We are submitting this writeup as an RFF on the Protectorate DAO Commonwealth Forum. If you would like to participate in any discussions of the below information. Please join the forum and let us know your thoughts.

At Protectorate, we’ve been hyper-focused on 2 primary goals since our inception earlier this year:

1. To create NFT products that push the limits of what is believed to be possible.

2. To drive constant, sustainable, and long-term value to PRTC token holders.

With the release of Zaar, our most innovative and revolutionary product to date, we began exploring alternatives to traditional token buyback models, and landed on a model that checks all of our boxes, that we’d like to propose to our community, called "buyback and make", as detailed in this article by Joel Monegro, at Placeholder.

Announcing PRTC ‘Buyback and Make’

You may have some questions as to how ‘Buyback and Make’ works, so we’ve prepared a simple FAQ for readers who may not want to read all the way through, but we encourage you to do so, to finally understand how this model creates a true flywheel for PRTC. If you do have any questions, please share them in the Commonwealth Forum.

1. What is ‘Buyback and Make’?

Buyback and Make is an alternative proposal that uses an automated market maker (AMM) to keep the financial benefits of buybacks and issuance without the drawbacks of burning and without perpetually increasing token supply.

- Joel Monegro, Placeholder

In essence, if approved and implemented, this model creates a self-sustaining flywheel that compounds value and liquidity instead of permanently destroying value by burning tokens. The end result is an environment in which all participants are in alignment, from users of Protectorate’s products, to xPRTC stakers.

2. Why is ‘Buyback and Make’ better than ‘Buyback and Burn’?

In a traditional buyback and burn model, a protocol uses its income to buy back and permanently "burn" or destroy its native tokens, sometimes with the ability to re-mint those tokens in times of need. This reduces overall circulating or total supply and may increase the token's value, but presents a dangerous tradeoff as it allows for extremely limited short-term growth, while greatly hindering long-term growth.

However, for governance and utility tokens like PRTC, burning tokens can limit opportunities to grow fundamental value over time. So, instead of burning PRTC, implementing a ‘buyback and make’ system checks all of the boxes.

3. What’s in it for you, as a holder of PRTC

If you hold or stake PRTC (xPRTC), there would be no action on your part required, making the implementation of this upgrade seamless for all PRTC holders. Given the nature of the ‘Buyback and Make’ model, this is beneficial for xPRTC stakers as:

Increased swap fee revenue = Increased revenue for stakers

Below, we’ve refreshed 3 visualizations:

1. PRTC Revenue Streams - Breaks down the refreshed distribution of revenue across Protectorate’s cash-flowing products (ETH Capsule and Zaar) and its assets (POL). Note: ETH Capsule distribution remains unchanged at this moment.

2. Zaar Revenue Flow - Visualizes how fees assessed for Zaar users are distributed to xPRTC stakers, Buyback and Make PRTC, and the Protectorate Treasury

3. Zaar Revenue Modeling - Models Zaar revenue and its distribution scales with the its usage (more volume)

How PRTC Buyback and Make Works

When Protectorate Protocol generates revenue through its various streams, the protocol would use a dedicated portion of this revenue, as shown in the image below, to buy back PRTC from the open market, using Balancer. Instead of burning the bought back tokens, they’d live in a custom Balancer Weighted Pool, with an initial weight of 80/20 - PRTC/ETH. This weighted pool will act as a buyback machine, and perpetual source of liquidity for PRTC. As the liquidity grows larger from the buybacks, it improves pricing & slippage while trading PRTC.

Essentially, rather than permanently destroying value, we’d strategically invest in and grow PRTC liquidity. This creates a positive feedback loop where buybacks lead to better trading environment & liquidity for PRTC, which further builds fundamental value.

Added benefits for this POL (Protocol Owned Liquidity), is that the pool parameters can be adjusted through governance via the DAO. The 80/20 pool weight can be changed, as well as the swap fees. All of which is ultimately beneficial for the longevity and benefit of the protocol.

The end result is all the financial benefits of traditional buyback models, but with the added advantages of compounding liquidity and value.

Detailed breakdown of the PRTC Buyback & Make Flywheel

1. Revenue Generation: As Protectorate generates revenue in ETH from the performance of its products, such as the ETH Capsule, PRTC/ETH trading fees, and Zaar Trading Fees, the protocol sets aside a portion of revenue generated from each product that goes directly towards the ‘buyback and make’ of PRTC.

2. Automatic PRTC Buyback Machine: The allocated revenue buys back PRTC directly from the open market, by depositing the ETH generated, triggering the pool to automatically ‘rebalance’ by using the excess ETH to buy back PRTC.

3. Permanent Liquidity: Instead of burning the bought back tokens, they will continue to live in the 80/20 - PRTC/ETH pool, inherently serving a much greater purpose than burnt, or freely distributed PRTC. This acts as a constant source of buy pressure and liquidity growth, directly associated with the performance of Protectorate’s products.

4. Expanding The Machines Utility: As usage of Protectorate’s products increases, the flywheel grows even larger. More revenue → more buybacks → more liquidity. ∞

5. Adding Fuel to Fire: As liquidity for PRTC grows, this allows for trades small or large, to pass through more efficiently, creating an ideal environment for traders of any size. This generates even more trading fees, adding to the flywheel’s effect as it’s continuously in motion.

Conclusion

The implementation would be a major development for Protectorate Protocol and the PRTC token, and this is not taken lightly. We’ve received massive support from our investors, partners, and our incredible community over the past nearly 4 months of inception. This tokenomics upgrade for PRTC is the culmination of implemented feedback, and careful studying of a model that aligns all Protectorate participants. The core team feels that this mechanism is something that would be extremely beneficial for the Protocol and would love to hear any feedback from the community.

Expect the Protectorate.

Refreshed Documentation

See our refreshed documentation on Gitbook.

Disclaimer: Placeholder is not an investor in Protecc Labs, and to our knowledge does not hold a position in $PRTC.