Looking at the design of bond stable income system from the adjustment of MOV's stable fee rate
On January 15th, Bytom released the "MOV White Paper on Stable Financial System", which pioneered a three-level clearing system and introduced a risky bond clearing method, an all-weather risk measurement body, and a risk rating model based on the Markov chain. At the same time, the team also launched the "Interpretation of the Bytom MOV Stability Financial System White Paper" activity, which was actively participated by fans in the community. This article is compiled from articles published by fans gentledog.
On January 15th, Bytom released the "MOV White Paper on Stable Financial System", which pioneered a three-level clearing system and introduced a risky bond clearing method, an all-weather risk measurement body, and a risk rating model based on the Markov chain. At the same time, the team also launched the "Interpretation of the Bytom MOV Stability Financial System White Paper" activity, which was actively participated by fans in the community. This article is compiled from articles published by fans gentledog.
Stable Rate Adjustment Method
During the operation of the stablecoin system, there will be premiums or discounts, and it is necessary to adjust the circulation of stablecoins in real time to achieve currency price stability. When the currency price is low, the stable fee rate needs to be increased to reduce the supply of stable coins; when the currency price is high, the stable fee rate needs to be reduced to increase the supply of stable coins. Therefore, the stable rate plays a vital role in system stability. However, there is no mention in the white paper of how the stability rate will be determined. Scientifically determining the stable rate can prevent decision makers from causing catastrophic consequences to the system due to ignorance and impulsiveness. This paper proposes a stable rate adjustment method for reference.
Assuming the stable fee rate is R, the number of stable coins is S, the amount of funds corresponding to the stable coins is M, and the discount rate of the stable coins is r=the current price of the stable coins/the face value of the stable coins.
Here I assume
. suppose
，
Here d is the sensitivity coefficient of the number of stable coins generated by mortgage to the change of interest rate. make
we demand
make
Due to the complexity of the environment, I think it is not feasible to adjust it in one step. So, I use the Newton iteration method for the step-by-step adjustment, which is due to the robustness exhibited by the Newton iteration method in numerically solving the problem.
According to Newton's iterative method,
Thus, we get the step-by-step adjustment formula for the stable rate:
New stable fee rate = current stable fee rate + (1- current price of stable currency / face value of stable currency) / sensitivity coefficient of the amount of stable currency generated by mortgage to interest rate changes.
Stable Rates and Maximized Benefits
In some extreme cases, stablecoin operators may seek to maximize their own interests. This article discusses the actions taken by stablecoin operators and their implications in the pursuit of maximizing their self-interest.
Let the stable fee rate be R, the number of stable coins be S, and the amount of funds corresponding to the stable coins be M. suppose
, where d is the sensitivity coefficient of the number of stablecoins generated by mortgage to changes in interest rates. Pick
make
。
1. The pursuit of maximizing benefits
when
when
, get the maximum value
Therefore, when stablecoin operators seek to maximize their own interests, they will adopt a fixed stable fee rate, which will seriously affect the stability of currency prices.
2. A more responsible approach
The previous section talked about the behavior of only pursuing profit maximization. Is it possible to pursue profit maximization under the premise of achieving regulatory goals?
Assuming that the available funds of the stablecoin operator are
when
when
When , operators can use their own funds to successfully regulate.
here may wish to set
when
when
, get the maximum value
So when
, operators can obtain additional benefits. Adjusting both sides of the inequality gives
Easy to know, in
place, function
Get the maximum value. Therefore, the above inequality always holds. Therefore, operators can always obtain additional benefits.
This shows that on the premise of achieving regulatory goals, stablecoin operators can also pursue the maximization of benefits. In this case, stablecoin operators will abandon the stable fee rate and use their own available funds for regulation. Although this approach can also achieve regulatory goals, it also increases the risk of black swan events.
Repurchase and dividends of risky bonds
1. Pursue bond price maximization
The amount of funds in the early stage is M, and then the repurchase funds will flow in
and dividend funds
, should be deducted from the investor's expected return
, so the amount of funds in the later period is
。
The number of bonds after repurchase is
hour,
when
hour,
Get the maximum value. Further, we can find the price in equilibrium, that is,
。
hour,
when
hour,
when
hour,
Therefore, in an equilibrium state, the price of all repurchases is twice the price of all dividends. Therefore, in the case of maximizing bond prices, the best strategy is to use all funds for repurchases. This may explain why A shares do not like dividends.
2. Maximize the speed of bond repurchases
when
when
, get the maximum value. Therefore, in the case of maximizing the speed of bond repurchase, the best strategy is still to use all funds for repurchase.
3. Under the condition of price stability, the pursuit of maximizing dividends
when
so,
so,
when
when
when
when
when
When , the optimal strategy is
for dividends,
for repo.
