Updates To SLP’s Monetary Policy!
Introducing an SLP supply cap, buyback fund, and deflation targeting!
SLP supply is now capped at 44 billion!
For every 10 SLP burned, 2 SLP will be minted to a buyback & stability fund. We have seeded the stability fund with 60,000 USDC.
Modern central banking targets 2% inflation. We will target 2% deflation for SLP.
Why are we doing this? The goal of this program is to create a steady and consistent source of demand for SLP and balance supply with demand.
Smooth Love Potion (SLP) has long been an key asset within the Axie ecosystem. It’s a fundamentally important item within Lunacia, and so before we get into details, lets consult the Tales of Lunacia, and learn more about SLP:
In the olden days, axie eggs took a very long time to hatch. This incubation period led to a low hatching rate because a small problem could lead to dud eggs. Breeding became a very stressful period for all axie parents, full of anxiety and dread as they waited for their eggs to develop. When axies parents lost an egg, it would break their heart into pieces.
To overcome this weakness, a now renowned Lunacian alchemist concocted a serum called Smooth Love Potion. A concentrated dose is very carefully injected into the egg. Only highly specialized incubating specialists should ever administer SLP! If done incorrectly, the egg can crack, leading to a whole host of problems! The serum provides a boost of nutrients to the axie embryo, while also increasing the egg's resistance. But most miraculously, it reduces the incubation period dramatically! Now, axie alchemists all over Lunacia administer the serum.
Many attribute SLP as the reason Lunacia is so abundant with the axie population. To think, without it, axie could have been an extinct species with the dropping birth rates! The rarity of SLP can fluctuate. Sometimes, it is abundant all over Lunacia. But SLP requires very specific ingredients, and there have been select times in history when weather conditions, war, lunar cycles, and pest infestations have ruined the crops of the very special herbs that are needed for the serum’s formula.
During these seasons, the serum has become scarce, or even diluted. Sometimes, depending on the number or incubating eggs at any given time, the monthly supply can run out! Sometimes there is an overabundance and it expires. Axie alchemists are always working hard to create the correct supply each period.
Over the past six years we’ve learned much about building and managing digital economies. Through the course of this journey and dealing with multiple tokens, we’ve found that most ERC20 tokens fall into one of two categories— reward currencies and value accrual tokens.
Here are our working definitions:
Reward currencies: Value is relatively stable. Can be emitted rapidly during the birth of a game. Eventually must achieve some sort of balance with supply. Requires deep liquidity. Requires transparent distribution. Requires tons of usage and velocity (pace of transactions). This is how we see SLP.
Value accrual tokens: Value accrual tokens are designed to appreciate based on the value of the network. They must coordinate work amongst all network participants, not just the core team. Must be emitted wisely, in ways that directly impact player engagement, growth, protocol revenue, research, product development, and more. AXS is a value accrual token for Axie. RON is a value accrual token for the Ronin Network.*
Based on these definitions, we’re rolling out an update to SLP’s monetary policy to target a long term deflation rate of 2% with two pillars:
A 44 B SLP supply cap.
A buyback and stability fund that programmatically buys SLP when inflation is higher than targeted and sells SLP when inflation is lower than targeted.
Why are we doing this?
The goal of this program is to create a steady and consistent source of demand for SLP and balance supply with demand.
SLP Supply Cap
Due to a sudden winter frost, a huge crop of key ingredient in the brewing of SLP has been destroyed.
Effective immediately, we are capping the supply of SLP at 44 billion. Note that this cap will be enforced via social contract and via our in-game emission mechanisms. This is to prevent the need for all SLP holders to migrate to a new contract which would have many negative effects.** The current supply of SLP is ~41.4 B.
We chose 44 billion to give us some cushion in case we see some periods of larger emissions while also ensuring that the cap is within 10% of the current supply. Over the last year SLP has been very deflationary. with more than 3x the amount of SLP burned than minted. In fact, in 2023 SLP overshot the 2% target and was actually 2.8% deflationary. This easy to observe in the data below:
We realized that despite SLP being one of the most deflationary tokens in crypto, the fact that it was uncapped was hindering this understanding from market participants and our community members. In fact, SLP is more than 10x more deflationary than ETH.
SLP Buyback & Stability Fund
Effective immediately, for every 1 SLP burnt, .2 SLP will be sent to a wallet controlled by the core Axie Infinity team. We have also seeded this wallet with 60,000 USDC. This will cover around 1 year of operations.
This SLP will be used to target a 2% deflation rate.
At the end of each month a simple calculation will be performed to determine whether the SLP will be sold for USDC, held, OR if USDC will be used to buyback SLP. While we experiment, the monthly “clip size”, or the amount we will transact on a monthly basis, will be $5,000.
Here’s how it works:
If the yearly SLP deflation rate for a given month is less than 0% (ie, there’s inflation), USDC will be used to buyback SLP.
10 M SLP Burned in January
100 M SLP Minted January
Calculation: 100,000,000-10,000,000= 90,000,000 * 12= 1,080,000,000/41,400,000,000 *100= 2.6% yearly inflation rate.
Result: Buy SLP with 5000 USDC
If the yearly SLP deflation rate for a given month is greater than 2% (ie SLP is more deflationary than targeted), SLP will be sold for USDC.
100 M SLP Burned in January
10 M SLP Minted in January
Calculation: 10,000,000-100,000,000= -90,000,000 * 12 = -1,080,000,000/ 41,400,000,000 * 100= - 2.6% yearly inflation rate ( 2.6% deflation)
Result: Sell 5000 USD of SLP for USDC
If the yearly SLP deflation rate is between 0 and 2% no action will be taken.
105 M SLP Burned in January
100 M SLP Minted in January
Calculation: 100,000,000- 105,000,000 = -5,000,000 *12 = -60,000,000/ 41,400,000,000 *100 = -.14 % inflation rate (.14% deflation)
Result: No action
Frequently Asked Questions (FAQ)
We’ve received a lot of questions following this announcement, so we will share some of the most common FAQs below and will append this post over time as the need arises!
Has SLP somehow changed its purpose and nature?
Not from our perspective! SLP remains a key aspect of the axie economy and drives attention to the Axie universe of experiences. As such, it’s important to ensure this asset’s long term viability. Healthy projects adapt as they learn and gain experience. We’ve witnessed both rapid, unsustainable spikes in the value of SLP (such as when SLP was listed on Binance but could not be deposited), as well as inflation spikes over the past couple of years. Both aren’t healthy for SLP over the long run.
We were hoping to communicate a commitment to a long-lived SLP through these actions! We are looking to you all to work alongside us to make this happen. This is (and will continue to be!) a work in progress.
What are the current aspirational goals with SLP?
Have a reward currency inside the ecosystem that maintains consistent value/supply over time
We as active participants in Axie collectively own a token that primarily benefits us (vs. speculators/non-participants)
Build trust and shared understanding around evolving policies with the community as we go
What has changed with SLP since the recent announcement?
Two things: one, there is a hard cap on SLP of 44B (executed as a social commitment for now). Second, we have launched a “buyback fund” to protect against excessive inflation, and to ensure consistent, smooth ongoing deflation of the token (at least 2%).
Why did the team decide to implement a buyback fund for SLP?
While there are a number of techniques that can be employed to manage inflation/deflation, each of them come with various levels of engineering effort and coordination across a growing collection of products. We felt like a buyback fund was an expedient, low risk way to reserve the ability to act decisively in the circumstance we experience rapid inflation or deflation.
To be clear, the buyback fund is meant to only have one primary goal: to ensure a consistent rate of at least 2% deflation. To the extent that resources accumulated in the buyback fund exceed or somehow put this goal at risk, we can and will burn or reconsider growth rates of this fund.
Why did the team decide to use SLP to fill the buyback fund?
Currently, there are a number of mechanisms inside the ecosystem that burn SLP. The intention is to reserve 20% of what is burned going forward within the buyback fund, as a means to protect against spikes in inflation and to maintain steady deflation. In an attempt to be very transparent, we chose the word “mint” in the blog post, because this is what is happening as the most technically expedient solution. The reality however, is that we intend to simply transfer 20% of burned SLP to this buyback fund.
Can changes be made to the SLP economic policy in the future?
If history is our guide, we expect them. We’re actually pleased to see the level of interest community members have getting more into the weeds around SLP economic design. We’re hoping dialogs like this move us down the path towards having stronger, more coordinated community input and influence on likely future changes.
Who makes decisions around the buyback fund? How will this evolve over time?
The update to the SLP tokenomics design (including the buyback fund) was authored by multiple team members at Sky Mavis. To start, they will oversee decisions around the buyback fund. However, they are committed to learning through iterations and sharing current thinking regularly with the community. They will likely begin to include other participants from the ecosystem over time in decision-making. If this sort of input interests you, please share your thoughts and feedback towards how SLP economics can be further improved on the Axie Contributor's Forum Discord.
Thank you for participating in this grand experiment alongside us. Together we’ve pushed the boundaries for what’s possible with digital economies. We will continue to monitor the policies above and update them based on data, community feedback, and technical advancements.
We will monitor community forums for feedback and make clarifications as needed.
* Thank you 0xHeimdall for inspiring these definitions.
* * We have put into place tracking mechanisms to alert us to a possible breach of the 44 B supply and have measures in place to halt emissions in such cases.