> For the complete documentation index, see [llms.txt](https://lo-fi.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://lo-fi.gitbook.io/docs/lo-fi/tax-system.md).

# 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.

{% hint style="info" %}
POL parameters will be monitored and fine-tuned as needed.
{% endhint %}

## **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.

{% hint style="warning" %}
**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. <mark style="color:red;">**This isn’t a magical wealth formula.**</mark> The fund may or may not invest in safe projects to earn yield and grow.
{% endhint %}

## 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).

{% hint style="warning" %}
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!**

<mark style="color:red;">**Here is why:**</mark>

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.

<mark style="color:red;">**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.**</mark>
{% endhint %}

## 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%

{% hint style="success" %} <mark style="color:green;">**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.**</mark>
{% endhint %}

## Taxation 3

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

{% hint style="info" %}
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
{% endhint %}

| 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.