DeFi yield platform PieDAO has filed a proposal to its community for a phased buyback of its tokens, after ending the protocol’s liquidity mining program in October. The goal is to prevent a further price decline — although the token is already down 98%.
PieDAO’s liquidity mining program incentivized those providing liquidity on the platform with tokens. Some of these tokens were liquid while the majority were subject to a one-year vesting schedule.
Liquidity mining programs were popular in the initial iteration of the DeFi space because they provided a means for protocols to bootstrap liquidity — yet they can be damaging to the token's price.
Token emissions used to reward liquidity providers increase the number of the protocol’s tokens in circulation, hence why they often lead to a decline in price over time. In PieDAO’s case, the DOUGH price declined 98% during its liquidity mining program — from $2.14 at the start to $0.04 when it shut down the program.
Now that PieDAO has ended its liquidity renting program, the team says it's necessary to strike a deal with liquidity providers who want to sell their tokens. As such, the proposal is calling for the community to approve a plan for the protocol to use its treasury to buy back these tokens. These purchases will be done in the form of over-the-counter trades.
For the PieDAO team, the buyback is necessary to prevent any adverse impact on the DOUGH price from any forced selling by liquidity providers. The proposal also stated that a buyback could allow liquidity providers to unwind their positions without incurring heavy price slippage — a situation where the price at which a trade is executed is significantly lower than the expected price.
PieDAO’s token buyback plan
As part of the proposed plan, the PieDAO team has come up with two routes for the buyback program. These routes outline the procedure for the treasury to acquire DOUGH and eDOUGH from liquidity providers and other sellers. For the DOUGH buyback, the proposal called for a phased approach, with nine epochs lasting two weeks each. These nine epochs will have their own discount price that will increase over the period. This discount will be based on a 30-day price average calculated one day before the start of each phase.
For the vested eDOUGH, the plan called for a fixed buyback price rather than a spot price-dependent discount. This route was chosen since the vested tokens are illiquid and, as such, have no price until their vesting schedule is over.
PieDAO plans to put the motion to a snapshot vote after gauging the initial community reaction. The project team will prepare a draft budget for the buyback. The proposal states that unused funds from one epoch will be rolled over to other epochs.
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