Winning, fair and square

First and foremost. Adding a high gas price to the participation is allowed within the current buyback rules. Therefore this behavior wasn’t unexpected. To read more behind the logic behind the current buyback rules I encourage you to read this blog. From the very start of the buybacks design process, we have chosen the approach that all rules should be imposed based on experience and not by speculating on possible behavior.

Creating a gas war isn’t beneficial for anybody, the experience gained in the last buyback motivated us to make several significant changes to the mechanism as a whole. Before expanding on what we will change moving forward, I will first break down what happened this time around (and how we interpret these ‘results’).

Novelty surprise or situational surprise? We should keep in mind that even when a certain result is to be expected it can still be a shocking experience. Are we surprised? What did we expect? Is it even a bad thing?

Reflecting on the buyback

Even though the buyback achieved exactly what it was supposed to achieve, acquiring GET from the open market for the lowest rate possible in the protocol (the guaranteed exchange rate), it is not hard to spot several points of friction created by the current buyback rules and the overall process.

When drafting solutions it is important to ensure we have a clear picture of the difference between what we envisioned when designing the buyback and how this picture changed when put to the test. Let’s touch on a few key conclusions/observations.

1. Disappointment in the community

We noticed that a large portion of the community voiced disappointed about the buyback. 1 person filled the complete buyback tranche and added an objectively wasteful amount of ETH as Gas. This left those that participated disappointed and a bit frustrated. Due to the high amount of transaction costs added the general conclusion was that it would always be expensive to participate in a buyback. This isn’t completely rational as larger future buybacks inherently create an opportunity for all to participate, nevertheless, the overall sentiment is understandable.

To be clear, for the protocol any buyback result is fine, the acquired GET is all the same from its perspective. The Stability Fund acquired as many GET as the available Ether can acquire, making the fund whole again. However, the GET Protocol mission statement is creating an honest and fair ticket industry. Having a supportive community spreading this message is key in achieving this goal. It doesn’t contribute to having a buyback mechanism that (at least optically) seems to favor a select few.

2. Ineffective price exploration

As explained in the buyback rules blog, the buyback is an auction that conducts price exploration. At least, that was the original idea. With current open market prices, there is no price exploration taking place at all. Due to the market price being below the first buyback tranche. With the price being almost certain at the moment calling the buyback an auction is debatable.

3. Murky token economics

The GET Protocol is designed to work with any open market GET price, including when open market prices are trading below €0.50/GET like they are now. Guaranteeing this usability is the core reason for the guaranteed exchange rate being put in place.

Limiting Liquidity. The protocol does become more effective and competitive when GET is a liquid asset, as this would allow large parties interested in the token or the protocol to hold GET on their balance sheet without having to discount of a percentage of its face value due to the illiquid nature of the asset. We have strong reason to believe that the periodic set-up of the buybacks has a negative effect on the market in between buybacks.

Indirect price action. The concept that the protocol is creating arbitrage on purpose seems counter-intuitive and inefficient for people new to the GET Protocol. Finding arbitrage in the market is rare. Arbitrage created on purpose by any actor is far from conventional. With the current mechanism, the created arbitrage will close the price gap, assuming perfectly efficient markets. Unfortunately, no real-world market is efficient and due to its immature nature crypto is likely no exception.

Continuous price exploration and natural liquidity. That is the goal. Relying on arbitrage is a path leading to Rome, but it isn’t the shortest path. If we want to visit the Colosseum as soon as possible, we should take the shortest route.Hence a buyback mechanism that directly creates open market liquidity on a daily basis makes a lot of sense.