Buyback & LP
Buyback and burn have been a very successful and popular mechanic in the crypto space, which has historically helped token price appreciation and kept the tokens scarce.
However, with the emergence of Decentralised Finance (DeFi) and Automated Market Makers (AMM) such as SushiSwap, a new approach has emerged that has the core benefits of the buyback and burn approach, together with the added value of deeper liquidity - buyback and liquidity provision.
Instead of burning tokens, they are first provided as liquidity for the token on its main AMM market, and then the resulting LP tokens are locked in a multisig wallet. The multisig will require 5 of 8 signatures to release any funds, and when full decentralization is reached, these decisions will be handed over to governance. Thus combining the benefits of the reduced token supply together with deeper liquidity for the token.
- 1.User A comes to the platform and purchases services worth 1000 FTW tokens.
- 2.The platform collects a 10% fee or 100 FTW tokens with no additional deductions.
- 3.1/10th (10 tokens) of the fee is used for buyback and LP (B&LP); the remaining 90 tokens are used to fund the platform's operations
- 4.From the 10 tokens for BB&LP, 5 are sold at the current market price on SushiSwap (let’s assume 0.40 USD), and thus 2 USDC are obtained.
- 5.The resulting 5 FTW and 2 USDC tokens are posted back as liquidity on SushiSwap, thus providing more FTW tokens for people who want to buy them, and more USDC for people who wish to sell FTW tokens.
- 6.As liquidity is added, the resulting FTW-USDC LP tokens are locked in a multisig wallet (signatories need to reach consensus and sign to release the funds). The added liquidity cannot easily be taken out of the pool.
Since the above operations can be costly, the platform will batch the buyback and LP operations (rather than execute them with each transaction) to keep them economically feasible.
10% of all fees collected will be used as funds for buyback and LP. The locked LP tokens will also act as a security policy for the ecosystem, in case the allocations used for rewards are severely reduced and result in adverse effects on platform activity. In order to replenish the rewards allocations, LP tokens will be unlocked and reallocated to either the Ecosystem fund or Reward pool as necessary.