looking at a market cap of around 5m USD for XIO and noticing the recent initiative with NFTs to refill the treasury, these things paint a clear message. In order to have Blockzero sustain its operations, a non-dilutive treasury increase needs to happen. While I hope that the NFT experiment will be successful, I also want to propose another technique that does not only provide new funding for Blockzero but also benefits investors of upcoming projects like Flash V3 etc.
- Blockzero treasury has left little runway
- Minting and selling XIO creates inflation and sell pressure, hence is ineffective
- Refilling the treasury needs to be connected to objectively successful project releases
- Alignment of interests of involved parties
Tackling all of the mentioned challenges can be achieved by using an adjusted price control mechanism that central banks use when they soft-peg their currency or in general want to control exchange rates. I think it´s the easiest when I just guide you through an example and in the end dissect the strengths and weaknesses of this solution.
Let´s assume tomorrow is the release of a new token created by Blockzero with exciting usecase. We call it TokenXYZ. As usual, XIO holders and LPs accumulated a certain amount of TokenXYZ in the Dropzero claim app. The total amount of airdropped TokenXYZ is 100m tokens. Of those 100m, 20m go to the Vortex, backing XIOs value. 80m tokens are going to be airdropped on Dropzero.
Now, an additional 40% (40m) of the “normal” total supply of TokenXYZ is minted and stored in a special contract, lets call it SalesContract. Anyone can buy TokenXYZ from the SalesContract at an ever-increasing rate against ETH. A minimum price and maximum price is hardcoded into this contract.
In this example, the SalesContract starts selling 1 TokenXYZ at a price of 0.00001 ETH (4 cents). The maximum price for TokenXYZ bought from this contract shall be 0.001 (4 USD). After every 1 TokenXYZ sold, the price increases linearly. The SalesContract contains 40m tokens, so the incremental price increase after every single TokenXYZ sold is (0.001 – 0.00001) / 40m.
For the next step, let´s say someone sells 1 ETH to the SalesContract and gets the appropriate amount of TokenXYZ. Then 30% of those proceeds (0.3 ETH) are sent to the Blockzero treasury. The other 70% stay in the contract for now.
As soon as the SalesContract has made some sales and the price of TokenXYZ increased, the contract uses the reserved 70% of proceeds as a buy back buffer for TokenXYZ at 70% of the current sales price in the contract. In other words, the contract can buy back as many TokenXYZ as it sold in the beginning, but it made a safe 30% gain on it, which went to Blockzero.
Assuming the price of TokenXYZ starts dipping at some point. It reaches the -30% drawdown mark and if prices on exchanges drop even further there is an arbitrage opportunity for people who sell to the SalesContract instead. Hence, whatever capital was accumulated before, acts now as a solid crash absorber, just like an airbag. The SalesContract can absorb as many TokenXYZ as it brought into circulation earlier while providing instant funding for development at the same time. These tokens will be sold again into rising prices.
After a while, TokenXYZ surpasses the maximum price of 0.001 ETH, hence the last token will be bought off the SalesContract. This marks the milestone where the project is officially acknowledged as being successful. Because it is a successful project, further price control and shock absorption by the SalesContract is not needed anymore. For example, if TokenXYZ reaches the price of 0.01 ETH, it´s very unlikely it ever drops back to 0.0007 ETH, which would be the 30% discounted buyback price of the last sell price. Because buybacks are not necessary anymore after the last token sold, the full amount of ETH in the contract is sent to blockzero to fund the development of exciting new projects.
- The SalesContract gradually sells Tokens into strong markets, causing only light selling pressure through arbitrage opportunities.
- In falling markets, the SalesContract has the capability to absorb all previously sold tokens at a predetermined drawdown level (i.e., 30%). This can cause significant support.
- Instant funding for BZ in amount of 30% of all sales by the contract.
- While the additional tokens in the SalesContract are technically expanding the total supply and therefore, diluting everyone´s holdings of TokenXYZ, the buyback mechanism makes this irrelevant as long as the price is below the maximum selling price. The additionally issued Tokens will be removed from the market during selloffs by arbs.
- Because the largest pay-out for BZ is acquired when TokenXYZ reaches at least the maximum price in the SalesContract (when the last token is sold), everyone is incentivized to work towards the success of the project.
- There is no need for XIO dilution
- It increases the total supply of TokenXYZ
- The buyback mechanism relies on arbitragers to effectively exert price control / support
Looking forward to feedback and ideas!