It has been two weeks since the Phase 3 launch, and today we use this as an opportunity to give a brief overview of the effects of turning Loss Ratio Peg on.
What Was Changed with Phase 3 Launch
Phase 3 Launch Oct 18th has marked a crucial point in Pana DAO’s planned transition from token launch incentives to the Assurance NFTs. Our Staking Pools token distribution model came to an end, meaning that only bonds at a fixed 25% APY are available for participants.
More importantly, Loss Ratio Peg (LRP) was deployed and enabled to support loss ratio at 22.5% level. To learn more about LRP please visit our previous article and this gitbook document for the technical explanation.
First Two Weeks’ Results
As mentioned in the documentation, our algorithm borrows concepts from widely used PID-controller and aims to reach the target supply gradually over time via small additions/removals of PANA proportionally to the current error (i.e. a deviation between target supply ratio and current value). With this in mind, the effect of LRP working in an ideal environment where no other factors interfere can be illustrated in the chart below.
(*Supply Ratio = PANA in Liquidity Pool/Total PANA Supply)
However, real-world results will differ from the simulation above as other factors like token swaps and adding/removing liquidity may happen at any time thus influencing the supply ratio as well. The next chart is built based on two weeks of on-chain data, and it supports that assumption.
The chart above clearly shows LRP performing well, and the supply ratio declining from an initial 55% to 24% at the time of writing. It is worth noting that other actions happening in a liquidity pool may impact the time (both increase or decrease) needed to reach the target supply.
We will continue to monitor the supply ratio and analyze statistics for further improvements to the algorithm. With LRP being an essential part of the protocol design, it is important that the methodology behind the algorithm is battle-tested and carefully designed to favor protocol participants.