Asking community for help on buying back KTON

[SasoLithops]

Based on:

This poll: https://github.com/orgs/darwinia-network/discussions/1577#discussion-7095035
This reply: https://github.com/orgs/darwinia-network/discussions/1577#discussioncomment-11149843
This KTON DAO treasury account: https://explorer.darwinia.network/address/0x08837De0Ae21C270383D9F2de4DB03c7b1314632?tab=internal_txns
This ongoing debate: https://github.com/orgs/darwinia-network/discussions/1627
And this initial discussion: https://github.com/orgs/darwinia-network/discussions/1566#discussion-7052819

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IMPORTANT: At this time KTON stakers get 19000 RING while KTON DAO treasury gets 4650 RING every 6 hours.

ALSO: We are working on building an Index token which will highly benefit KTON stakers and governance and Github participants(Alpha). Any opinion on how we could implement it in staking rewards or its fees to KTON stakers, LP providers is welcome(check link above about ongoing debate). Most important KTON will be part of index token.

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This thread is about buying back Kton

Deciding when the KTON DAO should begin buying back KTON from the market is a crucial decision that involves balancing multiple factors, including the DAO’s treasury health, the state of the market, the token’s price trajectory, and the broader economic conditions of both KTON and RING. The goal of a buyback program is typically to reduce circulating supply, increase the token's price by creating upward pressure, and increase the value for existing holders.

Here’s a breakdown of key considerations for when KTON DAO should initiate buybacks and how to approach it:

1. Market Conditions and Timing

The optimal time for a buyback generally depends on market conditions, especially the price of KTON and broader market sentiment. The goal is to buy back KTON when it is undervalued or when market conditions are favorable to accumulate the token at a lower price.

A. Low Valuation of KTON

• Undervalued Market: A strong indicator for starting a buyback program is when the market price of KTON is below its intrinsic value or when there is an undervaluation due to market overreaction, fear, or broader crypto market sell-offs.
• If KTON’s price is relatively low, and there’s a belief that it could increase in value over time (based on fundamentals, growth prospects, or upcoming developments), the DAO could begin buying back KTON at a discounted price, reducing the circulating supply and potentially increasing its price over the long term.

B. Stable or Declining Supply of KTON

• Stabilizing Circulating Supply: If the circulating supply of KTON is increasing significantly due to ongoing staking rewards or liquidity mining programs, a buyback can help counteract inflationary pressures by buying back tokens from the market and reducing supply.
• KTON DAO could implement a buyback program when the token’s market price is stable but declining due to inflationary emissions (e.g., staking rewards). This would balance the new issuance of tokens with the buyback strategy to keep KTON’s supply in check.

C. Strong Market Support for RING

• If RING is performing well in the market, the DAO may have a stronger treasury, allowing it to use its assets to buy back KTON while maintaining healthy liquidity for other operations.
• Strong RING performance could also signal investor confidence in the broader ecosystem, which might spill over to KTON as well, making it a good time to buy back KTON while the broader market sentiment is positive.

2. Treasury Health and Available Funds

A buyback program should only be started if the DAO has sufficient liquidity and funds to support it without jeopardizing its operations or ecosystem development. It’s critical to assess the DAO’s current treasury balance and ensure there’s enough capital available to execute the buybacks.

A. Sufficient Treasury Reserves

• Liquidity Reserves: The DAO should ensure that it has enough liquidity in its treasury to support the buyback without draining the funds needed for other ecosystem initiatives (such as development, marketing, governance rewards, etc.).
• If the DAO holds a significant amount of RING or BTC, it could use those assets to purchase KTON at a favorable price, but the buyback should not deplete the DAO’s operational reserves.

B. Clear Strategy for Buybacks

• The DAO should decide whether it will use a fixed amount per buyback or a more flexible strategy, such as buying back KTON gradually over time. This can help manage the impact of large buybacks on the market, reducing slippage and potentially minimizing the price volatility that might occur if the market detects a sudden large buyback.

3. Buyback Structure: Gradual or One-Off Purchase

There are two main strategies to approach the buyback process:

A. Gradual Buyback

• Dollar-Cost Averaging (DCA): One common approach is to implement a DCA strategy, where the DAO purchases KTON on a regular schedule (e.g., weekly, monthly) regardless of the token’s price. This approach spreads the purchase across different price points, minimizing the risk of buying KTON all at once at a high price.
  • This approach is less likely to cause sudden market shocks, and it allows the DAO to gradually accumulate KTON without over-committing at a potentially unfavorable price point.

B. One-Off or Large Buyback

• If the DAO believes that KTON is significantly undervalued, it might choose to execute a larger buyback in a single transaction or over a short period (e.g., a few weeks). This strategy could help quickly reduce supply and potentially trigger positive price action by signaling confidence in the project and creating upward pressure on the price.
  • However, this approach may have higher slippage (if there is insufficient liquidity in the market) and could potentially be seen as a market manipulation tactic if done too abruptly, which could lead to negative reactions from the community.

4. Technical Indicators

Monitoring certain technical indicators in the market can also help signal when it might be a good time to start a buyback.

• Oversold Conditions: If KTON’s price has dropped below key support levels and is showing signs of being oversold (using tools like Relative Strength Index (RSI) or moving averages), it may indicate that the token is undervalued and could be a good time to buy back.

• Volume and Price Divergence: Look for signs of price divergence (where price is declining but volume is also low), which might indicate that a bottoming out process is occurring. This could present an opportunity for KTON DAO to accumulate at lower prices before the market recovers.

5. Governance and Community Consensus

Since KTON DAO is a decentralized autonomous organization, it’s crucial to have community buy-in for any buyback program. Here’s how the DAO can ensure the process aligns with community goals:

• Governance Proposal: KTON DAO could propose a buyback strategy to the community via governance voting. This ensures that all KTON token holders have a say in whether and when the DAO should start buying back KTON.
• Transparency: The DAO should be transparent about the goals and mechanics of the buyback. This includes how much will be spent, the frequency of buybacks, and how it aligns with the DAO’s long-term goals.
• Feedback Loop: The DAO should periodically assess the effectiveness of the buyback strategy. If it’s not achieving the desired effects (e.g., price stabilization or increasing KTON’s value), the program can be adjusted or halted.

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Conclusion: When Should KTON DAO Start Buying Back KTON?

I would advise the KTON DAO to start buying back KTON when the following conditions are met:

1. Market Conditions:

   • KTON is undervalued and experiencing negative price pressure due to either broader market conditions (e.g., crypto market-wide sell-offs) or specific factors affecting KTON.
   • The price is near key support levels or is in an oversold condition based on technical indicators like RSI.

2. Sufficient Treasury Liquidity:

   • The DAO has adequate liquidity in its treasury to support the buyback program without negatively impacting other DAO functions or operations.
   • The DAO is confident in its ability to sustain operations and future development while executing the buyback.

3. Gradual Buyback Approach:

   • A gradual buyback strategy should be employed to avoid market shock and to take advantage of varying market conditions. Dollar-cost averaging can help minimize the risk of buying at an unfavorable price.

4. Governance Approval:

   • The buyback program should be approved by governance to ensure community consensus. Transparent communication about the buyback’s goals and mechanics will also help maintain trust in the process.

5. Sign of Market Recovery or Stability:

   • Start buying back KTON when there are signs of market stability or recovery in RING or broader crypto markets. This can increase confidence in the project and further strengthen the DAO’s position in the market.

By strategically timing the buyback, KTON DAO can both reduce circulating supply and support the long-term value of KTON, while maintaining a healthy treasury and building confidence among stakers, liquidity providers, and the broader community.

[sonoferin2000]

I think a hybrid approach to buybacks could work well. The funds for
buybacks could be split into two parts: we would decide the ratio to
allocate to each strategy. for the strategic reserve part, we could have a
fast-track way to vote to approve its use without much delay. or could
simply spell out what conditions have to be met before funds are able
to be used without need for vote. that would give flexibility to act
promptly without waiting on beaurocracy.

DCA Strategy: Use part of the funds to regularly buy KTON over
time. This keeps the process steady and helps support the price
without causing big market moves.

Strategic Reserve: Let the rest build up for those moments when
the market dips or there’s a good opportunity to make a bigger
move. This gives us more flexibility to act when it really counts.

As for the Index Token, just having KTON included in the mix is a
win. It ties KTON’s value to more stable tokens in the basket,
especially as the Index Token gains traction and more are minted.
This would help reduce KTON’s liquidity on the market, making it
harder to get, which could drive up the price over time.

Between the buybacks and the index token, these could really work
together to make KTON stronger and more valuable.

[SasoLithops]

Love this hybrid approach @sonoferin2000 DCA strategy and Strategic reserve both sound great to me.

Yes index token should start giving KTON extra utility which was desired by community for years since it wasn't used in Evolution Land game any more.

Maybe in long run KTON DAO could help in reviving EVOLUTION LAND game since it is now public and a new strategy could give yet another utility to KTON.

[hackfisher]

Hi, why not just merge with liquidity improvement approach and just use following for it.

#35 (reply in thread)

we can keep it simple

[SasoLithops]

That is good point.