There has been musing on prior posts about adding ‘utility’ to the WELL token, but I think a more pertinent topic to discuss is how we can create structural demand for WELL to offset the continuous sell pressure from those seeking to “lock in” the yield they earned. For Well to be successful, the long-term value of the token must be directly tied to the economics of the marketplace and backed by real cash flows. The most obviously idea, and one previously proposed in 2023 on this forum, would be a token buyback mechanism using a % of profits from the platform. It’s simple, yet effective, and if you believe in the long-term success of this platform, the buybacks should be highly accretive to long-term holders who believe a token today will be backed by more cash flows in the future. Additionally, this would incentive more people to hold their WELL rewards rather than convert to stablecoins.
I believe Moonwell has reached a level of maturity where a buyback mechanism should be re-considered to attract more long-term oriented holders. I would love to hear input directly from the internal team and those closer to the treasury on what % would be maximally beneficial to both token holders and developers to support LT growth efforts.
In summary, a buyback mechanism would:
Create structural demand from the buybacks;
Increase demand from long-term holders and potentially institutions that use tradefi valuation methodologies to value tokens;
Reduce the outstanding supply of tokens;
Reduce sell pressure from investors locking-in Well rewards;
And ultimately, create a more stable token holder base of loyalist who are holding for the right reasons and not short term speculation
I would like to see metrics on revenue generation vs emissions. This should be available on-chain and I wouldn’t be surprised if there’s a dune analytics page for it already (could someone share a link?)
But I’d also like to see data on expenses. Is the protocol profitable after paying salaries and other expenses? We wouldn’t want buybacks to come at the expense of growth.
But if the profitability is there then I 100% support buybacks.
Moonwell is a protocol that is very concerned about regulations, particularly in the USA. That would preclude a buyback-and-distribute model, as that would be “security-like”. But straight buybacks I suspect may pass legal muster.
Alternatively, if it doesnt, we could (instead of issuing WELL rewards) issue the tokens we are earning as fees as rewards. Lower WELL issuance would accomplish the same as buybacks but potentially without the legal ramifications.
I would love to see the books to get a better understanding of the current economics, but I’m not sure Moonwell needs to be profitable (after salaries) for the buyback to make sense. The upside for the team is in the token price, not their cash comp. Most developers are likely only paid in Well tokens. To Moonwell team: is this information publicly available?
I also agree with your regulation point and think a straight token burn would clear regulatory hurdles vs. a fee sharing arrangement. If token holders have no claim on the treasury’s cash or the protocol’s cashflow, the next best thing is to start burning tokens for all the reasons mentioned in my first post.
And for your last point…I would expect the Well token issuance to taper off after the grants dwindle down and the extra incentive is no longer necessary to attract liquidity.
The high number of tokens and emissions seem to be hindering the tokens value, which in turn will make it less desirable to farm for defi participants. I would support a token buy back program if it does not have an adverse impact on growth. I am not sure why Moonwell would have chosen such a high token supply in the first instance.
I think it’s too early to implement a burn. I would rather see more access to WELL via DEX/CEX, maybe incentivize more liquidity pools. WELL needs more liquidity (see chart). What if we capped all staking rewards at 11% and used the surplus rewards to build some highways? 20% for a gov token is not sustainable.
I tend to agree that it may be too early to implement a burn mechanism, and I agree with the sentiment that it’s difficult to access WELL outside of the Aerodrome DEX. I originally tried to swap via Uniswap and there was very little liquidity there. There also could be some leverage Moonwell could use to gain liquidity in other domains, as I know the Uniswap DAO folks are attempting to compete with Aerodrome through a rate cut on their USDC/ETH pools. Not sure what exactly that could look like, but I’d love to see Moonwell enhance its liquidity across dexs somehow.
One recent development I find interesting is Aave’s Safety Module upgrade to Umbrella, their newer model. This could be something the DAO would be interested in moving forward. For those unfamiliar, Aave uses a safety module where Aave users can stake their $AAVE and receive rewards, but their staked tokens are at risk of being used to cover bad debt in liquidity pools. Because $AAVE is not a borrowable option (similar to $WELL) a sell off is not capital efficient. As a result, slashing events create sell pressure which reduces the coverage of the module as well, having a cascade effect. This applies similarly to $WELL’s staking security module. Aave’s fix for this is to use aTokens (user positions of approved lending assets with no borrowed assets against them) as the staking asset. In a shortfall event, the staked aTokens are slashed/burned to cover debt balances.
Users can opt into being vulnerable to slashing risks on their lending position and earn additional incentives for this. This essentially just removes tail risk on the AAVE token since it takes away some of the sell pressure. Aave then coupled this proposal with a deprecation and change to their token scheme. In their second proposal, they plan to deprecate current $AAVE staking. They toyed around with a couple experiments:
Offering discounted borrowing rates to $AAVE holders.
Stakers who mint stablecoins from the protocol accumulate an anti-stable token which can be used to repay some debt or can be converted into a staked variant.
Buy and Distribute Program: per an increase in protocol revenue, after hitting sustainability milestones excess revenue would be redirected. The program would acquire assets on secondary markets
While I think that it is very early in Moonwell’s history to be pushing this, I just wanted to provide some additional points for discussion in the community.
TLDR:
Aave and a few blue chip protocols are doing cool experiments, I’d look into those.
Likely too early to be considering a fee switch, though I think an open conversation is good for progress.
Enhancing $WELL liquidity and improving the staking module without deprecating $WELL could be good steps.
I apologize for my late reply to this post - July was a busy month for us as we finished the Optimism deployment.
You’re absolutely correct Daniel, a buyback mechanism should be strongly considered. It will help extend the lifetime of the Moonwell Foundation and will redirect excess reserves (fees captured by the protocol) that would otherwise sit idle to a more productive use. In addition, Morpho vault performance fees are now being directed to the Moonwell core markets for USDC and ETH on Base as reserves.
Now that Moonwell contributors have completed the majority of our product feature work for 2024 (including USDC Anywhere, Smart Wallet support, Morpho integration, and Optimism deployment), we are spending August and September on tech debt reduction in the app, and in the Fall will engage on an improved Safety Module, please read here: Upgrade staking module - #3 by surfingdegen
By staking collateral tokens instead of WELL, we’ll have the capability of providing a better backstop to the protocol, and as a component of this, we can build the capability of redirecting excess reserves (protocol fees) towards Safety Module stakers and WELL buybacks. A simplified example (needs more research) would be like this:
USDC insurance target rate is 3%
Excess USDC reserves are redirected to mUSDC (collateral token) stakers who backstop the protocol, up to this target rate
Additional USDC reserves above this target rate can be used to perform buybacks
While this is a simplified example that requires more research in terms of both smart contract systems and economics, I think this is ultimately how all of the money market protocols like Moonwell, Aave, and Compound will evolve over time.
Thanks for starting the conversation, and we’ll have more details to share as we begin research and development in the Fall. We hope to move quickly (like our other product features) so this can all land in early 2025.
The data isn’t publicly available, but salaries to contributors, risk management and security/audit expenses, etc. have been paid since early 2022 from funds raised through a private sale to VCs and the public sale (to non-US individuals) in early 2022. These payments are made in stablecoins and WELL has never been sold to pay salaries, outside of those initial sales prior to the project launching. As of June 2024, all the VCs and public sale participants are fully vested. I don’t know for certain how many, but the vast majority of VCs are still holding their allocations as they believe in our long term success. Early contributors (devs) are still vesting for some years.
Given our current burn rate, there should be enough stablecoins and ETH to continue operating for ~2 years, however, it is anticipated that at some point in 2026 we would likely need to start paying expenses in WELL. Buybacks and a measured treasury diversification program could assist, but we definitely want to avoid having the Foundation treasury put unnecessary sell pressure on WELL.
I should note that the community voted to distribute 4.35% of the total supply over the first year of the Base protocol to help bootstrap liquidity and user community. The 1 year anniversary of the Base deployment was August 9th, so those emissions are now over. When Moonwell first launched in June 2022, 15% of the total supply was allocated to liquidity incentives, which is distributed linearly over 4 years (until June 2026).
This means that overall emissions have now been reduced by ~60% as of a few days ago, and there are new automated liquidity incentive proposals that just went live this weekend that split the liquidity incentives proportionally (based on total market size) across Moonbeam, Base, and Optimism. Previously, all of the liquidity incentives (outside of the Base 1st year program) were going to Moonbeam. This is a much more equitable way to distribute liquidity incentives, because it didn’t make sense to have all the emissions going to Moonbeam when 90% of the TVL is on Base.
TLDR; liquidity incentives have just been cut by ~60% as of August 9th, 2024, which should reduce sell pressure.
I tend to agree, but perhaps in early 2025, we can implement a simple buyback (without burn). With the new multichain liquidity incentive automation that just launched this weekend you can see the staking rates start to normalize across Base, Optimism, and Moonbeam.
nice to see that we are talking about the topic again, last discussion was over a year ago and in this time Moonwell has made a huge step towards top lending protocol in the space many thanks to everyone who contributed to, its incredibly exciting to watch how Moonwell grows with Base
I think some of your ideas are great and some not so
my main point is buybacks, I think that is not the right approach…are there examples for a successful buyback system? I don’t know of a single one, when I hear buyback, burn, lock, etc. they are more or less just buzz words (from scammy projects)
I will only consider buybacks when our lp incentive tokens run out, which should be in about 2-3 years… to create new demand, new tokenmodell for $well, I think the best solution is with revenue share for vote/locked $Well.
For example: Lock Well for 1 month and you get Rev Sharing for 1 month, very simple, with a symple bonus system, longer lock = more %%
a big benefit of this system is that the market knows exactly how much $well is worth (fair value), if the rev sharing% is high it means the $well price is too low (undervalued), if the % is too low it means the $well token price is too high
I think this is one of the fairest token models, it has so many advantages and it is also understandable for the 100m coinbase users who are new onchain how/why the token has a value
what do you think, I can create a model with some numbers at a later date, hope the community also thinks about it
one more addition, it is not exactly the same topic but it also has something to do with it
if tokens like etherfi wants to be listed on moonwell they should provide us with incentives, idk why we have to provide incentives (this is not directly against etherfi, I mean it in general). this is only farm & dump.
our incentives should only be for the top markets, usdc, eth and soon btc
i will be here with the next proposal from a non-partner project
I have so many ideas, I should jump on the next community call
something that just crossed my mind a vote & lock system for the distribution of the rev share
this is just an example with random numbers
Vote & Lock :
You can lock your $well tokens for 1, 6 or 12 full moon cycles to receive rev sharing.
50% of the revenue generated by moonwell is distributed among the full moon lock$Well.
that there is a motivation to lock the $well longer, the % distribution among the different lock$Well holders is voted on every full moon.
for example there are different distribution keys ( templates), lock your $well for 1 fmc (full moon cycle) 10% of the revenue Pool/per moon cycle, 6 fmc 35% and 12 fmc 55% of the 50% rev sharing.
lets say. for the next mooncycle we have 100k to distribute: 10% of that 10k goes to 1fmc lock$well holders and 55k goes to 12fmc $well holders…
but there could also be a distribution key like the following, if lock$well holders voted for
1 fmc 5%, 6 fmc 10% and 12 fmc 85%
so whales and long-term believers can reward themselves with the highest distribution of the generated fees…
Ha! Using the moon cycle is an interesting quirk! Definitely could be a mechanism that could be implemented whether it was for rev share or a possible veWell model where the longer you lock, the more staking apy.
If you wish to pay expenses with WELL than it would work better to align everyone’s incentives to copy veAero which everyone understands. Like Slipstream you could take 10% of the revenues from the lending and pay it to veWELL holders with the same 4 year lock system. This will create long term holders for WELL because everyone can see the long term term growth as Base etc. grows to trillions from
the simple unque selling proposition of holding cbBTC and borrowing against it and never selling any as BTC works as a black hole like Saylor predicts.
many thanks to everyone who contributed to, its incredibly exciting to watch how Moonwell grows with Base 
