Summary

Should ORE create a boost to auction off a portion of emissions to long term holders?

Overview

ORE’s mission is to accelerate global adoption of non-fiat currency. To this end, the goal of mining and boosts is to broadly distribute ORE tokens to millions of users around the world. Mining serves as the foundational hashpower-based distribution mechanism of ORE, and boosts act as a lever for the community to direct a portion of emissions towards alternative distribution mechanisms.

One system that could be used to distribute tokens to longer term holders is a “bond”. Using boosts, a slice of emissions could be allocated to a new bond contract that would sell tokens to bidders via a modified Dutch auction. That is, the auction price would start high and decrease linearly over time. When a buyer submits a bid, the contract price would react by increasing a moderate amount before linearly decaying again. In practice, bidders would only purchase from the auction if the offered price is below the current spot market valuation.

To complete the purchase, the buyer would transfer the required amount of USDC to the bond contract and receive their purchased ORE after a ~4 week vesting period. This vesting period is necessary to prevent arbitrageurs from taking advantage of the auction and selling immediately back to the spot market. Only buyers willing to hold their purchased tokens for the duration of the vesting period would participate. During vesting, these tokens could optionally be staked in the ORE native yield pool on the buyer’s behalf.

Using the USDC funds raised from the sale, the contract could then buy ORE off spot markets and burn it. Burned tokens could re-enter circulation later down the line via the emissions curve, with the max supply of 5 million ORE remaining unchanged. The net result would be a win-win offer for long term holders. The vesting clause on the sale should preclude those unwilling to hold the token for the 4 week vesting period from participating. Thus the auction would offer buyers with a longer term time horizon the opportunity to acquire ORE at a discount from the spot market price. Further, the auction would then use the raised funds to buy and burn ORE, directly increasing the value of the tokens sold in the auction. If accepted, 10-20% of total daily emissions would be allocated to this boost, coming from the current slice of emissions allocated for miners.

Motivation

Tokens live and die by their long term holders. Currently, the hashpower based mining mechanism is distributing tokens to a small group of users who don't hold ORE for very long, generating sustained spot market sell pressure. It would be healthy for ORE to direct a portion of these emissions towards users who are more willing to hold the token. This bond mechanism would provide a means of doing so which 1) moderately reduces miner emissions, 2) invites spot market buy pressure, and 3) burns a portion of supply.

Risks

The primary risk of this mechanism would be allowing existing ORE holders to arbitrage the auction and spot markets, given they are willing to wait for the required 4 week vesting period. For example, an existing holder could sell 1 ORE in the spot market and buy 1 ORE from the auction, making a small profit on the difference after vesting. Even in this worst case scenario, tokens would remain in the hands of existing holders, and the sale would positively impact the market price through the “buy and burn” mechanism. The risk of this outcome is far outweighed by the current risk of the status quo, distributing this slice of emissions to a small group of short-term oriented miners.