SORA is a decentralized protocol using blockchain technology to build an economic system focused on inclusion and productive growth. The SORA imperative envisions the SORA network as an economy that can scale to the needs of nation states while remaining truly decentralized and democratic.
Visiting the official SORA Medium, you may find yourself overwhelmed by numerous articles offering mountains of information. In addition to this, SORA has a growing number of DApps and partners projects like Polkaswap, Fearless Wallet, and Hermes DAO.
Simply SORA is a series of explainer articles for all things SORA. Each article seeks to supplement your understanding of an aspect of SORA using easy to understand terms and infographics. As the Simply SORA catalog of articles grows, I hope to create a Simply SORA compendium summarizing SORA as a whole with links to individual topic specific Simply SORA articles.
Today’s Topic
The not so simple Token Bonding Curve (TBC).
Introduction
Core to the SORA economy is its native token, XOR:
- XOR is used to pay all transaction fees on the SORA network (including Polkaswap).
- XOR is the primary partner for the vast majority of liquidity pools on the SORA network.
- XOR uses the Token Bonding Curve (TBC) to facilitate a decentralized scalable solution for nation states to use as legal tender.
This article covers some of the basics of what the TBC is and how it works, but the place to get more detailed explanation is the Token Bonding Curve section of the SORA Wiki.
The token bonding curve (TBC) is a smart contract that controls the supply of XOR by minting and burning XOR. This allows for an elastic token supply that expands and contracts in conjunction with the SORA economy, while always remaining fully collateralized.
The TBC automatically activates when certain conditions are met while doing one of the following two transactions on Polkaswap:
- Swapping one of the reserve assets for XOR (Buy-Price Function); or
- Swapping XOR for one of the reserve assets (Sell-Price Function). The current reserve tokens are DAI, ETH, PSWAP, TBCD, VAL, and XST.
Buy-Price Function
The Buy-Price Function automatically occurs when the TBC has a better price than the secondary market and a user swaps one of the reserve tokens for XOR. (i.e., Polkaswap routes the swap through the TBC instead of the applicable liquidity pool if a better price can be realized on the TBC).
The Buy-Price Function causes new XOR to be minted, increasing the token supply; meaning, anytime the price of XOR increases through the TBC so does supply, making them positively correlated.
When the Buy-Price Function is executed, 80% of the reserve tokens used to buy newly minted XOR from the TBC go into the TBC contract as collateral. The other 20% is reserved for different players in the SORA Network, as per the following diagram:
Even though only 80% of reserve tokens deposited to the TBC by the Buy-Price Function go into reserves as collateral, the TBC always remains fully collateralized. This is made possible by the dynamics of the Sell-Price Function.
Sell-Price Function
The TBC Sell-Price Function occurs when a user swaps XOR for a reserve token on Polkaswap while the TBC Sell-Price target price is higher than the secondary market price. Thus, if the price of XOR is falling on the secondary market, the TBC will step in to buy and burn XOR when the price drops to the Sell-Price Function target price.
The Sell-Price target price is a percentage of the Buy-Price target price, ranging from 0% to 80%, depending on the value of the TBC’s reserve token collateral. When fully collateralized the Sell-Price target price will max out at 80% the Buy-Price target price.
The below image from the Token Bonding Curve section of the SORA Wiki expresses this same concept regarding the TBC Sell-Price Function:
In addition to the increase in the spread between the TBC Buy-Price and Sell-Price, there are extra fees when selling with low collateralization:
- under 30% collateralized: +1% fee
- under 20% collateralized: +3% fee
- under 10% collateralized: +6% fee
- under 5% collateralized: +9% fee
These extra XOR fees are burned.
In summary
Buy-Price Function:
- Occurs when a user buys XOR in exchange for one of the reserve tokens.
- Only occurs if the TBC Buy-Price target price for XOR is less than the price on secondary market. (user gets better deal with TBC)
- Causes new XOR tokens to be minted; increasing the token supply.
- 80% of reserve tokens used to purchase XOR go into the TBC as collateral
- 20% of reserve tokens used to purchase XOR are allocated to different players in the SORA Network.
Sell-Price Function:
- Occurs when a user sells XOR in exchange for one of the reserve tokens.
- Only occurs if the TBC Sell-Price target price for XOR is more than the price on secondary market. (user gets better deal with TBC)
- Causes XOR tokens to be burned; decreasing the token supply.
- If the TBC is under 30% collateralized there are extra fees which are burned, further decreasing the token supply.
- Causes a depletion in token reserve collateral, widening the spread between the Buy-Price target price and the Sell-Price target price.
Merits of the Token Bonding Curve
A primary goal of XOR is to act as an alterative legal tender option. The TBC’s design and permissionless existence on the SORA Network makes XOR a good option for several reasons.
Elastic Supply
The token bonding curve adds (Buy-Price Function) and removes (Sell-Price Function) XOR from circulation in conjunction with the secondary market. This ensures sustainable economic growth and price stability of the token economy, as the system can adapt to changing needs. Contrast this to:
- Fiat Currencies: Money supply increases as a result of lower interest rates and decreases as a result of higher interest rates. This causes the supply and value of fiat currencies to have an inverse relationship, and makes the currency inflationary in nature.
- Bitcoin: Token supply increases at a decreasing rate through Proof of Work mining, and will eventually hit a maximum supply of 21 million tokens. Loss of access to Bitcoin through the attrition of inaccessible wallets makes this highly deflationary.
Deep and Immediate Liquidity
The TBC contract always holds enough buyback reserves through the Buy-Price Function / Sell-Price Function spread to remain fully collateralized. This mitigates the influences of pump-and-dump market-manipulation attacks.
A Decentralized Central Bank
XOR’s decentralized monetary policy offers protection from abuse by authorities and full transparency for users.
The SORA v2 monetary system is neither debt-based nor debt-driven, and new tokens are always allocated under democratic supervision, which works to eliminate the unsustainable boom-bust cycles in contemporary economic systems.
The current buy/sell-prices offered by the token bonding curve provide support & resistance levels, or a confidence range for the price of XOR in the market, with forward guidance.
Conclusion
Money is an ever evolving social construct that can now be reimagined through the permissionless nature of smart contracts, to be more democratic and inclusive. Something as simple as SORA and its Token Bonding Curve could be a seed set to have a positive impact on this next evolution in monetary policy.
Links
Twitter Links
SORA | Many Worlds. One Economy. 天
Polkaswap | Trade with Style and Freedom
Ceres | DeFi Service Provider on Polkadot
Hermes DAO | Decentralized Fund for Investments
