Dec 6, 2022
Update Regarding ApeSwap Quarterly Buyback & Burn Program
Renewed focus on existing burn mechanisms sets ApeSwap up for long-term success
ApeSwap is constantly evaluating our overall strategy to ensure the long-term health of the protocol, including the tokenomics of the BANANA and GNANA tokens that are native to our ecosystem. ApeSwap DAO is implementing the governance decision as part of the Proposal 21: Growth & Continuity Plan to end the quarterly buyback and burn of 50% of BNB Chain/Polygon DEX fee revenue as part a new comprehensive tokenomics plan to be announced soon.
Several factors, including the recent passage of a hard cap on the supply of the BANANA token, contributed to this decision, and we’re happy to share these factors with our community so that everyone can fully understand why we believe this to be in the best interest of both ApeSwap as a whole and BANANA and GNANA token holders specifically.
The Road to Deflationary BANANA
When ApeSwap initially launched, a time-based token buyback and burn was an industry standard. Other protocols such as Binance and PancakeSwap implemented buybacks and burns of their native tokens during a time when positive market tailwinds tended to result in a material impact on the token price when a burn was performed.
However, we’ve evaluated the data that we’ve collected around this practice within our own ecosystem, and we’ve determined that simply following the industry standard no longer meets the long-term needs of the ApeSwap protocol. We learned that when performing time-based buybacks and burns of an infinitely inflationary token (i.e., BANANA pre-hard cap), the protocol would not generate enough fees to be able to make BANANA deflationary.
Now that BANANA has a hard cap, it is inevitable that it will be deflationary in the future, thanks to the protocols automated BANANA burn mechanisms. One extremely effective burn mechanism, GNANA, has already burned ~14.5M BANANA, or 40% of the total BANANA ever burned.
As a reminder, every time a user converts BANANA to GNANA (so that they can access exclusive pools, IAO allocations, and governance voting power), they incur a 28% burn fee.
Capital Efficiency
In response to a combination of market conditions, new partnerships, and recent governance decisions, ApeSwap is making a careful effort to consider how efficiently we allocate resources and perform actions that affect the supply and value of the BANANA token. Most importantly, we have come to realize that any positive impact that the quarterly buyback and burn has on the token price of BANANA is vastly outweighed by the negative impact that burning BANANA that could otherwise be used to more efficiently redistribute value to ApeSwap’s users.
Since the first buyback and burn, we’ve pressure-tested two key assumptions about time-based burns and found them to be false. First, we’ve identified that the assumption that buybacks support long term, positive price action on the BANANA token is not supported by the data. Below is a historical graph of the BANANA token price, with buyback and burn dates marked in blue:
Where we’d normally expect to see the price rise after a quarterly burn, we’ve noticed the opposite — since the burn amount has been unable to keep up with the inflationary pressure of the token (prior to the implementation of the hard cap), the token price has tended to increase before the burns, and then fall shortly thereafter.
The second assumption that we’ve been able to disprove is that we’d be able to achieve deflationary status for the BANANA token strictly through buybacks and burns. In fact, with buybacks and burns only happening every 12 weeks, a burn of 1–2 weeks work of emissions (based on 50% of BNB Chain and Polygon DEX fees) has been putting us further and further behind our goal of getting to deflationary status for the BANANA token.
So, with these assumptions out of the way, we’re able to focus on the return on emissions of various programs and partnerships.
As you can see, reallocating funds that would otherwise garner an average ~20% ROE when used for BNB Chain/Polygon DEX fee buybacks and burns towards other ApeSwap products like Treasury Bills (which average a 95–98% ROE) will be a more efficient use of BANANA and will deliver longer-term value to BANANA holders.
More information can be found in a recent Commonwealth discussion here.
New Tokenomics Plan Coming Soon
The tokenomics team at ApeSwap is working on creating a comprehensive update to the ApeSwap tokenomics plan for implementation in 2023. Users will still receive the 50% of DEX fees earned in Q4 2022, but the specific mechanic by which users will receive this percentage is still in the works. Ending the quarterly buyback and burns allows us more flexibility and opportunity for this program, and we anticipate it will add value to the ApeSwap ecosystem as a whole.
Stay tuned for more updates, as we’ll be announcing it in the first half of 2023!
