[ARCHIVED] Proposal to Implementing TWAMM-Swap for $BIT Buyback

Proposal Title: Pulsar Protocol - Implementing TWAMM-Swap for $BIT Buyback

Authors: This proposal is authored by Pulsar Protocol

Date: December 22, 2022

Background

According to the new proposal authored by a community member of BitDAO (@cateatpeanut), BitDAO is considering a $100 million buyback of BIT beginning from the start of the year 2023 as part of the DAO’s capital deployment strategy. This proposal calls for BitDAO to set its Target Daily Purchase Amount (TDPA) at $2 million for 50 days beginning from Jan. 1 next year.

As we know, the suggested buyback is part of BitDAO’s efforts to promote internal capital deployment. However, the current buyback process is mainly executed with a bot in the secondary market like CEXs, hence the outcome of the buyback heavily relies on the good standing of CEXs. However, the recent incidents, as indicated in the proposal, reveal the potential flaws in using such systems. Additionally, the lack of transparency is another issue in CEXs as it is a violation of the spirit of DeFi.

As also pointed out by the proposal, there are three major risks for the buyback of BIT using DEXs, and one of them is the high slippage cost and the price fluctuation in the existing DEXs. In particular, conducting buyback through current DEXs requires the execution of large swap orders in batches over a long period of time on-chain, which inevitably costs a large amount of gas and results in a very high price of slippage.

Proposal

To overcome the above issues, we propose implementing TWAMM-Swap for $BIT-$USDC buyback through Pulsar Protocol – a DEX that provides on-chain functionalities of TWAP.

TWAMM (Time-Weighted Average Market Maker) is an AMM trading strategy designed by @Dave__White, @danrobinson, and @haydenzadams that is devised to execute large trades cost-effectively and is slippage-friendly. Pulsar Procotol is the implementation of TWAMM that effectively combines embedded AMM, Instant Swap, and, most importantly, Term Swap that breaks long-term orders down into an infinite number of infinitely small virtual orders, and executes swaps smoothly over time using an embedded AMM. The outcome is hence the avoidance of high slippage costs and gas fees. Market participants can submit large long-term orders on multiple blocks of Ethereum. It is the AMM and on-chain version of TWAP. After two rounds of contract audits by Peckshield and Secure3, Pulsar is now live on the Ethereum mainnet and Goerli testnet.

Pulsar Protocol has received its very first collaborator, ApeX Pro, which incorporates Pulsar’s Term Swap in a Trade-to-Earn event for distribution in the new $BANA token under a Buy & Burn Pool (BBP). Logically, it is almost identical to the BIT buyback. As a result, one may expect that buyback BIT via Pulsar’s Term Swap can enhance market liquidity while ensuring minimal price slippage. The following article details the Trade-to-Earn event for Apex Pro:

For an overview of how the buyback of BIT can benefit from Pulsar, a detailed strategy is provided below.

Strategy

  1. Create a USDC-BIT pair on Pulsar TWAMM, and provide some liquidity to the pool to determine the initial price.

  2. Submit a long-term buyback order to the TWAMM through Term Swap with the total amount and number of blocks to execute the order in a given period of time. Long-term orders are sold through a fixed period of time (i.e. number of blocks), rather than the common AMM, which executes orders instantaneously.

  3. Trading long-term orders against embedded AMM, the execution of long-term orders in the form of small virtual sub-orders will push the price of the embedded AMM away from the price in other markets over time.

  4. Arbitrage against embedded AMM’s price to restore market price. When embedded AMM’s price is different from prices in other markets, arbitrageurs will trade against the embedded AMM’s price to bring it back in line through instant swap or term swap, ensuring good execution for long-term orders, and earning profits.

For example, BitDAO decides to buyback 10 million BIT worth of USDC over the next week (i.e. about 50,400 blocks). BitDAO submits a long-term order in Pulsar TWAMM to sell 10 million USDC over 50,400 blocks, or 19.84 USDC per block.

Pulsar TWAMM will then split the long-term orders into trillions of tiny suborders known as virtual orders. The TWAMM then takes turns executing the virtual orders of buying BIT against its embedded AMM.

Because BitDAO is buying much more BIT than the BIT-USDC pool is selling, the price of BIT on the embedded AMM will go up each block.

When this price is sufficiently high relative to the prices for BIT elsewhere, arbitrageurs will buy that cheaper BIT on other exchanges and sell it on the embedded AMM through instant swap or term swap, bringing its prices back in line with the market average and ensuring good execution for BitDAO buyback.

And after a week, BitDAO’s long-term order will expire, and the buyback will be completed. And the execution price of this long-term order is roughly the average price over this week.

Benefits to BitDAO

Overall, using the Pulsar TWAMM protocol for $BIT buyback can provide several benefits to BitDAO:

  1. Decentralization: The Pulsar TWAMM protocol is decentralized, which means that it is not controlled by any single entity. This can provide greater security and transparency to BitDAO buyback.

  2. Automation: The Pulsar TWAMM protocol automates the process of buyback, which can reduce the need for manual intervention and improve efficiency.

  3. Liquidity: The Pulsar TWAMM protocol can help to increase liquidity on BitDAO by allowing users to easily buy and sell assets on DEX.

  4. Fees: The Pulsar TWAMM protocol maintains lower gas fees, which can be beneficial for BitDAO.

  5. Ecosystem: The Pulsar TWAMM protocol is part of a larger ecosystem of DeFi, which can provide BitDAO with access to a wider range of open and composability DeFi services and products.

Future Collaboration with dForce

In addition to Apex Pro, dForce has also recently submitted a proposal for the future use of Pulsar TWAMM for USX-DF’s Liquidity-Swap Facility.

About Pulsar

Pulsar is a new TWAMM DeFi protocol that effectively combines embedded AMM, Instant Swap, and Term Swap. Compared to AMM, Pulsar reduces the price slippage associated with large trades, thus reducing trader losses.

Here are the key materials for Pulsar below:

Pulsar has received incubation support from Davion Labs. And in the future, it could also serve as the DeFi AMM infrastructure for the Mantle Network, which is a high-performance @Ethereum layer2 network with modular design, low fees, and high security. Any liquidity swap pool deployed on Pulsar today can be added to Mantle in the future with no further action.

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Negative. Buyback must be executed on Bybit cex. This will help Bybit’s trading volume to be active.

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@Olympus BitDAO can choose to buyback a portion of its funds with DEX

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@Pulsar In accordance with the forum archiving policy , this discussion will be moved to the General Archive

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