Currently, the Yearn vaults visible at Democracy Earth put half of their yield into buying and burning UBI tokens. This is the most effective way of increasing the value of each UBI token, but perhaps not the best way of increasing the value of UBI income to those who depend on it.
I’m interested in feedback on an alternative idea: instead of buying and burning tokens, what if the vault bought tokens then redistributed them to all registered PoH users, as a supplemental basic income?
I’ll share an example scenario, showing how this would make a difference in practice. (The numbers here were chosen to make the math easy and aren’t realistic, but demonstrate the point.)
An Example
Say Alice has 5K UBI, and Diana is a whale with 50K UBI. There are 3 other holders that have 45K UBI between them, for 100K tokens total.
Let’s further assume that to start, each token is trading at $1. So Alice’s initial stake is worth $5K, and Diana’s is worth $50K.
Scenario A: buy and burn
Now, let’s say the Yearn vault has generated $10K in yield, which it uses that to buy and burn tokens. It buys 10K tokens and burns them, leaving 90K tokens total. Since burning tokens shouldn’t change the market cap, each token is now worth $1.11. So Alice’s stake is now worth $5555.56, and Diana’s is worth $55,555.56. Awesome!
Scenario B: buy and redistribute
However, we can do better, as long as our goal is to actually increase users’ income, rather than just increasing the token price.
Instead of burning the 10K tokens it bought, the Yearn vault can redistribute them as a supplementary basic income.[1] Since there are 5 users of the system in our example (Alice, Diana, and 3 more), each user receives 10K / 5 = 2K tokens. At the end of this scenario, Alice’s stake is worth $7000, and Diana’s is $52,000.
Pros/Cons
Scenario A does have some advantages—memetically, people like deflation and the idea of burning coins. Speculators may like the idea that they can amass large UBI balances and get rewarded proportionally by the burn. And the UBI/PoH treasuries hold huge quantities of UBI, so any policy that disadvantages whales will also disadvantage those treasuries.
On the other hand, the advantage of Scenario B is that small holders like Alice come out ahead relative to whales. Which is, imho, the main point of UBI!