As Choice 5 has been gaining traction from community votes, serious conversation regarding the much-needed clarification on specific aspects of the proposal have come to surface. One of which is the exchange rate.
EXCHANGE RATE PROBLEM:
The community is under the impression that the exchange rate, as presented in Choice 5, is bidirectional. But as described in its current text on the POLL voting site, does NOT specify whether you can exchange ALEX BACK to STX at the SAME fixed rate of 10 ALEX per STX AFTER receiving the ALEX tokens as compensation. This exchange rate is ONLY mentioned for the initial compensation calculation. Clarification is needed on this matter to ensure an informed voting.
Fairness Concerns:
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Value Risk: The actual value that LP holders can realize by converting ALEX back to STX might be lower if the market rate differs from the fixed rate issuance (1:10), exposing them to market risk and potential value loss. Due to the nature of the incident, it is expected that the market rate will not be in favor of the original holders, as significant sell pressure and compensation emissions (liquidity injection) will cause downward price action and market dilution.
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Asymmetry in Compensation:
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Foundation’s Advantage: By compensating at a fixed rate, the foundation transfers the risk of market fluctuations and token value loss to the LP holders. This is AGAINST the argument to have the Foundation take more accountability for the mishap.
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LP Holders’ Disadvantage: LP holders might not get the full value of their lost STX if ALEX’s market value is lower than the fixed rate suggests. They have to accept market risks and potential losses upon conversion, which is expected to occur, at least in the short-term. There are no protections in place to safeguard holders against this.
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Solutions:
- Provide a mechanism for a bidirectional fixed-exchange rate (1:10) post-compensation to prevent value discrepancies - allows holders to trade their ALEX for STX at the same ratio they were compensated with.
- Modify the ratio of the fixed exchange rate to accommodate for expected ALEX token value loss, perhaps with a community vote as originally proposed
- Use a bidirectional MARKET-exchange rate instead
Conclusion:
Without a guaranteed mechanism to exchange ALEX for STX at the same fixed rate, LP holders bear the risk of unfavorable, downward, market fluctuations, which can lead to unfair outcomes. Implementing a fixed-rate redemption option (ALEX to STX at 10:1) or opting for a bidirectional market-rate compensation plan instead, can address these fairness concerns and ensure LP holders are made whole as intended.