# How to create low volatility assets

## Step 1: Synthetic commodity asset

- Non-discretionary monetary policy
- Denationalized
- Only monetary usage
- Examples: BTC, (gold)
- See: _Synthetic Commodity Money_ by George Selgin
- Has:
- Price volatility

$A_{price}$

## Step 2: Rebase function

- Inputs: price, benchmark (cpi)
- Move price volatility to supply volatility
- Via expand/contract supply
- Creates [Hayek money](https://garden.merkleplant.xyz/post/ampleforth-is-hayek-money/)
- Isomorphic, no volatility added/removed

$A_{price} => A_{supply}$

## Step 3: Tranching function

- Input: $A_{supply}$, ratio, runtime
- Example input: AMPL, 70/30, 2 weeks
- Segment volatility over fixed periods of time

$A_{supply} => \{T_{sr}, T_{jr}\}$

Over fixed period have:
- $T_{sr}$ low volatility asset
- $T_{jr}$ high volatility asset
- Everything stays isomorph
- No volatility change inside whole system

## Step 4: Rotation

- Input: Continuous stream of fresh $T_{sr}$
- Different incentive mechanisms drive competition:
- Friedman’s K% rule
- Auctioning (probably cheaper, but less predictable)
- See _Concurrent Private Currencies_ by Hayek

$\{T_{sr1}, T_{sr2}, T_{sr3}\} => \text{longterm low volatility asset}$

## Summary

wampl -rebase-> ampl -buttonwood bonds-> {sr, jr} -> spot protocol -rotation-> {sr_1, sr_2, sr_3, ampl} = spot ~= 1 ampl ~= 1 2019 cpi $ = 1.17$

**At any point system’s equilibrium can be transparently derived !**