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
• 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 !