Introducing Buyer Incentives

It is time for the first upgrade to our contract. We have spoken briefly about this in a previous article where we talked about adding a sliver of buy pressure in case of large selloffs. The sell tax itself is only a deterrent to hold off until further epochs and does nothing to incentivize buyers from negating this potential selloff. Over time, as and when the utility models are unveiled creating organic demand and the stabilizer contract takes a direct hand in neutralizing this, stability will be auto ensured. There are three steps till we get there — 1. Creating liquidity incentives to increase the liquidity pool many times larger than now, 2. Unveiling triple yield benefits and real applications (towards the mid of February) and 3. Stabilizer contract deployment.

Before that, we need an artificial stabilizer that reduces the supply shocks while keeping in mind the protocol's short term goal of supply expansion until we get to the 10mn total supply. This works by inducing artificial buy pressure when the volume is skewed towards the sell-side. The mechanics are outlined below –

Present model: Sells are taxed at incremental levels from 1% to 10% and this entire tax amount is burned.

Issues — 1. Deterrent to trade volume, and 2. Sell cap of 10% does not have a strong impact to create the stabilization level needed at small levels.

Updated model: Sells will still be taxed at the same incremental levels from 1% to 10%, but the entire tax amount is not burned when tax is >1%. Only half of it is burned and the other half is retained in a pot as an incentive for the buyers that come after the sell.

Mechanics as below:

  • Current incentive pot size = 0
  • ‘A’ sells 1000 XST at a tax rate of 10%. So, he is taxed 100 XST, while the remaining are sold.
  • 50 XST are burnt.
  • 50 XST are added to the incentive pot. New pot size = 50 XST.
  • Buyer incentive = Min((current sell tax rate-current buy mint rate) /2* buy tx size, pot size).
  • If ‘B’ buys 100 XST,
    Incentive for B = Min ((10%-1%) /2*100,50) = 4.5 XST. So on the purchase, B will receive 100 + 4.5 + proportional share of mint XST.
  • The new tax rate is 9%. The updated pot size is 45.5 XST.
  • Let’s say ‘C’ follows this with another buy of 900 XST.
  • Incentive for C = Min((9%-1%)/2*900,45.5) = 36 XST. C will receive 936 XST + proportional share of 1% mint.
  • At this point, the pot is not empty but the buy and sell pressures have equalized with 1% burn and 1% buy each. The additional XST accumulated in the pot, if any, will be utilized for additional rewards to the buyers. This mechanism will be outlined if and when this pot grows large enough to warrant that. This development is inline with our product roadmap which you can read here. As always, this is our first step in expanding the XStable ecosystem.

We invite community discussion and involvement on Telegram:

A synthetic stablecoin protocol that derives it's supply and price values from true market demand.