The Global Markets, now in Protocol, and what’s Accounting on Stakers and Bonders

The AOE at Market

The market-value of AOE will ultimately dependent upon the market. If buying pressure is high, the price will rise. If selling pressure is high, the price will fall. The focus of each investor will rely upon the way in which the investor interacts with the protocol.

For AOE Stakers

AOE's ever-rising Price Floor

In traditional markets, price action is the determining factor of value. This is less so with AOE, since stakers’ equity will increase over time, creating a steadily falling cost basis. Therefore, AOE balance is more important than market-value price.

Stakers should care more about longer-term growth than immediate price action since the protocol dictates a rising price floor for AOE tokens.

A Falling Cost Basis

Investors receive compounding rewards when staking AOE tokens because the autonomous protocol uses bond sales to create a rising price floor for AOE dictated by the backing per AOE token. Long-term, price volatility is not a risk for stakers, since their cost basis will eventually fall below the reserve backing per AOE token.

For Bonders

Bonders will consider the price of the AOE token over anything else because bonding assures a static AOE reward. Let’s assume that the price of AOE is exactly $1, and someone buys a bond valued at $100 worth of AOE. Their static assured reward will be 100 AOE. If the price of AOE now increases to $2, the trader will gain $200 USD in AOE. Therefore, bonding is sensible in anticipation of increasing AOE prices. Given that bonds are issued at a discount, someone that buys bonds will also profit if the price of AOE remains the same. In essence, this acts similarly to staking, as Bonders' AOE holdings will increase over time in tandem with the bond maturation rate.

Rising Prices

Periods of rising price are the most lucrative for Bonders, since the discount they receive on AOE tokens will be larger.

Stable Prices

However, it is still profitable to buy bonds during flat price action since bonds will run at a discount to market prices. This will directly increase APYs and make market purchases more lucrative, thus raising market prices in the process.

Falling Prices

In periods of price reduction, bonding profitability wanes since the market price of $AOE could fall below the initial purchasing price. Therefore, it is more profitable to buy from the market during dips as it stabilises prices and allows bond prices to re-adjust to previous rates.

How the protocol reacts to the markets

AOE’s value will be more volatile at first. In periods of high demand, the protocol will create higher staking rewards by selling more bonds, incentivising investors to seek wealth creation, which increases demand further. This will create a supply loop leading to the expansion of the DAO and an increasing AOE price. Expansionary periods also allow the DAO to increase the liquidity held in its reserves.

In periods of low demand, staking and bonding rewards will also fall. This is a natural part of price action - nobody in the world of capital markets is a stranger to falling prices. When prices fall past a certain threshold, the protocol will use its reserves to buy AOE and stabilise it. Given that this reserve intervention is a certainty, risk falls as the price falls since buying volume is anticipated.

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