TIP 001 - THL Buyback and burn

Summary

   

Utilize protocol revenue and earnings to buyback and burn $THL from the open market, effectively curbing the rate of dilutive supply hitting the market

   

Background

 

In the short span of two years, Thala has grown from an early-stage project to a dominant player in the Aptos ecosystem, boasting over $180m in TVL spanning across its CDP, AMM, and LSD products. Much of Thala’s early success can be attributed to its liquidity mining program, which was used to onboard users onto a nascent ecosystem like Aptos.

   

While THL emissions have been a necessary and much needed driver of protocol growth, the token inflation has become a substantial issue harming existing token holders of the platform. Earlier last year, the Thala protocol implemented vested emissions (escrowed THL) and gated veTHL farming to ensure the protocol was operating at a more sustainable rate. Despite this, and even after accounting for a 50% decrease in global protocol emissions from earlier this month, Thala is still emitting approximately 75,000 THL tokens per weekly epoch, which translates to nearly $150,000 worth of tokens being released at current market rate.

   

Thala, as the largest protocol on Aptos with a suite of DeFi products, is already extremely profitable with annualized revenues exceeding $3.7M (at the time of writing) – despite the Aptos ecosystem being largely dormant with moderate trading volumes and on-chain activity. With more native token launches and key catalysts in the later quarters of the year, the projected figure of $3.7M is a relatively conservative estimate of revenues moving forward.

   

Proposal

 

This proposal seeks to implement a buyback and burn mechanism that aligns protocol incentives between all Thala associated parties and stakeholders. If passed, the protocol should redirect 100% of its protocol earnings and revenue to periodically purchase $THL from the open market and burn it – effectively removing the tokens from both the circulating and total supply. The implementation can be discussed in either a feature proposal or left to the discretion of the multisig operators.

   

As it stands, THL’s liquidity mining incentives are releasing 3.9M tokens on an annual basis, which equates to nearly $6.5m at current market rate. By implementing a buyback and burn with existing annualized revenues, the protocol would effectively halve protocol inflation that pertains to liquidity mining incentives. In the situation where protocol revenues were to double, $THL would potentially become a deflationary asset, ensuring that all stakeholders of the protocol are aligned and rewarded.