Renewed focus on existing burn mechanisms sets ApeSwap up for long-term success
The Road to Deflationary BANANA
When ApeSwap initially launched, a time-based token buyback and burn was an industry standard. Other protocols such as Binance and PancakeSwap implemented buybacks and burns of their native tokens during a time when positive market tailwinds tended to result in a material impact on the token price when a burn was performed.
In response to a combination of market conditions, new partnerships, and recent governance decisions, ApeSwap is making a careful effort to consider how efficiently we allocate resources and perform actions that affect the supply and value of the BANANA token. Most importantly, we have come to realize that any positive impact that the quarterly buyback and burn has on the token price of BANANA is vastly outweighed by the negative impact that burning BANANA that could otherwise be used to more efficiently redistribute value to ApeSwap’s users.
Since the first buyback and burn, we’ve pressure-tested two key assumptions about time-based burns and found them to be false. First, we’ve identified that the assumption that buybacks support long term, positive price action on the BANANA token is not supported by the data. Below is a historical graph of the BANANA token price, with buyback and burn dates marked in blue:
Where we’d normally expect to see the price rise after a quarterly burn, we’ve noticed the opposite — since the burn amount has been unable to keep up with the inflationary pressure of the token (prior to the implementation of the hard cap), the token price has tended to increase before the burns, and then fall shortly thereafter.
The second assumption that we’ve been able to disprove is that we’d be able to achieve deflationary status for the BANANA token strictly through buybacks and burns. In fact, with buybacks and burns only happening every 12 weeks, a burn of 1–2 weeks work of emissions (based on 50% of BNB Chain and Polygon DEX fees) has been putting us further and further behind our goal of getting to deflationary status for the BANANA token.
Note: these emission amounts reflect the last three months, prior to the passage of Governance Proposals 23 and 24 that changed the amounts of the Polygon DEX and Lending Network rewards.
As you can see, reallocating funds that would otherwise garner an average ~20% ROE when used for BNB Chain/Polygon DEX fee buybacks and burns towards other ApeSwap products like Treasury Bills (which average a 95–98% ROE) will be a more efficient use of BANANA and will deliver longer-term value to BANANA holders.
New Tokenomics Plan Coming Soon
The tokenomics team at ApeSwap is working on creating a comprehensive update to the ApeSwap tokenomics plan for implementation in 2023. Users will still receive the 50% of DEX fees earned in Q4 2022, but the specific mechanic by which users will receive this percentage is still in the works. Ending the quarterly buyback and burns allows us more flexibility and opportunity for this program, and we anticipate it will add value to the ApeSwap ecosystem as a whole.
Stay tuned for more updates, as we’ll be announcing it in the first half of 2023!