[Proposal] Replace dNDX with Buyback Mechanism

Am proposing to remove the dNDX fee distribution mechnanism in exchange for buybacks for NDX from the fees from the indexes.

The dNDX mechanism has failed to meet it’s key value proposition, in rewarding those who believe in the protocol most with warped incentive structures, anti-free market approach and arbitrary rules. The dNDX token mechanism has simply prevented those who do NOT believe in the protocol to be trapped in it, creating an environment where the tokens become a spike sell risk the moment they unlock. The idea to lock them for x time for y rewards prevents free market dynamics, reduces liquidity in the market and prevents user autonomy their own money.

Defi continually tries to reinvent the wheel because projects want to feel groundbreaking, but often it’s just misguided and ineffective, we should improve on tradfi, not try reinvent it, because tradfi has evolved to become as efficient as it has, and we should take the core tools they have to put to use in defi.

Proposal

  1. Unlock all dNDX and remove the dNDX system support going forward
  2. Route all index fee revenue to a multisig timelock which will be used for gradual buybacks on NDX every x interval. This is done vs a contract with permissionless use as people can manipulate the dexes to profit from buybacks.
    a. This multisig will be the executive team + team members should the new model for leadership be acceptd

Aims
We want a way to rewards holders for NDX for participating in the vote process and guide the protocol with stake. BUT we can not arbitrarily lock NDX for no real reason other than people dont like others being able to sell, this is a toxis mindset and should be removed from the space. By having a battle tested mechanism in tradfi, we enable liquid markets, user autonomy and still reward holders.

Voting
Snapshot and DAO proposal to come.

Note
Yes we did look at dNDX but it was framed during a time when we had still been in the post hack mindset and people were fearful there’d be more selling, vs looking at the benefits buybacks could have, there was also no replacement mechanism proposed.

I’ve read through the original dNDX proposal and related follow-ups to get context and also did some research on what other DAOs have been doing. We were on the cusp of initiating revenue distribution to dNDX holders, but everything changed with the attack and despite discussion and snapshot votes related to dNDX, very little revenue has been generated and none distributed. The Dune Analytics dashboard indicates a pretty trivial APY based on the current state of affairs.

It is worth noting that there was A LOT of discussion and focus on dNDX in 2021, so unwinding what was such a point of focus and energy for the DAO needs to be really carefully considered.

The scope of the question “How do we distribute protocol revenue” is pretty broad and I think there are lessons learned in the space that can help us. The example I landed on was yearn.finance who had a locked staking rewards program that they decided to replace with a token buyback program similar to the above proposal: YIP-56: Buyback and Build - YIPs - yearn.finance

It is interesting to note that Yearn has continued to evolve their thinking in this area and recently decided to build on top of the buyback program with ve tokenomics which has been growing in popularity across a number of DAOs: YIP-65: Evolving YFI Tokenomics - YIPs - yearn.finance. Interestingly, Balancer (from which Indexed was forked) has also moved to ve tokenomics.

Indexed is nowhere near the size and scale to move to a ve model and I am not suggesting that. What I see is a transition to a buy-back program could be a simple model to adopt during this rebuilding phase while leaving options available in the future as the project grows and matures.

If we do choose adopt this proposal, I think the existing stakers should have the accumulated revenue paid out per the most recent dNDX Snapshot since this already represents the will of the DAO. We’d need to suspend additional timelocks to prevent dilution of the one-time payout to the existing stakers before the program is wound up.

I hope to see more input from the community to confirm consensus.

Tbh, I’m not a fan on Buybacks (maybe I don’t understand completely the financial benefits of it), first is not something which you can just passively keep earning fees, you’d probably have to actively keep buying/selling around the buyback window to get consistent revenue, plus the treasury NDX pile would keep growing and I’m not sure how that could affect liquidity which is already very low.

I think dNDX proposition (distributing fees as ETH) is nice, since people can either actively manage the fees accrued or just stake and forget. I do understand and agree that the time locks are not a good thing, though from my understanding they were introduced to avoid people buying loads of NDX moments prior to the fee distribution then dumping those right after the fees were distributed, diluting honest stakers. Maybe we can improve on top of dNDX and instead of having timelocks we could have fee distribution being time weighted, i.e you’d only get the fees from the time window you were staked in, any fees accrued prior to that wouldn’t be available to be claimed (though this might be technically challenging to achieve)

I don’t know how tradfi usually handle dividends distribution, maybe we could work on top of that as pointed?