-term.

Try to find an example where a non-sustainable promotional buyback like ours resulted in growth. TRON, StakeLayer, DeepBrainChain, and TokenPay all tried promotional buybacks. Do you hold any of them today? Did you first learn about the overlooked gem 💎, CPChain, from their $2.5M buyback in 2018? Oh, you’ve never heard of CPC? Well, that would make sense, I hadn’t either and they don’t exist anymore. How is your Aragon portfolio since they announced their $1.6M buybacks? Wait waat?? The guy from LOTR has a cryptocurrency!? No wait, Aragorn != Aragon.. Our current buyback program follows the sustainable gold standard of MakerDAO, Binance Coin, OKB, and others. I see no evidence we should go beyond that, and anecdotal evidence we should not.

These buybacks have an opportunity cost. Every H2O spent could have gone to development, partnerships, listings, integrations, strategic reserves, hackathons, ecosystem grants, targeted marketing, beneficial smart contracts, or interest earning liquidity provisioning. I read that a senior blockchain developer makes about $190k annually. With $1.75M we could hire more like dmoka, enthusistmartin, jak-pan, jvonasek, mrq, nohaappav, roznovjak, vgantchev, and vkulinich. Mayyyybe we could even afford another lolmcshizz. Consider the opportunity cost of lost meme potential. If I had someone else to DM constantly, Ben would be free to apply his talents.

I also see some signaling risk in these buybacks. When I see startup projects buying their token above intrinsic value, I wonder if there’s underlying weakness and/or lack of confidence. While incessantly nitpicking the community on Discord, I have seen glimpses of fear and desperation. Though they may have just been afraid I would never shut up.. I also feel these buybacks signal to potential investors we lack proper foresight and planning. We sold HDX bonds less than a year ago for non-HDX assets (DOT). Now we are buying HDX with an asset backed mainly by DOT? The time to contract developers is fast approaching - will we sell HDX we just bought?

In the long run, genuine innovation, efficiency, and strong product offerings will create sustainable value – promotional buybacks cannot achieve this and they undermine our longevity. We should be spending our capital on things of proven productive value.

I have heard it argued:

“If we buy anything other than HDX with H2O, it’s harmful to our liquidity providers because there will be fewer tokens than what they supplied when they remove their liquidity - while arbitragers take profits”.

For example, if we swap H2O for stablecoins, when liquidity providers remove their assets, they end up with fewer stablecoins and the small amount of H2O is worth less. Meanwhile, because there is realistically nowhere for HDX to be arbitraged, we can buy it without the excess H2O being dispersed across the omnipool (its price will increase relative to other assets in the omnipool).

This argument fails to account for two things:

1. HDX sold back to the omnipool also drains liquidity providers (think frontrunners, weak hands)
2. The treasury has the unique ability to beat all arbitrage competitors because it pays itself the priority fee. (We also can give treasury priority via code).

If you care about minimizing harm to liquidity providers but want to buy something with H2O, the optimal buy would be a proportional omnipool bag, unless you can guarantee no HDX would be sold back at higher prices. The treasury cannot protect liquidity providers from being drained by frontrunners and weak-handed HDX holders. We can protect them from arbitrage losses.

If unsustainable promotional buybacks are what the community decides, I implore the community to consider implementing them more efficiently. A DAO is easy to front-run and our treasury capital is needlessly being transferred to people who would harm the project if it means they can profit. HDX involved in frontrunning drains our protocol owned liquidity and that of our liquidity providers. If more than $1.75M worth of HDX is sold back to the omnipool, our liquidity providers end up worse off than had we bought stables. Please consider allowing GC to implement the buybacks covertly to help minimize this waste of our capital and that of our liquidity providers.

I think there is more to be said, but this is TLDR already. <3 <3 <3

Edit: I had hoped to keep this about buybacks being a poor use of capital without suggesting an alternative. Some will criticize any alternative I recommend, which will be used as ammunition against the point I want to make: buybacks are a mistake. With that said, I've had four people ask me what I think we should do. An individual whose opinion I value suggested offering no alternative is avoiding responsibility.

So, though I know it will not be popular...

Regardless of what we do, buying HDX, or anything else, our liquidity providers will have less of the asset they supplied. We can out arbitrage anyone, but that requires us to bring whatever we want to buy from off chain. Buying HDX obfuscates losses to liquidity providers by changing the middleman. It has the advantages but also disadvantages. If we pump price and add more HDX LP (which we almost certainly will), then there is a real risk that our liquidity providers get hit for more than just the 840k-ish (amount after taking fees, protocol liquidity, etc into account).

Here is what we should do: Allow the Treasury to sell H2O at fair market value for stables via OTC or better yet a fancy OTC that can track fair value. If fancy OTC is too complicated, just let GC manage it. Some would like to hold an index asset, especially because the v35 upgrade left an H2O burn, meaning H2O's value will appreciate versus the onnipool from where it is now. Whatever doesn't get sold after whatever length of time the community finds reasonable (I am in no rush), we batch distribute across all liquidity providers and take the proportional fair value of their asset. This forces H2O on liquidity providers who do not want it, but it is the fairest choice and the choice of least harm - both to us and our liquidity providers. It would also show support of the ecosystem and give a new ETF product offering.

buyback： h2o -> hdx
H2O is an index of our liquid assets, which is a neutral indicator and more like a tool.
And hdx is the soul of our protocol, governance, etc.

So constantly buying and holding HDX is obviously a better thing, and this is a long-term process, don't take shortcuts.

Of course, when we need funds for development/marketing, we can also spend on HDX. We are not misers, we need to develop.

TLDR: