⚙️Tokenomics
Backing Price
The $GAIA token has a free-floating value with an intrinsic backing price that its community can always fall back on. This intrinsic backing price will increase over time thanks to the bonding mechanism and the growth of treasury investments.
Backing Price Calculation:
$GAIA Supply:
The number of $GAIA tokens that are publicly available and circulating in the market.
This backing price is guaranteed through treasury buybacks. The buyback process deploys assets from the Treasury to buy $GAIA tokens on the spot market and then immediately burns them. This mechanism is initiated whenever $GAIA’s market price falls below the backing price. These buybacks will inevitably make the price go back up, and will continue to do so until it has returned to the backing price. The downside risk is therefore limited.
In another scenario, let's imagine the market price is at the backing price and the Treasury increases in size through bonds or the returns of its investments. Even if there are no buyers on exchanges, the price of $GAIA would still increase thanks to the Treasury’s buybacks.
Example: A user has $GAIA tokens in his wallet which are worth $10 and the backing price is currently at $10. The Treasury grows in size thanks to positive returns on its investments and the backing price is now $11. Buybacks will then immediately happen, so even if there is no buying pressure, his $GAIA tokens increased in value by 10% and are now worth 11$.
Even if every holder decides to sell their $GAIA tokens, similar to a bank run, the very last person to sell will still be able to redeem the backing price for his tokens.
This also creates a virtuous cycle since this removes almost all incentives to sell if the price is close to the backing price.
Potential for Price Discovery
On top of the downside risk being limited, GAIA has a free-floating value. Since the token value isn’t pegged to the Treasury, it allows for price discovery on the spot market.
This mechanism allows for greater potential returns than if the value was pegged to the treasury. For example, if the treasury’s assets increase by 10% over a period of time, $GAIA tokens could increase by much more than 10% if there is strong buying pressure on spot markets. On the flip side, even if there is substantial selling pressure on the $GAIA token, the price cannot go below the backing price.
Example: $GAIA is trading at $11 and the backing price is at $10. There is bearish news in the markets and a selloff takes place, normally reducing the token price by 30%. Thanks to the Treasury’s assets, the maximum downside of $GAIA tokens is 9.09%. Once $GAIA reaches the backing price, the only possible downside for holders is if the Treasury’s assets decrease in value thus reducing the backing price. The team will be carefully managing treasury assets with a high level of risk adversity to avoid negative returns.
Limiting Bonds
When the $GAIA token approaches the backing price, it is more beneficial to incentivize token price appreciation rather than Treasury growth. This is because further selling pressure will result in $GAIA’s price reaching the backing price, and thus, Treasury funds being deployed to buy back tokens, inevitably reducing the Treasury’s size.
In order to avoid this additional selling pressure, the ability to bond will be limited. This is done to stop extra $GAIA tokens from being created, which means users will not be able to bond just to benefit from the discount and immediately sell their newly created tokens.
Protocol Owned Liquidity
We call our own liquidity POL (Protocol Owned Liquidity). More POL ensures there is always locked exit liquidity in our trading pools to facilitate market operations and protect token holders. Through time, the protocol accrues more revenue from LP rewards, further increasing liquidity.
Overview
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