XDefi's new token revamp

XDefi is revamping their tokenomics. The TL:DR is they're change the ticker to $CTRL and setting tokenomics to:

1. 77M $XDEFI (32% of total supply & 50% of circulating supply) will be deposited into a liquidity pool post-migration to $CTRL.
2. 100% LP fees go to buy back & burn $CTRL
3. 12-month deposit contingent on key FDV milestones
4. Token float expected to reach 70%+ end of September

This isn't a massive change from existing XDefi tokenomics, main change is the liquidity dynamics by having large investors and team "lock up" for 12 months in a liquidity pool contingent on FDV milestones. The old tokenomics have general wallet fees being split: 75% burning tokens and 25% going to stakers. Unclear if this is still in place.

So is this a good change? A bad change?

It's a bit of both. But I’d like to zoom out a bit on the tokenomics in general.

This shift and existing tokenomics represents both the best and worst of token design and web3 economies, illustrating why it can be both very cool and and very bad.

Starting with the positives. It’s great that the team and investors are realigning their incentives to lock up the token for 12 months and support the program. That’s good. Setting LP fees and 75% of wallet fees to burn the token, and committing to that long term shows a cool aspect of web3 economies and companies/organizations: this approach (in theory) programmatically commits to a plan of action to shareholders (whoops...tokenholders) in a way that a board of directors in a regular company never could. The suggestion is to implement an ongoing buyback that will constantly purchase tokens as long as the company is making money.

This ensures that there is always a buyer of $CTRL, and in theory, as long as the wallet generates a significant amount of fees, those fees buyback the token of the market, so whatever percentage of revenue is going to the fee, that's the buyback that is occuring on an ongoing, and never ending basis.

In token economies, the coolness comes from the ability to commit to this in a way that a BoD never could. You can make it immutable, put it into code. However, the commitment is only as strong as the immutability the CTRL team provides. In this case, it is not entirely immutable; it is a governance decision that could be revoked, but that is the potential of token economies like this.

Now, why is this problematic? There are two main reasons this is very bad.

First, the token is self-referential. It does not create additional value for the ecosystem and fails to align incentives in any new way. The product has no real need for token. The Xdefi, né CTRL, wallet operates the same exactly way with or without a token. There's no added functionality to by having one. In essence the company could have given out Xdefi equity and achieved the same exact thing. The main purpose the token served was to raise money. And since they've sold it, they need to provide some reason for it, so let's buy it back I guess. While it’s great that the company and investors are re-locking up their tokens for 12 months, they’d never have needed to do this if they hadn’t prematurely launched a token in the first place.

The second issue is that, due to its programmatic nature, the company cannot change this allocation of capital if they determine that the fees could be better allocated for the benefit of token holders in another way. Consequently, management is giving up the opportunity to reallocate capital in a way they see fit and is locked into this program, even when it may not make sense.

Capital allocation is a major point of a good management's value add. Knowing how to compound capital is the biggest factor for outsized success. In the case of Xdefi there is now no way to compound capital since all fees are going to just buy back the token.

In a world of too many tokens that have no reason to exist, teams that are rugging and ditching their products I have to applaud the Xdefi team for building a cool product and sticking it through and revamping the tokenomics in an attempt to grant the token value. It's just a shame that a team with core values and skill is removing their own ability to allocate capital appropriately.