After observing and reading previous proposals that are all somewhat attempting to address the same issues of Bond Redemption, Whales gaming the system, and Limited Minting of Arth to Redeem bonds, I propose the following;
In short, we remove the $0.95 to $1.05 Stable state where neither contraction or expansion is in effect. This instead results in oscillation between Contraction OR Expansion at each Epoch. Those who purchase bonds, can therefor only redeem them once 12hr TWAP is above $1.00. This results in the protocol moving into a mandatory epoch of expansion for the duration of the following epoch.
What does this achieve?
- Opens up a larger window of time for bonds to be redeemed - in effect, reducing any short-term impact of Gas Price spiking being an issue.
- Negates the ability for larger interests to ‘Game’ the system by keeping price down for consecutive cycles of contraction if they wish to also redeem any bonds.
- Allows sufficient ARTH to be minted to cover Bonds.
- Incentivizes more liquidity providers and thus creating a more stable price.
What would this look like?
-Removal of the 1hr TWAP and any related functions with it.
-Contraction/Bond Sale occurs when 12hr TWAP is Below $1.00
-Expansion/Bond Redeeming occurs when 12hr TWAP is $1.00 or more.
Expansion of supply increases 1% for every 1% over the Target Price.
Contraction/Availability of Bonds increases 1% for every 1% under the Target Price.
If any Whales attempt to dump the Arth price and hold it below $1.00 for the purpose of Buying up more bonds and flipping them, then they will also need to push price high enough so the 12hr TWAP starts a new epoch above $1.00 in order to redeem those bonds. Doing this creates a full epoch of expansion which bares a mutual and equal risk of inflated supply diminishing the value of the cheaper ARTH that they loaded up on.
In short, a contraction state should have the inbuilt incentive to move to an expansion state - and not simply visiting the target price only to result in dumping back down to game the system without allowing the protocol to expand sufficiently for all bond holders to redeem.
By Removing the 3rd state of Stability, the 1hr TWAP, and Oscillating between full 12 hour epochs of Expansion or Contraction only, we eliminate many of the current issues expressed thus far, while simultaneously creating a better incentive for both stakers and bond buyers to participate.
The finer points to adjust would be the % of expansion should at a minimum, match the supply amount to cover the debt from the prior cycle of bonds. With a two state protocol, we eliminate the incentive to oscillate between ‘Stable’ and ‘Contraction’ just to flip bonds.
In addition to this, I would also like to supplement this proposal with the previous proposal of automatic bond redemption, and also add a ‘opt-in/opt-out’ option to enable automatic reinvestment of LP’s or customized plans that may also include automatic bond purchase from inflation rewards.
Feel free to refine this proposal and resubmit with any alternations as you wish.