Suggestion: Utilizing $CHNG-CO to back $FREE
Last year $FREE had value boosts through monthly burns of liquidity, where $FREE was bought and burnt in liquidity with $FSN, $CHNG and $USDT. However this process was halted after the Chainge-LP contracts were changed due to uncertainty about what happens to burnt liquidity in such situations.
Until it is certain that Chainge LP contracts are final and that we won’t ever see a change to a FRC760 standard (for ecxample), burning in liquidity again is a bad idea.
But just buying and burning $FREE will always work, so once the Freemoon DEX launches we’ll likely pursue this path instead.
$FREE is meant to be backed in part by cost of transacting on Fusion and in part helped by buy and burns through sources of passive income. Historically it was backed by rewards from FSN staking and by FSN/TF-FSN liquidity, but the latter has now turned much less profitable than it used to be, so perhaps a new source is needed.
The highest yield of all on Fusion is currently found in providing liquidity for CHNG call options, so it’s definatly an attractive thought to derive backing through these.
Here’s how it could work:
- A $CHNG-CO/$FREE LP pair is established in the new Freemoon DEX containing an inital amount of 100 000 CHNG-CO and the equivalent amount of FREE.
- 1 000 000 CHNG-CO is held in liquidity on the Chainge Options DEX. Currently yielding around 2700 TF-CHNG daily.
- The awarded TF-CHNG is used to write more CHNG-CO, which is used to increase the pool size, by selling half and adding to liquidity (assuming it is less than 1 050 000 CHNG-CO)
- Any amount of CHNG-CO above 1 050 000 is used to buy and burn FREE in the CHNG-CO/FREE LP pair on the Freemoon DEX. There are two ways in which the amount can go above 1 050 000, the first is that CHNG-CO loses value against USDT and the other is that enough CHNG-CO is written to get above this limit. Either way, the excess CHNG-CO get used to buy and burn FREE.
- In case CHNG-CO gains value it could also happen that the pooled CHNG-CO becomes less than 950 000, and if this were to happen a reverse dynamic can take place where FREE is used to buy CHNG-CO and USDT, to make certain the backing pool is always in the 950 000–1 050 000 range. Short term this will mean a slight sell pressure for FREE, but long term it should be good, as it’ll mean the backing yield will become even greater due to the value increase.
- If yield rewards for CHNG-CO/USDT were to be significantly lowered, the backing strategy will need to change. The strategy should also be abandoned regardless in mid-november 2022 because of the fact that it draws too near to the end of the year when CHNG-CO options end. At that time the liquidity from the CHNG-CO/FREE LP pair should be pulled, and the FREE that was in it burned or start being used in a new backing strategy.
- The exact price of CHNG-CO should not affect the strategy, though extreme price movements may make it difficult to keep the intended range. Effectively it should mean that an average of 2700 CHNG-CO gets pushed daily into buying and burning FREE. Today this means around 36,45 USD/day, but there might be a day it means 400 USD/day.