Hi CowSwap Community,
After reflecting on the initial feedback and further brainstorming, I had the idea to combine a revenue-sharing mechanism with the already occurring buybacks to enhance the $COW token utility.
Summary of the Proposal
The core idea is to allow stakers to earn revenue via buybacks, which would compound their holdings over time. Nearly all the protocol’s revenue (except what is needed to maintain and develop the protocol) would go towards these buybacks, providing direct value to stakers and enhancing the token’s overall demand.
How It Works
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Revenue Sharing with Buybacks:
Stakers receive their share of the protocol’s revenue not directly as ETH or stablecoins, but through buybacks of $COW tokens. This means that the protocol would automatically use the revenue to purchase $COW on the market and credit stakers with these additional tokens, effectively increasing their staked amount over time.
This compounding effect means that each staker would earn a growing portion of revenue as their $COW holdings increase month over month.
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DAO Revenue & Buybacks for Development:
Since the DAO itself holds a significant amount of $COW tokens, it can also participate in the buybacks. This would allow the DAO to use its portion of the revenue to strengthen its holdings and ensure sufficient funding for future developments. By reinvesting in $COW through buybacks, the DAO can continuously support the protocol’s growth and sustainability.
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Revenue from New Integrations and Chains:
As CowSwap expands its integrations into new chains or turns on fees in additional EVM or layer-2 chains, these developments would naturally benefit stakers. All new revenue streams would be automatically incorporated into the buyback mechanism, providing even greater rewards for stakers and increasing the value of the protocol. This ensures that every development or expansion CowSwap undertakes benefits both the DAO and the stakers, aligning everyone’s interests.
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Allocation of Revenue for Development:
To ensure the sustainability and continued growth of CowSwap, a small percentage of the revenue would be retained by the DAO to fund ongoing development, maintenance, and future initiatives. This allocation would ensure that all operational costs are met while still prioritizing the vast majority of revenue for stakers.
Benefits of This Approach
Enhanced Utility and Demand:
The combination of staking rewards and buybacks gives $COW a strong utility, encouraging holders to stake rather than sell. As more investors see this mechanism in action, it can increase confidence in holding and staking $COW, leading to higher demand.
Compounding Returns for Stakers:
By receiving buybacks directly into their staked balance, stakers effectively see a compounding of their holdings, which increases their revenue share over time.
Reduced Selling Pressure:
With a significant portion of the circulating supply staked and increasing rewards, there would likely be less incentive for holders to sell their tokens.
Funding DAO Development:
The DAO’s ability to use its share of the revenue for buybacks helps secure consistent funding for ongoing development and further aligns the protocol’s success with the community’s interests.
Incentivized Future Growth:
Every expansion into new chains or increased fee generation from new initiatives automatically benefits stakers and increases the protocol’s revenue, creating a virtuous cycle of growth.
Funding the Implementation
To implement this combined staking and buyback mechanism, some initial funding will be required. This would involve developing smart contracts to automate the buybacks and distribute additional $COW to stakers efficiently and securely. The cost would also cover auditing the new smart contracts to ensure the system is robust and aligned with CowSwap’s existing architecture.
Addressing Tokenomics Concerns
Currently, the uncertainty around the long-term utility of $COW and whether a revenue-sharing mechanism will be implemented may be discouraging to new investors. By introducing this combined approach, we can provide clear utility for the token, help stabilize the price, and demonstrate a sustainable path forward. This would address concerns around token inflation and give investors greater confidence in the protocol’s future.
Conclusion & Next Steps
This combined mechanism of revenue sharing and buybacks can provide a more transparent and compelling use case for the $COW token, while simultaneously funding the protocol’s ongoing development. I believe this approach would strengthen the community’s confidence and attract new investors, ultimately increasing $COW’s demand and trading volume.
I’d love to hear your thoughts on this proposal and any additional considerations I might have missed. Thank you for taking the time to engage in this discussion!
