DeFi— Tomb Finance Tokenomics. What is going on?
Disclaimer: Tomb Finance is still very experimental. Anything mentioned is only my interpretation of https://docs.tomb.finance/ and how it possibly makes game theory sense. Not financial advice.
Before getting into the details of the token mechanics, first, let’s understand what it means when TOMB is pegged to FTM. For the sake of over-simplification, imagine that FTM is the Sun and TOMB is one of the planets revolving around the Sun (and TOMB forks are the other planets in the solar system). TOMB is constantly in motion, revolving around FTM.
TOMB should revolve around FTM in a rough but not precise guided path. The relative price of TOMB to FTM may deviate because of market forces. Still, there are mechanics in place such that TOMB, hopefully, does not vary beyond a desirable range, which I’ll explain below in more detail how that is so.
1) TWAP represents the Time Weighted Average Price of TOMB/FTM.
2) TOMB is the token used as a medium of exchange with an uncapped supply.
3) TSHARES (Tomb Shares) is the token representing the value of the TOMB Protocol and shareholder trust in its ability to maintain TOMB close to peg, with a capped supply of 70,000 Shares.
4) TBOND (Tomb Bond) is a bond.
5) Expansion Phase — When TWAP >= 1.01 (TOMB is above peg)
6) Zen Phase — When 1 <= TWAP < 1.01 (TOMB is at peg)
7) Contraction Phase — When TWAP < 1 (TOMB is below peg)
There are four ways a user can participate in the protocol.
1) Stake an equal amount of TOMB and FTM in the TOMB/FTM LP (in Cemetery) to earn TSHARES.
2) Stake an equal amount of TSHARES and FTM in the TSHARES/FTM LP (in Cemetery) to earn TSHARES.
3) Stake TSHARES in TSHARES Pool (in Masonry) to earn TOMB. There is a 6 epochs (1.5 days) locking period before a withdrawal is allowed.
4) Purchase TBOND during the Contraction Phase and redeem during the Expansion Phase.
As an overview, below is an illustration of how the tokenomics of Tomb Finance is designed to operate.
I’ll go through in partwise the mechanics involved to stimulate downward price action on Tomb during Expansion Phase, upward price action during Contraction Phase and other features to improve TOMB’s pegging to FTM.
When TWAP < 1, Tomb Protocol is in the Contraction Phase. At this point, the Masonry will not be minting any TOMB — The intention is to eliminate inflationary pressure on the circulating supply. The protocol will activate the option for users to purchase TBOND with TOMB. TOMB used for the purchase will be burned out of circulation — reducing circulating supply, creating scarcity for TOMB. Lastly, at the discretion of the core team, the DAO fund will perform buybacks at an undisclosed period (to prevent front running) — this reduces circulating supply in the hands of the public.
When 1 <= TWAP < 1.01, Tomb Protocol is in the Zen Phase. There is no active mechanism in operation in this phase as the price of TOMB is where it is supposed to be, pegged to FTM. There is no minting of TOMB in the Masonry and no TBOND is issued for the purchase.
When TWAP > 1.01, Tomb Protocol is in the Expansion Phase. This is the phase where degen yield farmers jump for joy. The Masonry opens shop and begins minting TOMB, rewarding TSHARES stakers with insane APRs — this puts massive inflationary pressure to counter the market demand for TOMB. Additionally, TBOND holders can redeem their TBOND for TOMB, adding TOMB to the circulating supply, increasing inflationary pressure. Bonus, when TWAP > 1.10, TBOND holders can redeem their TBOND with Redemption Bonus. More reward — incentive to hold TBOND longer. Link here to the equation to calculate redemption bonus — https://docs.tomb.finance/faq-1#2.-what-is-the-formula-to-calculate-the-redemption-bonus-for-usdtbond
While degen yield farmers enjoy 85% of the minted TOMB, 18% of minted TOMB from the Masonry are directed to the DAO Fund. At the discretion of the core team, TOMB from the DAO Fund are unloaded into the market — creating sell pressure in the market and taking in profits for the DAO Fund to be in preparation for the Contraction Phase, to perform buybacks.
Beyond the mechanism mentioned above, there are partnerships with other protocols of the Fantom ecosystem. Overall, these partnerships create more predictable market conditions, reduce TOMB circulating supply and, generally, an upward price momentum for TOMB. Summing across all available platforms, it is estimated 70.9% of circulating TOMB is staked, which by market average is a very healthy figure.
There is also the upcoming launch of Lif3, with protocol-owned liquidity, which can enhance the firepower of the DAO fund and further improve the liquidity market of tomb protocol for a better trading experience.
Currently, there is heavy reliance on ponzinomics and its long-term success will depend on many factors, to list a few:
1) Long-term bullish outlook of the Fantom ecosystem.
2) The core team to maintain a healthy treasury to tide over bear markets for extended periods.
3) Chairman Harry Yeh to lead and rally the community.
4) Use cases of TOMB/TSHARES to improve stickiness and convert mercenary capital to long-term holders.
PS: To All Degen Yield Farmers — Stay safe.
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