BUNNY FRE Mechanism (Mint or Buy-back?)
Hello Mound & Bunny Fam,
This is another extra article to summarize the BUNNY FRE (Floating Rate Emission) mechanism so we can better understand how the PancakeBunny platform operates their revenue (30% performance fee) under any circumstance. I hope this article could help our family to plan our investment strategy beforehand.
FRE (Floating Rate Emission)
Let’s start with the FRE (Floating Rate Emission) definitions from PancakeBunny Gitbook itself. This mechanism has being used to dynamically utilize their 30% performance fee (from pools) to stabilize the BUNNY price by “minting” new BUNNY in “BUNNY bullish trend” OR “buying back” the BUNNY from the market in “BUNNY bearish trend”. Plus, it will keep minting additional BUNNY equal to 6% of the claim.
In summary, once the investors claim the rewards from PancakeBunny pool(s), they should get 3 portions of the rewards (70 + 30 + 6) as follows:
- Direct rewards (eg. LP or CAKE) = 70%
- BUNNY tokens (from either minting or buying back) = 30%
- BUNNY tokens (FRE based minting rate) = 6%
When will the FRE mechanism mint or buy-back?
It depends on 2 factors below:
- FRE threshold setup in the Bunny Minter Contract (now, it is 40 BUNNY : 1 BNB)
- The ratio of BNB Price / BUNNY Price
The 30% performance fee collected from the pools will be decided to buy-back or mint :
A) “Buy-back BUNNY” from the market when the ratio of BNB Price / BUNNY Price is “greater than” the FRE threshold (40 BUNNY / 1 BNB). In the other words, buy-back when the BUNNY price is bearish.
From above figure, you may notice that the 30% performance fee will be utilized to create BUNNY “buying pressure” (see step 4.1 & 4.2) when the BUNNY price is much lower than BNB price. However, the negative impact is that the 30% performance fee will NOT be paid to the BUNNY Maxi pool stakers. So, the BUNNY maxi pool won’t get any rewards and it may cause the maxi pool APR keep lower. If the BUNNY pool APR (BUNNY Maxi and BUNNY/BNB Flip pool) is not attractive enough, the investors themselves will create the BUNNY “selling pressure” to find any other investment alternative. If the selling pressure is much higher than the buying pressure from FRE mechanism, the vicious cycle will start here…
-> BUNNY Price down
-> Platform buy-back BUNNY to “Investors”
-> Bunny Maxi APR down & is not attractive
-> Investors sell BUNNY (more than platform buy back)
-> BUNNY Price down
-> So on …
B) “Minting new BUNNY” when the ratio of BNB Price / BUNNY Price is “less than” the FRE threshold (40 BUNNY / 1 BNB). In the other words, mint when BUNNY price is bullish.
From above figure, the 30% performance fee will be utilized to create BUNNY “buying pressure” (see step 6 & 7) as well and its positive impact is to increase Bunny Maxi accumulated rewards so “increasing the pool APR”. And one of its negative impact is to “inflate” the BUNNY supplies. However, the healthy cycle will start here…
-> BUNNY Price up
-> Platform buy-back BUNNY to “Maxi stakers”
-> Bunny Maxi APR up
-> Investors re-invest their BUNNY (more than selling)
-> BUNNY Price up
-> So on …
What is the FRE mechanism doing right now?
As-of 21th August 2021 5:50 UTC, the 3 factors I mentioned are as follows:
- FRE threshold = 40 BUNNY : 1 BNB
- BUNNY price = 7.41 USD
- BNB price =458.39
So, the current BUNNY/BNB ratio = 458.39 / 7.41 = 61.86
Since the ratio of 61.86 is greater than the FRE Threshold (40), so the contract mode is automatically set to “Market Buy” and keep using the “30% performance fee” got from the various pools in PancakeBunny to “buy back” the BUNNY tokens from the market.
My Thoughts
Since 19th August until now (21th August 6:30 UTC), there are 4 important events that occurred and will occur here:
- “Buy-back” mode has been activated because the BNB/BUNNY price ratio is much greater than 40 (Now it is 61.86)
- Bunny Maxi Pool APR dropped from 300%APY to 115.80%APY due to the fact that the accumulated rewards in the BUNNY treasury was rebooted on 19th August (Due to compensation end) -> Related PancakeBunny article
3. Qubit platform will be launched on August 24th, 2021 UTC
4. QBT Single Asset Vault (QBT SAV) will be launched shortly after Qubit goes live
As mentioned earlier, the vicious cycle can occur easier when the Bunny price is in bearish trend and Bunny Maxi pool APR is not attractive enough. So, I think the vicious cycle has already begun because the investor selling pressure is MUCH higher than the buying pressure from FRE mechanism.
-> BUNNY Price down
-> Platform buy-back BUNNY to “Investors”
-> Bunny Maxi APR down & is not attractive
-> Investors sell BUNNY (more than platform buy back)
-> BUNNY Price down
-> So on …
So, when the investors “keep selling” their BUNNY rewards to find other investment alternatives with higher APR or more attractive. The example of the alternatives are as follows:
- BTC/ETH/BNB (Bullish trend)
- QBT/BNB LP Pool (2000% APY)
- QBT (Will launch on 24th August)
- MND (Low price, high NAV)
- polyBUNNY (APY > 500%)
However, once the Qubit mainnet launch (24th August 2021 UTC), the assets in all PancakeBunny SAV vaults will be transferred from “Venus” to “Qubit”. This will lead to “higher APY” for the PancakeBunny SAV vaults and “could” create a “healthy” cycle for BUNNY as below.
- The Higher PancakeBunny SAV APR
- The more attractive BUNNY pools
- The more TVL
- The more performance fee
- The more buying pressure from “FRE mechanism” & “investors”
- The better BUNNY price
So, let’s hope the Qubit launch will change the game and rescue our beloved BUNNY!
[PS]
Lastly, if the Bunny team read to this end, I would like to:
- Thank you for your contribution & hardworking to create the financial innovations for us, our Mound family. I do appreciate it.
- Provide an idea regarding “compromising the FRE mechanism”.
Instead of choosing one way or another, can we perform both “buy-back” and “minting” at the same time with the dynamic percentage adjustment based on the BNB/BUNNY ratio vs FRE threshold. For example, if the BNB/BUNNY ratio is 60 while the FRE threshold is 40, instead of buying back using “ALL” collected performance fee. Can this be splitted to 2 portions; 70% for buying back and 30% for sending to Bunny Maxi pool stakers. And I truly believe your team already collected enough statistics and can model and tune this formula to destroy this vicious cycle.
Regards,
Hope
My related Articles:
Mound (MND) Vault Mechanisms & Rewards
Mound (MND) Update as-of 14-Aug-2021
References: