Delegate Proposal for Moonwell: Optimized WELL Tokenomics with Tiered Buyback and Burn
Preamble
This proposal outlines a strategic update to the Moonwell protocol’s tokenomics, introducing a tiered buyback and burn mechanism funded by protocol revenue. The initiative is inspired by the aggressive, revenue-driven model successfully deployed by other decentralized finance (DeFi) protocols, such as Hyperliquid. By dynamically adjusting the buyback rate based on market conditions, this hybrid approach aims to create sustained buy pressure on the WELL token while ensuring the long-term sustainability and strategic flexibility of the Moonwell DAO.
Summary
The proposal seeks to authorize a tiered, automated system for purchasing WELL tokens from the open market and permanently removing them from circulation (“burning”). This system will use a significant percentage of Moonwell’s protocol revenue, which currently primarily sits in reserve. The percentage allocated to buybacks will be dynamically managed based on market cycles to maximize impact and align token value with protocol performance.
Motivation
While existing liquidity incentives have supported the Moonwell ecosystem, a more direct and transparent value-accrual mechanism is needed to foster long-term growth and strengthen the WELL token. The proposed buyback-and-burn mechanism directly addresses this need by:
Generating Structural Demand: Creates a consistent, programmatic demand for WELL, reducing reliance on speculative market sentiment.
Driving Hyper-Deflation: Reduces the total circulating supply of WELL over time, directly rewarding long-term holders and increasing scarcity.
Aligning Incentives: Transparently and predictably links the value of the WELL token to Moonwell’s operational success and revenue generation.
Ensuring Regulatory Caution: The burn-only model avoids the potential legal and regulatory complexities associated with redistributing protocol revenue to token holders.
Increasing Governance Efficiency: Automates a core economic function, freeing up governance bandwidth for higher-level strategic decisions.
Implementation: Tiered Buyback and Burn Mechanism
The mechanism will be implemented as follows:
Protocol Revenue Allocation: The DAO will authorize a portion of the net protocol revenue from lending, borrowing, and vault performance fees to be directed into the buyback-and-burn contract.
Tiered Structure: A tiered buyback rate will be established and managed by the DAO, potentially with input from risk experts like Gauntlet, to optimize the mechanism based on market conditions. For example:
Tier 1 (Expansionary Market): During periods of high market prices and strong protocol growth, a moderate percentage of revenue (e.g., 50–70%) will be used for buybacks, with the remainder directed to the DAO treasury for strategic initiatives like grants or diversification.
Tier 2 (Accumulation/Bear Market): In periods of lower market prices or reduced protocol activity, a very high percentage of revenue (e.g., 90–97%) will be allocated to buybacks to maximize the deflationary impact at lower costs, similar to the Hyperliquid model.
Automated Execution: An audited smart contract will execute the buyback process automatically and regularly (e.g., daily). This removes human discretion and potential for market manipulation.
Token Burn: All WELL tokens acquired through the buyback process will be sent to a publicly verifiable burn address. This ensures a transparent and permanent reduction in supply.
Governance & Transparency: The specific parameters for the tiers (e.g., percentage allocation, triggering conditions) will be set and refined via further governance proposals. A public dashboard will be established to provide real-time data on buyback volume, tokens burned, and revenue allocation, ensuring complete transparency for the community.
Risks
Smart Contract Risk: The new contracts require rigorous auditing to prevent vulnerabilities.
Parameter Optimization: Selecting and adjusting the tiered parameters requires careful analysis to balance aggressive buybacks with funding for long-term ecosystem development.
Market Impact: The automated buying pressure could create short-term market volatility. The buying frequency and size must be optimized to minimize adverse effects.
Voting
Vote YES to approve the implementation of the tiered, hyper-deflationary WELL buyback and burn mechanism, empowering the DAO to implement a flexible and optimized tokenomic model.
Vote NO to reject this proposal and maintain the current tokenomics strategy.
I know the main concern regarding a burn mechanism could cause regulatory issues, which is most likely why it hasnt been implemented. However, there is another way…
Moonwell can do a buy back program with transparent rules and tracking. Instead of “burning” the buy back tokens would create a reserve of Bitcoin and potentially Eth as well. You see this type of model being adopted in Tradfi right now. We need to be on the forefront of this model to secure Moonwell as a leader Defi. Its will secure the baseline of Moonwell and at the same time the buyback would remove the access coins from the main markets essentially creating a scarcity and creating value to drive the price of Moonwell back up.
This allows Moonwell to avoid the “Burn” regulatory issue and gives a more stable baseline for the token itself. It also will increase profitability for Moonwell to expand staff and service capabilities.
Yes, reacquiring WELL is fine as the current structure works for rewards. However, you can’t stabilize the WELL token price while just acquiring it and then circulating it back into the market for rewards to just be resold again. The loop will continually create a perpetual drawn down of value.
It’s like creating your own product, buying it back, then reselling it at a lower price in current market conditions.
The best way would be to repurchase at a higher rate. Purchase Bitcoin/Eth etc. as the reserve and give the rewards in a token of choice by the rewards receiver.
This would also remove the access WELL from the market with a lock up and still create a higher reward value for Moonwell users at the same time increasing the WELL token value all around.
Here is the updated proposal removing the “burn” mechanism for regulatory purposes. I plan on submitting to SnapShot. I invite any suggestions and advise to fine to anything that we feel needs adjusting. Looking forward to everyones feedback
Proposal for Moonwell: Optimized WELL Tokenomics with Tiered Buyback and Strategic Treasury Reserve
Preamble
This proposal outlines a strategic update to the Moonwell protocol’s tokenomics, introducing a tiered buyback and strategic reserve mechanism funded by protocol revenue. The initiative is inspired by aggressive, revenue-driven models successfully deployed by other decentralized finance (DeFi) protocols. By dynamically adjusting the buyback rate based on market conditions, this hybrid approach aims to create sustained buy pressure on the WELL token while ensuring the long-term sustainability and strategic flexibility of the Moonwell DAO.
Summary
The proposal seeks to authorize a tiered, automated system for purchasing WELL tokens from the open market. This system will use a significant percentage of Moonwell’s protocol revenue to acquire WELL, which will then be directed to a DAO-controlled treasury reserve. The mechanism will strategically build a multi-asset reserve by selling the purchased WELL for high-value, non-native assets (e.g., BTC, ETH) and/or locking the WELL in a controlled, non-circulating state. This multi-pronged approach reduces the circulating supply, secures a stable DAO treasury, and creates capacity for new, high-value user reward programs.
Motivation
While existing liquidity incentives have supported the Moonwell ecosystem, a more direct and transparent value-accrual mechanism is needed to foster long-term growth and strengthen the WELL token. The proposed mechanism directly addresses this need by:
Generating Structural Demand: Creates a consistent, programmatic demand for WELL, reducing reliance on speculative market sentiment.
Creating a Stable, Diversified Reserve: Converts volatile protocol revenue into a high-value, diversified treasury (e.g., BTC, ETH), providing Moonwell with a more robust financial baseline and securing the DAO’s future.
Aligning Incentives & Value: Transparently and predictably links the value of the WELL token to Moonwell’s operational success and revenue generation, while simultaneously enabling flexible, high-value rewards for users.
Ensuring Regulatory Caution: The buyback-to-reserve model avoids the potential legal and regulatory complexities associated with permanent destruction (“burning”) of tokens.
Removing Excess Supply: The lock-up or conversion of purchased WELL tokens effectively removes them from the circulating supply, supporting token price and creating scarcity.
Implementation: Tiered Buyback and Strategic Reserve
The mechanism will be implemented as follows:
Phase 1: Tiered WELL Buyback
Protocol Revenue Allocation: The DAO will authorize a portion of the net protocol revenue to be directed into the buyback contract.
Tiered Structure: A tiered buyback rate will be established, managed by the DAO, to optimize the mechanism based on market conditions:
Tier 1 (Expansionary Market): A moderate percentage of revenue (e.g., 50–70%) will be used for WELL buybacks.
Tier 2 (Accumulation/Bear Market): A very high percentage of revenue (e.g., 90–97%) will be allocated to WELL buybacks to maximize the deflationary impact at lower costs.
Automated Execution: An audited smart contract will execute the WELL buyback process automatically and regularly (e.g., daily).
Phase 2: Strategic Reserve Building and Reward Capacity
The WELL tokens acquired in Phase 1 will be routed through a controlled reserve contract with two strategic uses:
Non-Native Asset Reserve (Primary): The majority of the purchased WELL will be sold /swapped on the open market for non-native, blue-chip crypto assets like Bitcoin (BTC) and Ethereum (ETH). These non-native assets will form a strategic, secure Treasury Reserve, providing a stable financial foundation for Moonwell. This continuous, revenue-driven buying pressure on WELL and then on blue-chip crypto will secure Moonwell’s baseline.
Flexible Rewards Capacity (Secondary): A portion of the purchased WELL will be reserved to fund a new rewards pool. This pool will be used to create an elevated reward structure for Moonwell users, where rewards can be paid out in a token of choice by the receiver (e.g., the reserve BTC/ETH, or other high-demand tokens), or via incentivized staking of WELL, maximizing user interest and creating higher perceived value. This removes the excess WELL from the market through a lock-up or controlled re-emission.
Governance & Transparency: A public dashboard will be established to provide real-time data on buyback volume, tokens acquired, the composition of the BTC/ETH reserve, and the allocation/lock-up of WELL, ensuring complete transparency for the community.
Risks
Smart Contract Risk: The new contracts require rigorous auditing to prevent vulnerabilities.
Parameter Optimization: Selecting and adjusting the tiered parameters and the allocation between the non-native asset reserve and the flexible rewards pool requires careful analysis to balance aggressive buybacks with funding for long-term ecosystem development.
Market Impact: The automated buying pressure on WELL and the subsequent selling of WELL for BTC/ETH could create short-term market volatility if not properly managed (e.g., using time-weighted average price (TWAP) orders).
Impermanent Loss/Asset Volatility: While BTC/ETH are high-value assets, they are volatile, and the DAO will need a clear policy for managing the risks of the non-native asset reserve.
Voting
Vote YES to approve the implementation of the tiered WELL buyback and Strategic Treasury Reserve mechanism, empowering the DAO to implement a flexible, high-value, and financially secure tokenomic model.
Vote NO to reject this proposal and maintain the current tokenomics strategy.
Until there is a market structure bill in the U.S. I don’t see why this would even be in discussion. Legality of burns is in question, you shouldn’t redesign existing tokenomics with unresolved regulations. Since you are solely concerned with token price, when a bull market starts there is a good chance price will go way up. Lots of well is/will be locked up in staking and credit facilities. No more LL selling. Fixed supply has the best track record. Therefore I would not support a burn at this time.
Moonwell is a U.S. based company, and the U.S. is in the process of a Market Structure Bill (maybe)… shouldn’t we wait to see the outcome and then change tokenomics if it’s beneficial? Also, burns don’t always work. I throw the most successful L1 ETH as an example. When they implemented a burn mechanism the price went stagnant for a long time. Hype is still unproven and should only be an example to watch.
I can see you spent a lot of time on this, so I expect a defense of the castle. And many want price go up only right now, so they will support it. But, is it the right time for the benefit of Moonwell’s long term viability? What are your 5year arguments of a burn vs fixed?
As discussed in discord regarding the updates to the proposal.
The burn mechanism might not be necessary even if regulations allow it, but could potentially be added later if needed. The proposal is for a buyback and reserve mechanism that covers situations regarding bull and bear market conditions. Similar to Tradfi companies aggressively trying to adopt this similar reserve to stay ahead of competition. Also similar to crypto projects like Hyperliquid and Binance BNB protocols.This keeps us ahead of the curve.
Also, it adjusts the rewards mechanism with the buy back and reserves in BTC, ETH, etc. It would allow rewards recipients the option to choose what denomination their rewards could be received as. It’s a safe step forward.
I agree and support this proposal, but whenever it checks all the boxes for Luke, the Moonwell team, and legal team. If I could recall, Luke also think it is a great idea to reduce the WELL token out of circulation, however, the legal complication of using reserves to hold BTC or ETH is questionable. At the moment, all we can do is trust the process and wait for more legal clarity. Again, I support this and here for the long term outlook.