AVM.sim

Why the Assured Value Machine?

The AVM endows tokens with a rising, guaranteed floor price. All markets powered by the AVM allow for free trade, but with a built-in asymmetry: the downside is limited, the upside unlimited. At all times, the AVM makes explicit how low in price a token can ever go. Since the floor price can only rise (or stay the same), its current value is the lifetime "worst-case" price for a token.

How it works

The AVM is a deterministic pricing system. It is a function that maps "supply" to "price." Greater supply means a higher price, and lower supply means a lower price (until the price hits the floor). The liquidity in the market comes exclusively from buyers, and is held by the market's programmatic escrow account to fulfill sells. The act of "raising the floor" is simply a re-configuration of the price function with a higher floor price, while holding the area (ie, the total liquidity in the market) constant.

Mechanics

• Buy: Mint tokens, increasing price, supply, and liquidity.
• Sell: Burn tokens for collateral. Cannot sell below floor.
• Credit: Borrow against your collateral without selling.
• Raise Floor: Lock liquidity to permanently increase the minimum price for all tokens in supply.

Tips for Exploration

The area under the price curve equals the sum total of cash held in the market. This is the "liquidity" backing all the tokens. There is always enough money to sell tokens back to 0 supply, and the price obeys the deterministic pricing function. Notice that the area under the curve equals the "market capitalization" (supply multiplied by price) when the price is at the floor. This correspondence is simply the fact that all the tokens can be sold back at the same price.

The borrow power is the current floor price multiplied by the amount of tokens held. Since the collateral cannot go beneath the floor price, it is safe to take on debt up to the floor value without any possibility of forced close-out (liquidation). Borrowing from the AVM carries no liquidation risk.

The max borrow power is never greater than the liquidity in the market. The fact that borrow power is always less than the cash in the market is connected to how it is impossible for debt to be unsecured. When you raise the floor, observe how borrow power increases and the amount of locked collateral tokens decreases.