Coordinated supply management

Supply management mechanisms don't work in isolation—they coordinate to create a comprehensive system that handles Case B scenarios (acquisition below pool price) with fairness, stability, and aligned incentives. This page shows how hold periods, release curves, open interest, and profit-sharing work together in practice.

Note on profit-sharing: The examples below use a 50/30/20 split (issuer/participants/protocol) for illustration. The actual distribution strategy—whether to holders, pool participants, or another approach—will be determined based on what best aligns incentives and promotes healthy market dynamics. A dedicated section on profit-sharing strategies will be added in the future.

Note on Dutch auctions: If Dutch auctions are implemented as an alternative to release curves, open interest orders should always be filled first before the Dutch auction begins. This ensures that committed demand is honored and absorbs supply before any auction-based price discovery occurs. Dutch auctions would then serve as a secondary mechanism for any remaining supply not absorbed by open interest. Open interest price may inform dutch auction start price.

---

The coordination challenge

Each mechanism addresses a specific risk:

Mechanism	Primary risk addressed
Hold period	Immediate dumping
Release curve	Supply shocks
Open interest	Demand uncertainty
Profit-sharing	Misaligned incentives

Critical protection: All mechanisms enforce that tokens can never be sold below acquisition price ($p_{\text{acq}}$). This protects the issuer's capital investment and ensures fair pricing for all participants.

Priority order: Open interest orders are always filled first before tokens enter the AMM. This ensures that committed demand absorbs supply before any pool impact occurs.

These mechanisms interact:

• Hold period creates time for open interest to accumulate
• Release curve spreads supply impact over time
• Open interest provides capital for profit-sharing and new asset acquisition
• Profit-sharing incentivizes issuer to use all mechanisms properly

The coordination design ensures these interactions are synergistic, not conflicting.

---

The following example is for illustrative purposes and will be expanded via simulations in the future.

Comprehensive worked example

Let's walk through a complete Case B scenario showing how all mechanisms work together.

Setup

Collection: Luxury watch collection (asset-backed model, 1,000 tokens per watch)

Market state:

• Current pool price: $p_0 = 5{,}000$ USDC per token
• Circulating supply: 10,000 tokens (10 watches)
• Pool liquidity: $2M USDC, 8,000 tokens
• Open interest: 1,500 tokens worth of buy orders at various prices

New acquisition:

• Issuer acquires rare FP Journe CB at estate sale
• Acquisition price: $p_{\text{acq}} = 4{,}200$ USDC per token (16% below pool)
• Tokens to mint: $m = 1{,}000$ tokens
• Issuer allocation: 80% for sale (800 tokens), 20% retained (200 tokens)

Protocol parameters:

• Hold period: 3 days
• Release schedule: 5 tranches over 28 days (convex curve)
• Profit-sharing: 50% issuer, 30% participants, 20% protocol
• Floor enforcement: All sales at or above $p_{\text{acq}} = 4{,}200$ USDC (enforced by protocol)

---

Day 0: Commitment and hold period begins

Actions

Issuer:

1. Acquires watch and mints 1,000 tokens
2. Discloses acquisition price: $p_{\text{acq}} = 4{,}200$ USDC per token (16% below pool)
3. Commits to selling all tokens at or above $p_{\text{acq}}$ (enforced by protocol)

Protocol:

1. Locks 800 tokens for 3 days (hold period)
2. Retains 200 tokens for issuer (not subject to sale requirements)
3. Publishes acquisition details on-chain

Market:

1. Sees announcement: "New watch acquired at $4,200 per token, 1,000 tokens minted"
2. Knows exact acquisition price (16% below current pool price of $5,000)
3. Hold period and release curve provide stability despite price disclosure

Open interest book (before announcement):

Price	Quantity	Total capital
$4,900	200	$980K
$4,800	300	$1,440K
$4,700	400	$1,880K
$4,600	600	$2,760K

Market reaction

Pool price: Drops from $5,000 to $4,700 (6% adjustment)

Reasoning: Market knows exact acquisition price ($4,200), but:

• Hold period prevents immediate supply
• Release curve will spread supply over 28 days
• Open interest shows $7M+ of demand above $4,600
• Rational pricing based on full information

New open interest (participants add orders during hold period):

Price	Quantity	Total capital
$4,900	250	$1,225K
$4,800	400	$1,920K
$4,700	500	$2,350K
$4,600	700	$3,220K
$4,500	400	$1,800K

Total open interest: 2,250 tokens, $10.5M capital

---

Day 3: Tranche 1 release (20% = 160 tokens)

Actions

Protocol:

1. Unlocks 160 tokens (20% of 800)
2. Calculates floor: $p_{\min}(3) = \max(4{,}200, p_{\text{guard}}(3)) = \max(4{,}200, 4{,}700) = 4{,}700$ USDC
3. Routes tokens to open interest orders first, then pool if needed

Execution (Open Interest):

All 160 tokens filled by open interest orders at $4,900:

Order price	Quantity filled	Revenue
$4,900	160	$784K

Pool interaction: None (all tokens absorbed by open interest)

Clearing price: $p_{\text{clear}} = 4{,}900$ USDC

Surplus calculation:

$$\Pi = (p_{\text{clear}} - p_{\text{acq}}) \times m_{\text{sold}} = (4{,}900 - 4{,}200) \times 160 = 112{,}000 \text{ USDC}$$

Profit split:

• Issuer (50%): $56,000
• Participants (30%): $33,600 (distributed according to profit-sharing strategy)
• Protocol (20%): $22,400

Participant rebate: Each participant in tranche 1 receives:

$$\text{Rebate per token} = \frac{33{,}600}{160} = 210 \text{ USDC}$$

Effective price for participants: $4{,}900 - 210 = 4{,}690$ USDC per token

Market reaction

Pool price: Stable at $4,700 (no change)

Reasoning:

• Only 160 tokens entered (1.5% supply increase)
• All absorbed by open interest at $4,900
• No AMM impact
• Participants received rebate, confirming fair pricing

Remaining open interest:

Price	Quantity	Total capital
$4,900	90	$441K
$4,800	400	$1,920K
$4,700	500	$2,350K
$4,600	700	$3,220K
$4,500	400	$1,800K

---

Day 10: Tranche 2 release (30% = 240 tokens)

Actions

Protocol:

1. Unlocks 240 tokens
2. Calculates floor: $p_{\min}(10) = \max(4{,}200, p_{\text{guard}}(10)) = \max(4{,}200, 4{,}680) = 4{,}680$ USDC
3. Routes to open interest orders first, then pool if needed

Execution:

Order price	Quantity filled	Revenue
$4,900	90	$441K
$4,800	150	$720K

Total: 240 tokens at average price $4,837

Surplus: $(4{,}837 - 4{,}200) \times 240 = 152{,}880$ USDC

Profit split:

• Issuer: $76,440
• Participants: $45,864 (rebate: $191 per token)
• Protocol: $30,576

Effective price for participants: $4,646 average

Market reaction

Pool price: Adjusts to $4,650 (1% drop)

Reasoning:

• 400 tokens total released (4% supply increase)
• All absorbed by open interest
• Price gradually adjusting toward acquisition price
• Continued strong demand

---

Day 17: Tranche 3 release (30% = 240 tokens)

Actions

Protocol:

1. Unlocks 240 tokens
2. Enforces floor: $\tilde{p}_{\min}^{(3)} = 4{,}200$ (acquisition price)

Execution:

Order price	Quantity filled	Revenue
$4,800	240	$1,152K

Surplus: $(4{,}800 - 4{,}200) \times 240 = 144{,}000$ USDC

Profit split:

• Issuer: $72,000
• Participants: $43,200 (rebate: $180 per token)
• Protocol: $28,800

Effective price: $4,620 per token

Market reaction

Pool price: Adjusts to $4,600 (1% drop)

Reasoning:

• 640 tokens released (6.4% supply increase)
• Pool price converging toward $p_{\text{acq}} = 4{,}200$
• Open interest still absorbing supply
• Gradual price discovery continues

---

Day 24: Tranche 4 release (15% = 120 tokens)

Actions

Protocol:

1. Unlocks 120 tokens
2. Floor: $\tilde{p}_{\min}^{(4)} = 4{,}200$

Execution:

Order price	Quantity filled	Revenue
$4,700	120	$564K

Surplus: $(4{,}700 - 4{,}200) \times 120 = 60{,}000$ USDC

Profit split:

• Issuer: $30,000
• Participants: $18,000 (rebate: $150 per token)
• Protocol: $12,000

Effective price: $4,550 per token

Market reaction

Pool price: Stable at $4,600

Reasoning: Market has fully adjusted, price near equilibrium

---

Day 31: Tranche 5 release (5% = 40 tokens)

Actions

Protocol: Unlocks final 40 tokens

Execution:

Order price	Quantity filled	Revenue
$4,600	40	$184K

Surplus: $(4{,}600 - 4{,}200) \times 40 = 16{,}000$ USDC

Profit split:

• Issuer: $8,000
• Participants: $4,800 (rebate: $120 per token)
• Protocol: $3,200

Effective price: $4,480 per token

Market reaction

Pool price: Stable at $4,550

Final state:

• All 800 tokens distributed
• Pool price stabilized at $4,550 (9% below initial $5,000)
• Total supply: 10,800 tokens (8% increase)
• NAV per token: $\frac{11 \times 4{,}200}{10{,}800} = 4{,}283$ USDC

Mark-to-Truth check: Pool price ($4,550) is within 6% of NAV ($4,283)—no auction trigger needed.

---

Outcome analysis

Total surplus generated

Total revenue: 800 tokens sold at average price $4,806

$$\text{Revenue} = 800 \times 4{,}806 = 3{,}844{,}800 \text{ USDC}$$

Total cost: $800 \times 4{,}200 = 3{,}360{,}000$ USDC

Total surplus: $3{,}844{,}800 - 3{,}360{,}000 = 484{,}800$ USDC

Distribution:

• Issuer (50%): $242,400
• Participants (30%): $145,440 (average rebate: $182 per token)
• Protocol (20%): $96,960

Issuer economics

Acquisition cost: $1{,}000 \times 4{,}200 = 4{,}200{,}000$ USDC

Revenue:

• Token sales: $3,844,800 (800 tokens)
• Retained tokens: $200 \times 4{,}550 = 910{,}000$ USDC (market value)
• Total: $4,754,800

Profit: $4{,}754{,}800 - 4{,}200{,}000 = 554{,}800$ USDC (13.2% return)

Buyer economics

Average purchase price: $4,806 (before rebate)

Average rebate: $182 per token

Effective price: $4,624 per token

Current market price: $4,550

Unrealized loss: $74 per token (1.6%)

But: Participants received $182 rebate, so net gain: $108 per token (2.3%)

Market stability

Price path:

• Day 0: $5,000 → $4,700 (6% drop on announcement)
• Day 3: $4,700 (stable, tranche 1 absorbed)
• Day 10: $4,700 → $4,650 (1% drop)
• Day 17: $4,650 → $4,600 (1% drop)
• Day 24: $4,600 (stable)
• Day 31: $4,600 → $4,550 (1% drop)

Total adjustment: 9% over 31 days = 0.29% per day (orderly)

No panic selling: Hold period + release curve prevented sharp drops after initial adjustment

No liquidations: Gradual adjustment gave holders time to manage positions

---

Why this works

1. Hold period creates breathing room

3-day lock prevents immediate dumping and gives:

• Open interest time to accumulate
• Market time to process information
• Issuer time to prepare tranches

2. Release curve spreads supply impact

Convex schedule (20%, 30%, 30%, 15%, 5%) ensures:

• Small initial tranches test demand
• Larger middle tranches when market adjusted
• Final tranches mop up remaining supply

3. Open interest provides committed capital

$10.5M of buy orders means:

• All 800 tokens absorbed without AMM impact
• Price discovery through real demand
• No forced selling into thin liquidity

4. Profit-sharing aligns incentives

50/30/20 split means:

• Issuer rewarded for finding underpriced assets
• Buyers compensated for providing liquidity
• Protocol funded for infrastructure

Result: Everyone benefits from efficient sourcing

---

Mechanism interactions

Hold period + Open interest

Hold period gives time for open interest to accumulate:

• Day 0: 1,500 tokens of open interest
• Day 3: 2,250 tokens (50% increase during hold)

Without hold period, issuer would dump into thin order book.

Release curve + Open interest

Release schedule matches supply with demand:

• Small initial tranches test demand levels
• Middle tranches capture accumulated interest
• Final tranches complete distribution

Convex curve ensures supply enters when demand is strongest.

Open interest + Profit-sharing

Open interest provides clearing price above acquisition:

• Average clearing: $4,806
• Acquisition: $4,200
• Surplus: $606 per token

Surplus distributed to participants as rebate, incentivizing open interest participation.

Floor enforcement + Protocol guarantees

Floor enforcement maintains price stability, protocol ensures compliance:

• Protocol enforces that no token can be sold below $p_{\text{acq}}$
• Acquisition price is binding and verified on-chain
• Smart contracts prevent any sales below acquisition cost
• All sales are transparent and auditable

Trust-minimized: Protocol-level enforcement guarantees proper execution.

---

Alternative scenarios

Scenario A: Weak demand

Setup: Only 400 tokens of open interest

Outcome:

• Tranches 1-2 fill open interest (400 tokens)
• Tranches 3-5 must sell into AMM at floor price ($p_{\text{acq}} = 4{,}200$)
• Pool price drops to $4,300 (14% total drop)
• Mark-to-Truth auction may trigger to re-anchor price
• Remaining tokens become sell liquidity at acquisition price

Lesson: Open interest is critical—without it, mechanisms can't prevent AMM impact. However, floor enforcement ensures issuer always recovers acquisition cost.

Scenario B: Strong demand

Setup: 3,000 tokens of open interest at $4,800+

Outcome:

• All tranches fill at $4,800+
• Pool price stable at $4,900 (2% drop)
• Large surplus: $600+ per token
• Participants receive $180+ rebates
• Market barely notices new supply

Lesson: Strong demand makes Case B trivial—mechanisms are insurance, not always needed.

---

Configuration trade-offs

Hold period duration

Shorter (1 day):

• Very fast distribution
• Minimal time for open interest to accumulate
• Higher risk of supply shock

Standard (3 days):

• Balanced distribution speed
• Adequate time for open interest accumulation
• Good trade-off between speed and stability

Longer (7-14 days):

• More time for open interest
• Slower distribution
• Greater opportunity cost for issuer

Default: 3 days balances speed and stability for most assets

Release curve shape

Linear ($q_i = 20\%$ each):

• Simple, predictable
• No adaptation to demand

Convex ($q_i \propto (i/K)^2$):

• Small initial tranches test demand
• Larger later tranches if demand strong
• Adaptive to market conditions

Optimal: Convex for Case B (conservative start)

Profit-sharing ratio

More to issuer (70/20/10):

• Stronger sourcing incentive
• Less buyer compensation
• May reduce open interest participation

More to participants (40/40/20):

• Stronger participation incentive
• Less issuer profit
• May reduce sourcing quality

Optimal: 50/30/20 balances incentives

---

Related reading

• Price dynamics and risks for Case A vs. Case B analysis
• Hold period mechanism for preventing immediate dumping
• Release curve mechanism for gradual supply entry
• Open interest mechanism for demand signals
• Dutch auction mechanism for alternative price discovery