I don’t know how else to characterize tens of thousands of words written in Discord from members regarding their concerns about deviating away from the bonding curve model, towards what Rei suggested.
It might pass, I haven’t spoken to every token holder, nobody has. But my point is that there has been pushback against the proposal, so it’s not like the vote is a lock.
Wanted to add some color to this discussion and inform the DAO of a tool that’s tailor-made to help execute these buybacks: TWAMM.
Background
TWAMM is a concept introduced by Paradigm in July 2021.
It works by breaking long-term orders into infinitely many infinitely small pieces and executing them against an embedded constant-product AMM smoothly over time.
Some interesting use cases for TWAMMs include treasury diversification, whale liquidations, peg maintenance, onboarding collateral, etc.
We have been researching and developing TWAMMs since November 2021 and have posted monthly blog/tweet threads updates of our findings and progress.
For further details and reading, please see our documentation page here: https://docs.cronfi.com/
Product Design & Incentives
AMM: we built our TWAMM as a custom pool on top of Balancer V2 Vaults given the security, liquidity, flexibility, and gas advantages of leveraging Balancer. Additionally, Balancer has become a Schelling point for protocols leveraging their AMM, thus creating network effects & composability advantages.
The Mutual: as a long-term trader (Nexus Mutual), you only have to pay gas for starting, canceling, or withdrawing proceeds from your order. All the other sub-orders of the DCA are done virtually and cost the mutual no gas fees. Virtual orders are only written on-chain when the next user interacts with the protocol (generally an arbitrageur).
Arbitrageurs: as seen on other AMMs like Uniswap, arbitrageurs are essential to keep the price of the assets in line with external venues. Arbitrageurs are critical for TWAMMs because trade sizes are significantly larger and last for multiple blocks. Therefore we partnered with dedicated arbitrageurs (Rook, BloXRoute) to ensure pools are arbitraged frequently thus giving the mutual a smooth fill.
Liquidity: the final piece of the puzzle is the liquidity needed to actually execute the trade. Because we use dedicated arbitrage (PFoF) system, we can collect and pass a share of the MEV back to LPs. Additionally, we reinvest the MEV rewards into the pool thus adding liquidity to the pool and increasing LP returns in pool tokens.
Advantages
Automatically DCA over 1000’s of intervals gas-free: the Mutual would only pay gas for starting and ending orders, arbitrageurs pay for placing suborders on-chain
MEV resistant: swap executed per block is very small and front running/sandwiching suborders aren’t economically valuable.
Fully on-chain: zero dependencies on off-chain services, oracles, compute etc.
Minimal dev work: easy-to-use periphery contract to execute long-term swap
Low fees: ETH/WNXM is a volatile pair and long-term swappers pay a one-time 0.3% fee
Flexible: issue, change, and cancel orders with ease. Example new order: sell 10_000 ETH for WNXM in 100_000 blocks
Full control of order and assets: non-custodial, cancellable, and withdraw proceeds at anytime
Withdraw multiple times: users can withdraw once at the end, or every set number of blocks – they just pay gas fees
Risks
Smart contract:
Audit: we’ve completed an audit by SpearbitDAO with 0 critical issues.
Hack Risks: built on Balancer V2 Vaults which have been battle-tested for 2+ years.
Bricked Pools: we’ve done extensive research and mitigations for gas, order DDoS, numerical underflows, incorrect TWAMM parameters etc.
Loss of Funds: open-source code, audited, non-custodial, users in full control of funds, trade happens over multiple blocks and it can be canceled at any time by the user.
Malicious Pool Admin: all pool administrators can do is pause the pool and set fees (max 1%) at which point the mutual can cancel and withdraw their funds
Lack of Arbitrage: we have teamed up with Rook and BloXroute to provide dedicated arbitrage service. On the off chance neither service arbitrages the pool, the open market will arbitrage the pool.
Poor Execution: orders are cancellable at any time i.e if the price escapes preferred bounds restart the order at another time. Also, DCA is generally a better strategy than spot purchase for large orders.
MEV/Sandwich Attacks: orders are broken into small pieces and thus the benefit of front/back running orders is minimal – see the Paradigm paper for further details.
Information Leakage
From other posts, this has been an issue for the past buybacks conducted by the mutual especially given an illiquid pair like ETH/WNXM. However, given the visibility of the governance proposal and on-chain execution, a tool that allows you to cleanly spread execution over a long time horizon will be the best way to mitigate concerns.
As @Dopeee has mentioned earlier, the issue with front running isn’t too much of a concern as the trade will be DCA executed over 6 months. Since the mutual won’t have to time the market, any front-runner would have to buy/hold the assets and associated risks with that trade. Additionally, TWAMM orders can be canceled at any time and restarted trivially.
How TWAMMs stack up
Below is an example of how a TWAMM order would execute with roughly 1.2% slippage:
ETH <> WNXM
Swap Amount: $12M (8000 ETH @ $1500)
Time Period: 180 days (6 months)
Num Orders: 1080 order intervals: 1 order every 4 hrs
Sub Orders: $11,111 ~= $12M / 1080
Avg Swap Gas: $0 // nexus mutual doesn't pay gas fees for sub-orders
Slippage: 1% -$111 // higher end of potential slippage if dedicated arbs don't act
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Slippage: - $120k // does not account for potential price movements up/down, a crude estimate
Gas fees: - $200 // gas paid to start & withdraw order
Swap Fees: - $24k // pool long term swap fees 0.3%
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WNXM Return: $11.856M
Net Cost: -1.2%
Here are the alternatives and how they stack up against TWAMM. Note this isn’t a comprehensive list, but a short summary.
I would like to keep this conversation going as this is a great way to build value to the NXM token (through profits of buying something materially below backing) and also materially change the environment where there are unhappy holders looking at value below the net asst value.
This can be a great strategy to potentially affect price action running up before the new tokenomics/version release and also post release as well. With a number of RFV related actions in other protocols such as Aragon - converging the the price of wNXM with NXM (and this is at a profit) can also help keep such sentiment at bay.
Brief on Methodology:
Buybacks can be executed easily through a number of methods - both on DeFi and CeFi as I think trading firms are more than happy to assist on this. In the past, I have been part of the treasury team at Wonderland a while ago, and executed millions of dollars of buybacks using a mix of methods.
