Community Vote #3 - Buyback and Burn Model Proposal

by Penelope Padua

Our fundamental objective and long term vision at LocalCoinSwap has always been to create a decentralized cryptocurrency marketplace that allows users to buy and sell cryptocurrency with any payment method and ensure that it is available to everyone, anywhere around the world.

Built on top of this is a token model that allows the profit to be distributed to our platform’s token holders.  With the coming changes to migrate LocalCoinSwap to a multi-currency, non-custodial P2P exchange, we need to ensure that all aspects of the current platform are optimized to adapt to this new model.

With this in mind, it has come to our attention that the current dividends process may need to be adapted to accommodate the way in which a non-custodial exchange functions.  We've listened to the community and the purpose of this vote is to how you would like to adapt the dividend process moving forward.

Why are we voting?

We are voting to decide if we shall transition the LCS token model from a dividend model to a buyback and burn model.

In this proposal...

  • Instead of paying dividends in multiple currencies, LocalCoinSwap will use 20% of platform exchange fees each quarter to buy LCS tokens on an order-book exchange
  • These tokens will be bought at a pre-announced time and date using a market order
  • Tokens purchased through the buyback will be burned, thus constantly reducing the supply of LCS
  • Once the company reaches a financial situation where 20% of trading fees represent less than 100% of profit, a subsequent vote will be taken to determine how to readjust the model. Outcomes for this vote may include a return to a dividend model or a higher amount of trade fees being used for the buyback.

Resources:

Why Buyback and Burn Model?

There are a number of reasons why we are putting the Buyback and Burn model to vote as an alternative to the current dividend process.

  1. Redemption transaction fees will cannibalize dividends
    With the implementation of non-custodial wallets, it is uneconomical to redeem dividends in multiple currencies due to blockchain transaction fees eating up returns.

    Furthermore:

    - A non-custodial platform means that all dividend redemptions must be “on-chain” rather than off-chain (as they currently are)
    - Because of this, each cryptocurrency redeemed will have a transaction cost associated with it
    - Redeeming a dividend that represents 12 currencies (as per the last dividend) would cost on average about $2.80
    - Given the number of holders with smaller amounts of LCS, redemption transaction costs would be greater than the redemption amount for 97.65% of users if the redemption was on-chain for Q2 dividends
    - A buyback and burn model completely omits all redemption fees.

  2. Regulations stifling dividend tokens
    Increasingly stringent regulations worldwide mean that in order to continue to pay future dividends in a compliant manner, LocalCoinSwap may have to perform extensive verification before redemption and exclude certain people of jurisdictions.

  3. A buyback and burn model maintains ongoing value for token holders Buying back and burning LCS tokens will constantly reduce the circulating supply of LCS. Long term holders will still see positive returns under the same circumstances as the dividend model (a successful and profitable P2P platform).

  4. The buyback/burn is a proven model
    Three out of four of the best performing and highest market cap ERC20 tokens are structured as a buyback model:

    - Binance coin (BNB)
    - Bitfinex LEO Token (LEO)
    - HuobiToken (HT)

  5. Low conversion costs
    Holders will no longer have to convert small amounts of many different cryptocurrencies into the ones they are looking to hold or use. Holders will also not have to worry about dividend redemption costs or conversion costs to gain ongoing value.

  6. Quicker non-custodial launch
    The launch of the non-custodial platform will be much faster as the development team will not have to implement the complicated dividend redemption systems that won’t benefit the majority of holders. These systems all have to be built from the ground up again for the non-custodial launch.

  7. No dividend expiry
    Many users have voiced concern over the fact that the dividends expire when kept off the platform as this may lead to lost returns if these users do not actively send their dividends to the platform. With a buyback/burn model, and a successful P2P platform, passive holders should still see returns in the form of asset appreciation.

How does the voting process work?

The voting process works as follows:

  1. LocalCoinSwap voting tokens  (LCSV3) will be sent to anyone holding LCS.  These LCSV3 tokens will be sent on a 1 to 1 ratio. This means that if you hold 1000 LCS in a wallet, you will receive 1000 LCSV3 tokens into that same wallet.

  2. Once you receive your LCSV3 tokens you will then need to choose which of the 2 options that you are going to vote for. A list of voting options has been included below.

  3. Each voting option will have a corresponding ethereum address in this blog post below. Once you have selected your voting preference from the 2 voting options you must then send the LCSV3 tokens that you received to the corresponding ethereum address. This will classify as your vote.

  4. After 14 days (2 weeks) we will tally all votes that are sent to the ethereum addresses and a winning outcome will be announced to the LCS community here on our blog.

When does the vote officially begin?

Voting will begin as soon as the LCSV3 tokens are sent out on Friday 20th September

How long will voting be open?

Voting will be open for a total of fourteen (14) days so you will be able to take your time and choose the option that you feel is best suited to your vision of the LocalCoinSwap P2P exchange and community.

What are our voting options?  

This vote comprises of 2 voting options that the community can choose from:

OPTION 1:  We will transition the LCS token model to a buyback and burn model

To vote for option 1, send your LCSV3 tokens to:
0x0000000000000000000000000000000000000001

OPTION 2:  We will retain the current dividend process

To vote for option 2, send your LCSV3 tokens to:
0x0000000000000000000000000000000000000002

Remember: Do not use your LCS Cryptoshares for voting. If you have any questions, join us in our Telegram channel to chat with a Community Manager if you have any questions.

What’s Next?

If the outcome of the vote is in favor of OPTION 1, then we will begin transitioning the dividend process to a buyback and burn model.

Once the company reaches a financial situation whereas 20% of trading fees represent less than 100% of profit, a subsequent vote will be taken to determine how to readjust the model. Outcomes for this vote may include a return to a dividend model or a higher amount of trade fees being used for the buyback.

If the outcome of the vote is in favor of OPTION 2, then a second vote will need to be held to determine the structure of the dividend model under the non-custodial platform structure. Further details of a second vote will be posted for the community to view once we know the outcome.

Whether you believe we should remain a dividend model or transition towards a buyback and burn model, what’s most important is that you use this vote to make your voice count. The ability to vote on key aspects of the LocalCoinSwap project is an important part of the community-owned ethos that we hold dearly within the LCS team.

Whatever the outcome, our overarching goal is to continue to develop the world’s leading P2P cryptocurrency exchange that is free from regulatory interference, drives inclusivity and increases accessibility to cryptocurrency for people all around the world, especially those who are excluded from the traditional financial system.

Please do not forget to take the time to read our FAQ series that responds to some of the community discourse and join us in our Telegram channel to chat with the team.

Additional Resources: