ℹ️ How works an Elastic Token?
Altered, is a cryptocurrency with a quite unique feature. Its supply is elastic and can change every day while the ownership of the ALTE tokens is never diluted.
When it comes to money, having an elastic supply allows for printing new money or removing money from the circulation depending on the demand.
- Fiat currencies: US Dollar are good examples of money with an elastic supply as the FED can decide to print more money if there is more demand for it.
- Bitcoin: supply is fixed and the only way to accommodate the increase in demand is for the price to go up. Constant price changes can be quite problematic, especially when it comes to denominating things like services, contracts or debt.
So even though elastic money supply can be quite useful to achieve price stability it comes with a certain problem – dilution.
When the FED increases the supply of dollars by printing new money that money is put into the circulation, diluting everyone else’s proportion of the total supply of dollars basically making them poorer.
- Bitcoin is inelastic and non-dilutive.
- Fiat money such as USD is elastic but dilutive.
Altered is both elastic and non-dilutive, so even though the number of your ALTE tokens can change automatically, you’ll always own the same proportion of the overall supply.
By having this unique feature, Altered tries to solve the following problems:
- Inelasticity Problem: Fixed-supply cryptocurrencies are vulnerable to sudden shocks in demand that make denominating things harder.
- Diversification Problem: Today’s cryptocurrencies are tightly correlated. ALTE’s unique incentives, in theory, allow it to decouple from Bitcoin’s price pattern.
Altered operates a stablecoin called ALTE, and it adjusts the supply of ALTE managed by the software daily to maintain price parity with the U.S. dollar.
In practice, this means that anyone who owns ALTE tokens will see the balance in their wallets change each day. In order to adjust the ALTE supply correctly, the protocol must know the price of ALTE and whether it has diverged from the U.S. dollar.
As a result of ALTE’s design, the supply of coins will exist in three states:
- EXPANSION – The price of ALTE is
greater than $1, and thus new tokens need to be introduced to the ALTE economy.
- CONTRACTION – The price of ALTE is
less than $1, leading to the removal of tokens.
- EQUILIBRIUM – The price of 1 ALTE is
Expansion and contraction are achieved automatically by a rebase function in the protocol. Every day the rebase function can be called. The function makes use of price oracles to get the target price and the current price of ALTE or to be precise a 24h volume-weighted average price.
If the current price of ALTE is within 5% of the target price the algorithm classifies the state as equilibrium and doesn’t change the supply of ALTE.
If the current price is above the target price
[+ 5%*target price]the supply expands and if the current price is below the target price
[- 5%*target price]the supply contracts.
The percentage that is used in the rebase function is also called the equilibrium threshold and it’s one of the 2 main parameters in the Altered protocol. The second parameter represents a smoothing factor also called a dampening factor.
The dampening factor is used to avoid sharp supply changes. Currently, the protocol spreads the supply change over a period of 10 days.
The rebase function is executed no more than once every 24 hours. This operation is also stateless, meaning that the protocol has no memory of the previous day’s supply change, so it has to recompute the potential supply change every day based on the latest information.
The unique incentives, movement pattern, and monetary qualities of ALTE make it ideally suited for the following near, medium, and long-term use cases.