[PIP-30] Create VCX burn to match oVCX redemptions

VaultCraft Improvement Proposals VaultCraft Improvement Proposals [VIP]
1

Summary

Building upon the new tokenomics from [PIP-29], this proposal aims to implement a token burn that matches oVCX redemptions. I.e., if user redeems 1000 oVCX, they will receive 1000 VCX and an additional 1000 VCX will be burned.

Motivation

The purpose of this burn is to incentivize oVCX redemptions by creating a deflationary effect from participating in the full token lifecycle. When users redeem their oVCX, they are reducing the total supply (through the burn) which applies a positive tailwind for price action. Additionally, they are receiving liquid VCX at a built-in discount to market prices (through oVCX redemption). This acts as a dual incentive for users to participate in the VCX token system e.g., Balancer LP, veVCX, oVCX, gauges, and Smart Vaults.

Logistics

  • Calculate oVCX redemption every 3 epochs and burn the equivalent amount of VCX to the amount of redeemed oVCX

Desired outcome

To support a strong tokenomics model by providing additional incentives for participation. See below for token holder actions and their resulting effects:

Action

  1. LP into 80VCX20BAL Balancer pool
  2. Vote escrow their Balancer LP token for veVCX
  3. Deposit into a Smart Vault
  4. Use veVCX to direct oVCX emissions to their gauge (Smart Vault)
  5. Earn and redeem oVCX

Results

  1. Earn yield from the Balancer pool’s trading fees + provide token liquidity
  2. Earn voting rights on oVCX emissions using veVCX for gauge voting
  3. Earn yield from Smart Vault strategy
  4. Boost yield through oVCX emissions on their Smart Vault deposit and receive bribes
  5. Reduce token circulating supply while claiming liquid VCX at market discount
  • Yes
  • No
0 voters
2

Should just burn X amount until all of treasury is depleted in 2 years

3

VCX treasury reserves are necessary for fulfilling oVCX redemptions. Rapid, or even linear, depletion of treasury reserves is unsustainable. Using a percentage-based emission rate (with or without burn matching) creates a sustainable exponential curve that never fully depletes

For example, start with 10 VCX in the treasury. If you emit 1 oVCX per epoch, you run out of VCX to fulfill oVCX after 10 epochs (10, 9, 8, 7, 6…). Whereas if you emit 10% of supply per epoch, you can always emit oVCX since the emission amount decreases and never fully depletes VCX reserves (10, 9, 8.1, 7.29, 6.561, 5.9049…)

The point of the burn is to ensure not all of the treasury will become liquid and dilute the market. Instead, it is used to fulfill oVCX redemptions and actively deflate the total supply with the burn match