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Tax System

Fairness | Adequacy | Simplicity | Transparency | Administrative Ease

Overview

Protocol Owned Liquidity ("POL") has been an extremely popular term in DeFi since 2021. Lo-fi wants to explore and adopt the latest DeFi innovations, including a Protocol Owned Liquidity feature closely related to our Minting Mechanism.
POL parameters will be monitored and fine-tuned as needed.

Purposes

Strategic Buybacks

A proper Tax System gives the protocol a war chest of liquidity to realize strategic buyback in order to help stabilize the protocol and keep the LOW price at peg.
  • When LOW TWAP is below the peg, buybacks will be initiated by the DAO Treasury. These will be done at a time decided by the core team and not publicized until after the protocol is back in expansion to prevent front running.
  • When LOW TWAP is way above the peg, DAO Treasury will sell some LOW to help assist bringing back to peg.

Growing DAO Treasury

Selecting investments has to be the most time-consuming aspect of building an investment portfolio.
Lo-fi Core Team will be establishing the investment portfolio (majority of the POL will be kept in stable coins so regardless of market conditions we have stable backing).
We might consider conducting governance by having voting proposal for potential changes / suggestions of Lo-fi DAO Treasury Investment.
We will be revealing how we allocated our portfolio across the major asset classes.
Disclaimer:
The investment portfolio is designed at the discretion of the core team which is tailored based on mixtures of different risk appetites and investment time horizons. This isn’t a magical wealth formula. The fund may or may not invest in safe projects to earn yield and grow.

Taxation 1

Tax on Deposit during Genesis (LOW Reward Pools)

0.75% tax on deposit will be imposed on all stakers during our Genesis.
The 0.75% tax received will be distributed as follows:
  • DAO Treasury: 80%
  • Dev Allocation: 20%

For example:

Alice deposits 1,000 CRO to CRO genesis pool. The actual amount she deposited in the pool is (1,000 - (1,000 x 0.75%)) = 992.5 CRO. The taxed 7.5 CRO is allocated to DAO Treasury (6 CRO)& Dev Allocation (1.5 CRO).
Bob deposits 10,000 USDC to USDC genesis pool. The actual amount he deposited in the pool is (10,000 - (10,000 x 0.75%)) = 9925 USDC. The taxed 75 USDC is allocated to DAO Treasury (60 USDC) & Dev Allocation (15 USDC).
People often misunderstood the mechanism behind tax on deposit.
If you think you will be getting lesser rewards as the amount you deposited is less due to the tax, YOU ARE WRONG!
Here is why:
When all the stakers get taxed, the genesis pools are accumulating the same APR but on a lower base.
The rewards are calculated based on the share of the pool that you own not the actual deposited amount.
For example:
Alice deposits USD100 and gets taxed 10%, the actual amount she deposited is USD90.
Bob deposits USD50 and gets taxed 10%, the actual amount she deposited is USD45.
Both of their shares of the pool before (100:50) and after tax (90:45) remains unchanged, hence the LOW Rewards allocation will be the same regardless of whether the tax is imposed.

Taxation 2

Tax on LOW Token

1% tax on transfer of LOW tokens, which is a counter measure to prevent active bot-trading activities
The 1% tax received will be distributed as follows:
  • DAO Treasury: 80%
  • Dev Allocation: 20%
Rationale: To help penalize bot-trading activities with frequent buy/sell. The tax essentially reduces the circulating supply of LOW for each transaction and collectively strength the price of LOW.

Taxation 3

Tax on Withdrawal of Staked LP Tokens (SLOW Reward Pools)

This progressive tax is imposed to protect against manipulative scheme such as flash loan attack, pump-and-dump. Each withdrawal resets the fee timer. The withdrawal fees are listed below
Time since Last Deposit
Tax Rate on LP
< 1 hour
25%
≥ 1 hour to ≤ 24 hours
8%
≥ 1 day to ≤ 3 days
4%
≥ 3 days to ≤ 5 days
2%
> 5 days
1%
Tax received will be distributed as follows:
  • DAO Treasury: 80%
  • Dev Allocation: 20%

For example:

Alice stake & unstakes 10,000 LOW-CRO LP token in less than an hour, 2,500 LOW-CRO LP token will be taxed and the actual amount she will receive from the pool is (10,000 - (10,000 x 25%)) = 7,500 LOW-CRO LP. The taxed 2,500 LOW-CRO LP is allocated to DAO Treasury (2,000 LOW-CRO LP) & Dev Allocation (500 LOW-CRO LP).
Bob stake & unstakes 5,000 SLOW-CRO LP token on 4th day, 100 SLOW-CRO LP token will be taxed and the actual amount he will receive from the pool is (5,000 - (5,000 x 2%)) = 4,900 SLOW-CRO LP. The taxed 100 SLOW-CRO LP is allocated to DAO Treasury (80 LOW-CRO LP) & Dev Allocation (20 LOW-CRO LP).

Taxation 4

Tax on Deposit in Boardroom

2% tax on deposit (per stake) in Boardroom.
100% of the tax received will go to DAO Treasury to reduce total circulating supply.