Choosing a method for providing liquidity to the crypto-economic system.
From the very beginning, we have attached great importance to the regulation of the money supply in our UBIX.Network platform. This system was supposed to solve the following tasks:
1. Providing liquidity to the entire system to enable economic agents to carry out monetary transactions.
2. Controlling inflation, finding the optimal ratio of the volume of the economy and the money supply.
3. Management of transaction costs by smoothing the peaks of growth in the value of the currency.
Due to the fact that the general economic theory (and the corresponding algorithms) had not been developed at the time of launch, it was decided to define the following approaches for building a liquidity management system as a temporary solution:
1. Create a liquidity fund that provides liquidity on demand under a secured loan scheme.
2. Form a reserve fund that accumulates funds in liquid cryptocurrencies to smooth the exchange rate using monetary interventions.
3. Develop an algorithm for managing fees as a function of the system’s monetary indicators.
In general, such a system repeated the basic principles of monetary regulation used by almost all states of the world.
As a result, we set the issue limit at 1 trillion UBX and created a liquidity fund of 850 billion, with the idea that the above tasks could be solved later.
“The 1 Trillion Problem.”
However, now, after the launch of the main network, the following problem has emerged, not related to economic models. Let’s make a reservation right away that this is exclusively a problem of market positioning.
The fact is that the main trackers (for example, CoinMarketCap) calculate the indicators of projects according to 2 models, without foreseeing that there may be other (like ours) models for regulating the money supply:
1. Model with unlimited emission (for example, Ethereum).
2. Model with a limit of issue (for example, Bitcoin).
In all of the above models, the money that entered the circulation there forever remains. Therefore, trackers calculate the Fully Diluted Market Cap, which shows the market cap after all the money has been allocated. Obviously, this indicator does not reflect the specifics of projects that use funds to stabilize their local economy, since these funds are not irretrievably distributed, but serve as a way to stabilize economic processes, a shock absorber that temporarily absorbs or emits liquidity.
As a result of such an assessment of our project, we received a huge request from the community in any way to solve this problem of positioning our project, which we called “Problem 1T”.
Analysis of the situation.
In fact, we are not the only projects with this problem.
Even a cursory review of the first two pages of the list of projects on the CMC shows the presence of similar projects:
It is obvious that although the problem 1-T is obviously taking place, it is not an absolute obstacle to the development of the Project.
It is much more important to build a clear scheme for using these reserves to eliminate fears of the depreciation of the main currency.
There are 2 options for solving this problem. They are associated with a choice — to increase the money supply or not.
The option of refusing to increase the money supply leads to a simple solution — the burning of the entire liquidity fund.
The second option — with an increase in the money supply — requires a solution to the problem of transparent and fair distribution of the money issued.
When building an economic model, we focus on the basic relationship that determines the balance between the money supply and economic activity (Fisher’s equation): M*V=P*Q
where, for a given period, M is the total nominal amount of money supply in circulation on average in an economy. V — is the velocity of money, that is the average frequency with which a unit of money is spent. P is the price level. Q is an index of real expenditures (on newly produced goods and services).
From this ratio, a simple consequence is obvious — as the economy develops, the money supply should increase. In the real world, this mechanism is so imperfect that uncontrolled emission (and the unfair use of the money issued) has led to such popularity of cryptocurrencies. In this regard, the blind transfer of existing mechanisms for issuing money will lead to the same problems that we wanted to get away from. In this regard, we come to an understanding of the need for a radical revision of the distribution of money issue.
Seigniorage distribution approaches.
The most fair (in our opinion) is the method of direct distribution of the issued funds to all coin holders, without intermediaries in the form of financial institutions. Thus, if the money supply is to be increased, then only by direct distribution of the issued funds to all holders.
This distribution is easy to implement technically: automatic payment to all addresses, with a non-zero (or with a minimum threshold) balance.
The consequences of an increase in the money supply:
1. Direct distribution of money stimulates economic activity.
2. Regular and predictable emission stimulates accumulation.
3. Emission attracts external economic agents to transfer their activities to our ecosystem.
From the point of view of game theory, we have an interesting problem.
There are two types of economic agents — “holders” and “dumpers”. Holders accumulate the received passive income in order to obtain additional income (compound interest calculated as income on the previously received income, leading to an exponential growth of the balance sheet). Dumpers — sell all received income. The task is to choose the most optimal strategy for new agents — become a Holder or Dumper.
The result of solving this problem is the domination of holders, provided that among the initial distribution there were any number of holders who, by accumulating emission, led to a decrease in inflation, which leads to an increase in the total value of the balance sheet: money depreciates more slowly than their number increases.
Analogy to unconditional basic income, but on a fair basis. Modified basic income.
This distribution of the issue of money can reasonably be compared with the unconditional basic income. A feature of UBI is still the presence of one important condition — payments are made subject to citizenship. At the same time, the main idea is based on the fact that citizens and their ancestors created public goods by their labor, social capital, which should now give them certain dividends. In our case, such a contribution (“citizenship”) is the ownership of a UBX coin — a contribution to the economy of our ecosystem, and it does not matter in what form this contribution is made — by buying on the exchange or by maintaining a working masternode.
At the same time, an important feature of our income payment model is that payments are proportional to the amount of UBX, that is, the holder’s contribution to the ecosystem economy.
Possible parameters of the emission model.
We are currently developing emission distribution models based on the following parameters:
Frequency of payments: daily.
Amount of payments: a fixed percentage of the remaining liquidity fund is distributed. As a guideline, we can use the range of 15–20% per year from the value of the initial money supply.
We are currently finalizing the mathematical models and invite you to discuss the above approach in our community group: https://t.me/UBIX_Network