Gaming Ragequit

I had posted the following as a response to “YIP: Add RageQuit Functionality” which was originally posted at the beginning of the month. No one had posted a response. If anyone has some clarity to share about any of the following concern, please reply. Here is that post:

I have a grave concern about RageQuit. I was originally pro Ragequit, because it sounds nice and fair, but I’ve been thinking more about how this could be a mechanism for abuse, or use by arb bots/humans.

As I understand it:
If the value of total Yams (as backed by the Treasury) is less than the Treasury, then I can burn my Yams (as a percentage of total yams) for the same percentage of the Treasury, and receive that relative sum.

Example:
The market mood is poor, most of crypto is facing selling pressure. I am able to buy some Yam at a significant discount to book value, let’s say 10%, which accounts for 10% of total Yams. Then, I RageQuit, burning 10% of total Yams.
So 10% of the Treasury is gone, leaving the community and now in my hands. I made a profit at the expense of the community.

The market mood hasn’t immediately changed after this transaction. Now there is a smaller treasury (price floor), and everyone left has a greater % of the treasury. Price/Yam should be greater now. However, if the treasury is the price floor, then there should naturally be selling pressure by 10%. If the price falls below the price floor, then another Ragequit occurs, eventually resulting in more selling pressure. If I am right in my assertion, RageQuit could be very very bad.

I’m just thinking about the cascading effects of the RageQuit mechanism.
I think it could happen. And it doesn’t have to be from a bad actor in the example; the first person utilizing RageQuit could just use it as intended.

If I am off base and my worries aren’t warranted, because I’m not understanding how RageQuit works, please explain to me why.

这种情况会出现套利,我们能想到,很多套利的想法的人也就会去做

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This is the part I don’t understand in your analysis.

Essentially, if ragequit exists, and marketcap is 5% below the book value, I can buy $100 worth of yam and receive $105 from rage quit. My buy will increase the price of Yam and my ragequit will decrease the book value, such that the end effect of arbitragers will be a 2.5% increase in price and 2.5% decrease in book value.

There could of course be more sellers who continue to push market cap below book value and create more arbitrage, but that’s not a function of the ragequit.

Does that make sense and answer your concern?

My concern lies wherein the book value decrease due to Ragequit use is much greater than the price increase by market purchaser.

Most funds that I’m familiar in traditional finance track their NAV pretty closely or a little above. However, closed end funds (CEFs) have a tendency to consistently trade below NAV. I’m just worried that if YAM tracks like CEFs, then Yam’s treasury could be vulnerable.

Apples to oranges I know, but I try to apply Murphy’s law to anything I invest in (or any new mechanism it implements) to gauge it’s risk. This is the only thing about Ragequit that I could think about.

This is arbitrage. The action of you purchasing YAM in order to ragequit will drive up the per token price. Bots would likely do this with fractions of percent of profit, which does the service of pulling the per-token price up to the price floor created by the treasury.

Price floor wouldn’t change when someone ragequits, since it’s burning 10% of supply in your example and getting 10% of treasury. Price floor per token would remain the same

E.g. if there are 1m tokens, $1.1m in the treasury, then price floor is $1.1. If the market moves token price to $1, you could buy up tokens until the market moves to $1.1, and ragequit them. If you assume you purchase 100k tokens before that happens, then you’ll rage quit and get $110k. This would change the total supply to 900k and the treasury to $990k, which is still $1.1 per token. Price floor unaffected. YAM holders benefit from the arbitrageurs pulling up the per-token price.

Thank you for the elaboration.

I don’t mind about the price of the YAM as a holder.

I just don’t like the idea of giving holders direct access to the treasury via Ragequit. I care more about the long term viability of the project, and for that you need a greater bankroll to work with.

If it gets implemented, I’ll likely use it if works in my favor. I just hope that there are enough Yam bulls you there that won’t ever allow me to use it.

Totally get what you’re saying. Ragequit can also be designed such that it gives the exit liquidity to folks that want out (assuming book value > mcap), but favors those with low time preference in order to promote sustainability. An example would be a simple penalty, e.g. a say 10% fee on ragequit, so you ragequit your 10% of the supply but only get 9% of the treasury

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Fully in support of a 10% fee

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