Burning the wNXM

One option is to burn the wNXM that we have.

Rationale
The purpose of this would be to increase the “value” of each wNXM / NXM token. This is because each token has a claim on a proportional amount of the capital pool. So, every token that we burn would increase the value of the remaining tokens.

Since we bought wNXM from the market below book value (book value = capital pool assets / outstanding tokens), burning tokens will be value accretive i.e. increase the value of each remaining token.

In the long run, I do believe that value will matter, and so increasing the value of each token is a worthwhile investment.

Cons
However, it’s clear that the market does not currently believe that value matters and there is no indication that this will change in the foreseeable future. By burning the wNXM we increase the value of each token. But if they are already undervalued by the market, which is what allowed us to execute this transaction, why would the market change its mind once we’ve burned the tokens? Even fundamental investors from traditional finance backgrounds have eschewed these types of valuation metrics recently, and if these metrics are not being rewarded, we shouldn’t strive to improve them in the short term.

This could sound like we don’t think value matters, and that’s not the case. Rather, we recognize that there is an immediate benefit from striving to improve the metrics that the market does value. At certain points in the cycle the market will reward growth and innovation, and at others it recognizes fundamentals and financials.

There is a good argument to be made that you should try to flow with the market, rather than fighting it. Growing when the market rewards growth, and tightening the shoestrings when the market rewards fundamentals. Even though the market is dumping, there is little indication that financial metrics like book to value or price to earnings are being rewarded yet.

So, optimizing for them through a token burn is unlikely to drive the token market price up significantly, as you would expect in more efficient markets.

Conclusion

The argument for a token burn is that it’s certain. If we burn X amount of tokens we WILL increase the value of each token by Y. There is no doubt about that. But, that doesn’t mean that Z, the market price, will change at all. Theoretically, the market is rational and efficient, and increasing the token value by 30% would increase the market price by 30%.

We also thought that announcing the purchase of 8000 ETH worth of wNXM would drive the price up to book value, or beyond. That was not the case. Clearly, the market is not rational or efficient.

So, while the argument is that we’re adding value by burning wNXM, I don’t think it’s that clear, at least in the short or medium term.

In the long term, yes, I do think a burn makes sense, if there are no better options that would allow both superior short and long term growth.

Keep in mind that based on the current price, it’s likely that we’ll be able to pursue another buyback. All of which could be burned, if that’s what the community decides. We don’t have to do the same thing with the tokens each time we do a buyback.

For example, it’s likely that if we don’t burn a large amount of the tokens this time, instead pursuing opportunities for growth, that next time the cost/benefit will look different. There isn’t an infinite amount of money you can throw at growth and assume the same outcome, whereas you can, theoretically, burn more and more tokens and continue to add value over time.

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