Creating consistent token demand and incentivizing healthy growth: The WOO token buyback and burn
On February 10, Wootrade completed the first monthly buyback and burn of the WOO token. Read here for all the details:
Primer:
The role of the WOO token in the economic model was never meant to copy other trading platforms and exchanges — innovation was the goal from day one. Everything was designed to create a strong positive correlation between platform growth and value to the WOO token holders. To do this, the first property was negative trading fees, in the form of WOO token rebates that could incentivize large traders and institutions to buy WOO, stake WOO, and use the Wootrade network to execute their trading strategies.
This however did contribute to an inflating supply, particularly if institutions chose to sell or distribute these bonus tokens on the secondhand markets. Even worse, unstable token demand would create a higher perceived risk for future WOO stakers, as institutions could see potential savings on free trades be offset by decreased valuation on the staked principle. For other platforms, this leads to a “death spiral” where the token price drops, retail, and professional traders see incentives to trade reduced, and eventually, all that is left is the market makers trading among themselves.
Flipping the Death Spiral common in other token economic models
Wootrade is in a unique position to invert this relationship by taking a portion of the fees earned from market makers on the network and using this to initiate the buyback and burn program.
How does this work?
When institutional traders buy and sell assets on the Wootrade network, they are helping our market makers remain market neutral by becoming the counterparty on transaction hedging. As such, market makers are able to provide rebates to the Wootrade Network, which then becomes a primary source of revenue.
Now the model becomes:
- Negative fees (WOO rewards) attract more traders
- Traders buy and stake more WOO
- Increased trade volume generates more profits for existing market makers and attracts more market makers
- Market makers compensate Wootrade for increased volume and income
- Wootrade can buy back and burn even more WOO tokens
This model gave early investors confidence that Wootrade would not only be able to create the highest-quality trading environment, but would also be able to support a robust token economic model that would encourage retail investors, professional traders, and institutions to become active in platform usage and governance. The idea was that WOO tokens would be bought back at a rate that far exceeded the gradual rate of supply inflation, leading to a sustainable balance of growth and incentivization.
January marked the first month of the program. The details of the completed buyback and burn are listed below.
First buyback and burn details:
Date: Feb 10, 2021
Burn Transaction ID: 0xdc78a6ec44e7deb8b37979f3720c1c52e75a8515b2d72ddf4ada0e420cb37e81
Burned Address: 0x0000000000000000000000000000000000000000
The number of WOO tokens being burned: 5,247,767 WOO
The value in USD: ~$288,000 at the time of publishing
Additional Notes:
- Buybacks are done in small increments periodically throughout the month, so as to avoid short-term speculative price volatility. Exact dates and times will be decided according to market conditions.
- Future burns will take place shortly following the end of each fiscal month.
- Our current market makers include Kronos Research, one of the top traders by volume across global exchanges. In the future, additional market makers will be onboarded.
There will be a lot more news and notes coming as we hit the halfway point of Q1 — don’t forget to follow our socials to stay updated with all the news from the Wootrade Network:
- Website: https://woo.network/
- Twitter: https://twitter.com/wootraderS
- Telegram: https://t.me/wootrade
- Telegram Announcements: https://t.me/WOOTRADEann
- Medium: https://medium.com/wootrade
