Starting at the end of 2019 DeversiFi decided to implement a weekly auction mechanism which used a portion of the fees collected from traders on DeversiFi to buy NEC and then ‘burn’ the NEC thereby reducing the overall supply of NEC.
The mechanism was one of several collaborations that were designed to create an alignment of incentives between DeversiFi and the NEC / necDAO ecosystem.
Today, we announce the discontinuation of DeversiFi’s burning of NEC via this auction mechanism.
Why are the auctions being discontinued?
1) Auctions unworkable due to high-gas and complexity
In the face of exponentially rising gas fees starting in the summer of 2020 this smart-contract design quickly became uneconomical on Ethereum. While live it also became apparent that the auction process was not the optimal approach to a buy and burn utility, with low uptake in utilisation of the auctions due to the relative complexity.
2) Buy & burn not the best value transfer mechanism
There are many token value transfer mechanisms that have been designed and proposed over the last few years. Buying & burning tokens appears to be sub-optimal at achieving the desired goals (see this post by Placeholder for more details).
3) Low volume and low participation
For the NEC auctions to be effective in creating a link between the DeversiFi and NEC ecosystems it needed to incentivise significant DeversiFi volume in order for DeversiFi to burn significant amounts of NEC. The design did not achieve this.
Join the discussions
The NEC ecosystem controls ~16,000 ETH at the moment. Recently, this was transferred to a new on-chain treasury wallet, allowing NEC holders: (1) to vote in necDAO; (2) to make proposals on how to utilise the funds; and (3) to claim their pro-rata share of the available ETH should they wish (thereby removing NEC from the supply).
With the Defi industry making lots of headway in the last several months, we believe we are at an interesting juncture for NEC and similar tokens. Being a community token governed by key token holders and DAO members, feedback and community discussions are crucial to the direction the token takes: say hi and join the chat.