Whitepaper 2.1
Auric Network: A Gold Price-Based Synthetic Commodity Money
Disclaimers:
The information contained herein is subject to change.
Revision 1: Nov 2020
Revision 2: Feb 2021
Auric Network ("AUSCM") is not an investment product. It is not intended in its design or distribution to be utilized as a form of investment, speculation, or a financial product. No communications from Auric Network Limited to users constitute financial advice, a solicitation for investment, or a guarantee of a financial return. Please do your own research and investigation before participating in this project.
Abstract
Throughout history, individuals and institutions have turned to precious commodities such as gold and silver to store value and endure through seasons of economic instability. When Bitcoin was introduced, this “digital gold” offered another store of value and inspired countless projects towards the quest to perfect currency and democratize finance; however, most projects today are still dependent on the value of government-issued fiat currencies and are therefore susceptible to the same vulnerabilities. This paper introduces Auric Network (“Auric”), a synthetic commodity money that is not dependent on the current world-based currency as the goal price or value. Instead, Auric relies on the centuries old currency of all currencies, or store-of-value: gold.
1. Introduction
Three requirements that define currencies are that it can be used as: a unit of account, a medium of exchange, and a store of value. Yet as ubiquitous as currencies are today, there is still not a form of currency that is invulnerable to manipulation by a centralized institution.
Fiat money, not being subject to intrinsic scarcity, has its value tied to decisions made by closed governing bodies that can determine to print and distribute currency at will. This is most pronounced when the fiat money is a base currency (i.e. it is used as a unit of account across global financial markets), like the USD.
To create a transparent, independent, and adaptive currency that is generally viable requires a financial system and currency that is self-governing and sustaining, decentralized and accessible to the general public.
Formulations of Decentralized Finance, or “DeFi,” empowered by advancements in Distributed Ledger Technology (“DLT”) and the adaptability of digital currency models, have been at the forefront of presenting attempts at creating this new kind of financial system. However, due to human error, and/or inequitable distribution of governance rights, a long term, sustainable solution remains evasive.
The Auric Network (“Auric”) protocol builds on the strong economic legacy of traditional investment markets and incorporates advancements in DLT to present a currency with the characteristics idealized by economic agents past and present. The economic mechanisms which shape the Auric protocol include:
A form of currency, through issuance of a digital token;
Liquidity mechanisms for the currency;
Numerous and effective use cases; and
A system of balanced inflationary management based on the algorithmic expansions and contraction of token supply determined as a function of an independent reference price (Selgin, 2013).
Unlike other synthetic commodity monies, Auric’s value does not depend on an intrinsically “bare” base currency (like the USD) or an illiquid asset class. Auric’s native token (ticker: AUSCM) has been engineered as a synthetic currency to contract or expand in supply depending on where it is priced relative to the price of 1mg of gold.
2. Why Gold
Throughout history, gold has represented timeless value and has been used by governing bodies as a currency. In fact, gold is the only commodity that has continuously, despite economic cycles, maintained utility as a global reserve and trade currency (Bordo, 2017). In the formative years of the modern, global economy, the value of most government issued fiat currencies were expressed as a function of gold. And whilst the Gold Standard has now been largely abandoned, it remains as a refuge asset class in times of economic or geo-political volatility (Elwell, 2011). In this way, the historical and inherent value of gold remains clear and influences traders and other market makers even today. The timelessness, steadfastness, and universality of the value of gold are qualities that strongly influence the ethos of the Auric Network.
In addition, the indelible impact and rich legacy of gold maintain strong cognitive ties to Bitcoin, the founding digital currency (Nakamoto, 2008). Like the digital currency market, gold markets trade 24 hours a day, through independent, highly liquid global markets, and accordingly, although still vulnerable to market manipulation, they are not controlled by one centralized entity. The common characteristics between gold and Bitcoin are so numerous that Bitcoin is often touted as “digital gold,” the only difference being tangibility. Auric pays tribute to this relationship by basing its token value on the price of gold.
3. Why Rebase
In a traditional and centralized economy, the velocity and size of money flow is managed by the fiscal policy of a government or the monetary policy of that country’s central bank. AUSCM is a decentralized currency and therefore there are no central banks or government bodies to perform this function. Unlike a centralized system where the governing entity is incentivized in line with organizational or individual agendas, the Auric Network must be operated in a manner that preserves the system’s independence and “purity.” Other than the general strengths/benefits of a decentralized economy, the rebase process for AUSCM fuels and lubricates the mechanisms for the economy.
3.1 Equilibrium & Elasticity
Like any currency, AUSCM is subject to inflationary and deflationary forces — rebasing is Auric’s means of managing this. Much like the price-supply equilibrium models that exist today, Auric’s protocol uses calculations that are based on a “Reference Gold Price,” which in AUSCM’s case is the Oracle Index Price of 1mg of gold (Chainlink’s XAU price). AUSCM is a synthetic commodity money with an “equilibrium” price +/-5% of this Reference Gold Price.
Whenever the token price is more than 5% above/below the Reference Gold Price, rebasing occurs. The protocol calls the price of Auric and XAU and seeks to balance the price of Auric within 5% of the price of XAU by adjusting the total volume of tokens. Through this rebasing mechanism, Auric’s protocol is able to implement and maintain an elastic supply. Learn about the specifics of the rebase feature in section 4.1 Elastic Supply (Rebase).
Thus in accordance with the economic principles of supply and demand, an “overvalued” market can be moderated, not arbitrarily, but in line with an economic equilibrium determined by the Reference Gold Price, through an increase in supply (positive rebasing). The reverse is also true for an “undervalued” market — the supply of AUSCM’s contracts (negative rebasing) to conform to a gold price determined equilibrium.
3.2 Price Discovery
This is the process through which the “value” of an asset is established, and outside of DeFi, refers to the convergence of the price at which a buyer is willing to buy at the price at which a seller is willing to sell (the convergence of bid-offer). Whilst the traditional ‘bid-offer convergence’ is not how value is determined in liquidity pool based markets, the efficient establishment of value or the relative price of a currency remains crucial. The key to efficient ‘price discovery’ is to maximize liquidity or trade volume allowing for the quick establishment of a value consensus. Naturally, when one holds their wealth in a currency/asset, it is desirable that value is not distorted by market inefficiency.
Rebasing promotes buying and selling through the profit-making opportunities (arbitrage opportunities) presented as prices adjust.
4. Protocol Features
4.1 Elastic Supply (Rebase)
The Auric “economy” is managed and fueled by the process of rebasing, which is an expansion or contraction of token supply at a predetermined time and subsequently regular intervals (every 24 hours), based on where AUSCM is trading relative to the Reference Gold Price.
The Auric rebase feature has two different intended functions:
Function 1. An automated method of controlling inflation/deflation in price of AUSCMs. A truly decentralized currency requires an unbiased, unadulterated process to achieve economic equilibrium
Function 2. Establish and maintain the economic infrastructure. A small portion of the rebase will fund or “irrigate” a Secondary Rewards Pool to incentivize continued adoption of the protocol and use as a currency. Read more about this in section
4.3.2 Secondary Rewards.
The current implementation provides a rebaser called BasicMonetaryPolicy that checkpoints the prices of AUSCM and XAU every hour. This rebaser is the only address allowed to deploy the rebase; however, any externally owned accounts can initiate the rebase through governance if the price of AUSCM diverts by more than 5% from the Reference Gold Price. The restriction to externally owned accounts is made to avoid possible market manipulations (e.g. by flash loans). The BasicMonetaryPolicy is an abstract smart contract, i.e., it does not implement the functions for reading the price from exchanges (such as Uniswap) and Chainlink.
To further reduce market manipulation, rebases driven by the BasicMonetaryPolicy take into account prices of up to 1 hour ago. Therefore, prices are stored as pending and then projected into the running average 1 hour after. Thus, the contract will incur one hour after deployment.
Both the price checkpointing method and rebase are triggered with every ERC20 token action with AUSCM, but only if the action is performed by an externally owned account. The monetary policy ensures that the price checkpoint is recorded at most once every hour, and rebase occurs once in a 24 hour period.
4.1.1 Positive Rebase
A positive rebase is triggered when the price of AUSCM is greater than the Upper Limit AUSCM price, PUL, of 105% of the Reference Gold Price, or PAUSCM > PUL.
For example, let’s assume that:
Pau (Reference gold price) = $1900/ozt or $0.061/1mg {($1900/31,103.477) x1}PUL = $0.061 x 1.05 = $0.064PLL = $0.061 x 0.95 = $0.058
PAUSCM = $0.10 (therefore we have a positive rebase situation)
Then, consider the steps that the protocol will go through once a positive rebase is triggered:
First, determine the amount of divergence, x, of AUSCM from equilibrium:
Then, determine the rate, y, at which the rebase will occur over a 23 day period:
Therefore, a 3.9% increase in supply as a result of this rebase.
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1. A linear mean of 24 hourly gold prices as sourced from Chainlink’s XAU/USD Oracle.
2. PLL represents the Lower Limit AUSCM price, or 95% of the Reference Gold Price.
3. This is an illustrative amount to allow for a more simplified explanation; in practice, the AUSCM token has 18 decimal places
4. 0.1 is the Rebasing Coefficient: Approximately 23 rebases will occur over a 23 day rebasing period to reach equilibrium, as rebase frequency will be every 24 hours, of which 10% will be allocated to the secondary rewards pool; therefore 0.1 is the sum of 23 rebases.
4.1.2 Negative Rebase
A negative rebase is triggered when the price of AUSCM is less than the Lower Limit threshold of 95% of the Reference Gold Price, or PAUSCM < PLL.
For example, let’s assume:
the same variables as in the positive rebase, except:
PAUSCM = $0.02 (therefore we have a negative rebase situation)
Then, consider the steps that the protocol will go through once a negative rebase is triggered:
First, determine the amount of divergence, x, of AUSCM from equilibrium:
Then, determine the rate, y, at which the rebase will occur over the 23 day period:
Therefore, a 20.5% decrease in supply as a result of this rebase.
4.2 Staking
Staking is a process of pledging or locking up money to build a system of establishing a “Consensus” in a decentralized system. To understand this better, consider this common situation in traditional centralized finance:
Erica sent Josephine $10 through an internet banking transaction. “Consensus” of this transaction, that is a consensus that money was sent by Erica and received by Josephine, is established by the bank.
In DeFi, by definition there is no centralized institution to achieve this Consensus or verification; “transactional confidence” has to be acquired through validation by others in the decentralized economy and not from a single authority or entity. In this light, staking refers to the pledging or locking up money to fuel the validation system. The more one stakes the more likely one is chosen as the “validator” of the transaction and thus rewarded for their effort. This means of validation and compensation for the transactional validation facilitates an environment of trust and thus sustains the system.
AUSCM is no different in this sense — it compels participants to “stake.”
4.3 Rewards & Fair Distribution
In preparation for launch, our initial objective was to create an environment that actively attracts and incentivizes liquidity providers and other participants who are essential for the growth and maturation of the protocol both technologically and from a “fungibility-across-platforms” standpoint.
We started with an initial supply of 30 million tokens, 56% of which was used towards rewards through the “Initial Staking Rewards” pool. Out of all rewards given to miners/farmers, 20% of those rewards were used to fund Auric’s governance and other features. Learn more about how the funds were distributed in section 5 Fund Allocation. The other 44% of the supply was available for sale to the general public.
4.3.1 Initial Staking Rewards
Auric incentivized early adopters to participate in staking by providing Initial Staking Rewards through yield mining of AUSCMs, distributed across 21 staking pools for 14 days. For the purposes of decentralization and fair distribution of AUSCMs, we provided the option of staking both LP and base assets.
Rewards were distributed evenly across 20 pools (15 LP and 5 base assets), and in order to provide further incentivization and adoption of the protocol and to reward those who support the liquidity of Auric Network, the AUSCM/ETH UNI V2 LP pool provided 3x the rewards. A list of pools that were available at launch, as well as the flow of rewards, can be viewed in the Appendix.
4.3.2 Secondary Rewards Pool “Gold Rush V1”
After the Initial Rewards Pool expired, a Secondary Rewards Pool, or “Gold Rush V1,” was made available, allowing the staking of AUSCM/ETH UNI V2, with 5% of total staking rewards continuously funding Gold Rush V1. In addition, 10% of positive rebases will fund or “irrigate” Gold Rush V1 to incentivize continued adoption of the protocol and use as a currency.
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5. The Founding Team locked 13,200,000 AUSCMs (approx. 300 ETH) of liquidity via Unicrypt for a duration of six months.
4.4 Governance
Auric’s governance consists of three parts: the first is allowing new proposals to be presented; the second is voting which is handled by a contract called GovernorAlpha; and the third is counting votes which is embedded directly into the contract through inheritance. Each account has the voting power equivalent to the number of votes it had when the proposal was registered, meaning voting is not influenced by rebases that happen after the proposal is made.
Anyone can suggest a proposal on a forum or community board; however, in order to present a proposal on-chain, the participant must hold 9000AUSCMs. Once the proposal is registered, there is a 24 hour period where at least 1% of approvals from the community must be reached to carry the proposal to the next phase. Once the 1% approval has been reached, the proposal will have 72 hours before the majority vote moves a proposal forward to pass or fail. A 4% minimum of pass votes is required for the proposal to pass. If the vote passes, it is not immediately executed. Instead, it is passed enqueued inside the TimeLock contract for 24 hours. All the participants of Auric Network can see that the transaction is lined up for executing, and they can choose to exit the network if they disagree with its effects. After the time lock expires, the transaction can be executed within the following 14 days. Afterwards, there is a 24-hour grace period and then voting for the next proposal begins.
Governance principles can be changed if new governance is deployed on-chain, and the current governance executes the transfer of its governing power according to its own governing principles that are currently in place.
5. Fund Allocation
Out of the total staking rewards, 20% of those rewards will be evenly distributed into four separate pools:
The Auric Fund, or, simply put, a DAO-fund run through community governance, dedicated to investing into the further implementation, adoption, and development of the protocol.
Governance Rewards Pool, a community governed pool for rewarding those who participate in community governance including, but not limited to, voting, proposals, etc.
Secondary Rewards Pool, fully controlled by community governance, and may be converted into a treasury pool for buying stable assets.
Developers Pool, for future audits and additional development. This is the only pool that is not governed through community governance and is directed by the Founding Team. This pool is intended to pay for audits and reward other developers who build out dashboards or other extensions of tools for our community.
In addition, the locked liquidity may be used to fund a “Creative Pool” after the six months timelock has expired. This is to reward non-developers for creative ideas, use cases, implementations, memes, videos, and the like, that will contribute to the growth of the ecosystem. This pool’s parameters have not been fully defined and depend solely on the decision of the community through governance.
6. Conclusion
In conclusion, Auric Network is designed to be an autonomous and completely decentralized, self-governing and self-sustaining currency. It is independent of centralized power structures and fully dependent on the contributions of the network participants. An innovative rebasing mechanism, coupled with a lucrative incentive structure accumulates to an orderly, fair, and consistent economic system that empowers network stakeholders to shape the currency/protocol with further expansion and development.
References
Bordo, M. (1993), “A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform,” University of Chicago Press.
Bordo, M., Monnet, E., and Naef, A. (2017), The Gold Pool (1961-1968) and the Fall of the Bretton Woods System, Lessons for Central Bank Cooperation, National Bureau of Economic Research.
Elwell, C. (2011), Brief History of the Gold Standard in the United States, Congressional Research Service.
Kochergin, D. and Yangirova, A. (2019), Central Bank Digital Currencies: Key Characteristics and Directions of Influence on Money and Credit and Payment Systems, Saint-Petersburg State University.
Kuo, E., Iles, B., and Rincon-Cruz, M (2019), Ampleforth: A New Synthetic Commodity.
Nakamoto, S. (2008), Bitcoin: A Peer-to-Peer Electronic Cash System.
Selgin, G. (2013), Synthetic Commodity Money, The Cato Institute, University of Georgia.
Appendix
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