The Failures of White Lotus

At first glance, JIMBO might look similar to another project, the White Lotus (LOTUS). Both utilize trading taxes & floor price appreciation mechanisms, and both also deploy liquidity in Trader Joe pools on Arbitrum.

Admittedly, JIMBO was heavily inspired by LOTUS and they were the first project to pioneer using the Trader Joe liquidity book to service their token redemptions at floor price as well as to rebalance their protocol-owned assets into concentrated liquidity at specific price ranges.

However, LOTUS has a few fatal flaws in it's mechanism that prevent it from achieving long term success, and upon further research, you'll find that the protocols are actually quite different.

The Negative Flywheel Effect

The biggest issue with LOTUS and many of its forks is the way they structure their market liquidity. Without rebalancing the LOTUS sold in the liquidity pool, prices get "stuck" in bins where LOTUS is dumped. This specifically occurs at two points in the pool: the last traded LOTUS bin and the floor bin. Because of this, the token has massive price inertia around the two most psychologically important prices in its market—at the lowest possible price today, and at the highest price in its history. As a result, when the protocol inevitably loses momentum, it's hard for the token to escape these two price points and requires significant buying pressure to overcome both these areas in the market.

In order for price to move beyond the floor, all the LOTUS dumped at the floor bin must be repurchased to create any new upward price movement. And if they somehow succeeed, all the LOTUS in the upper bin must be repurchased at the significantly inflated price to overcome the previous all-time high. Once you factor in the trading taxes, each subsequent attempt becomes at breaking out of these price ranges increasingly capital intensive, continually reducing the probability of future success.

Put more simply: once the hype dies down, the price of LOTUS will likely stay at its floor value, and if it somehow does pick up again, significantly more capital needs to be injected into the market for the token to breakthrough it's previous all time high. This creates a negative flywheel effect that continously surpresses LOTUS price once the momentum is lost.

Liquidity Gaps, Capital Inefficiency, and Tax Avoidance

This problem is created due to the lack of rebalancing LOTUS liquidity when the price drops. Because LOTUS is pre-deployed into set bins, when the price drops, a large gap in liquidity is created between the floor bin and the most recently traded LOTUS bin.

LOTUS/ETH liquidity distribution

This creates an issue where there is extremely wide spread in the market between the the floor bin (cheapest) and the last actively traded bin (expensive). The lack of liquidity in this gap doesn't allow for sufficient price discovery and drives the trading activity away from the primary pool (where the token is taxed and protocol fees are accrued) towards third party liquidity providers in outside pools, circumventing rewards to loyal LOTUS holders and leaking significant protocol value.

LOTUS/ETH Pool (Protocol Owned, Taxed)

LOTUS/USDC Pool (Third Party Owned, Not Taxed)

Because most of LOTUS trading is done away from the protocol's hard earned liquidity, the ETH acquired by the protocol's mechanism is severely underutilized, preventing the protocol from realizing it's full potential and capturing most of the value gained from speculative trading activity.

The Lost LOTUS

For LOTUS specifically, these problems are further exacerbated by the fact that LOTUS had an issue with it's original staking contract, rendering all deposited LOTUS effectively burned:

In all fairness, this contract was never publically announced nor endorsed—it was found by eager LOTUS participants who prematurely used the contract before it was tested. However, due to the reckless actions of these users, almost 2.3M LOTUS tokens (and growing) are locked in the contract forever, rendering them essentially useless.

This supply lock would be bullish under normal circumstances, but specifically for the case of LOTUS, these tokens are still counted as circulating supply by the protocol. As a result, the lost LOTUS tokens are still factored into the floor price calculation, slowing value accrual to users in perpetuity. Essentially, the $LOTUS locked in this contract are absorbing some of the ETH accumulation to the token value, reducing the appreciation in floor price to present and future market participants. This further hinders the ability for the protocol to grow and does nothing but waste valuable liquidity that can never be returned to LOTUS holders.