Overview: Sögur Monetary Model
Sögur uses a monetary model that is controlled by a smart contract. This has the advantage of being free of bias, politics, and other nation-state issues tied to fiat currencies. The predictability of a monetary model also builds trust. The transparency of knowing how, when, and why Sögur is behaving a certain way in the market is a fast track to gaining trust in the economy and therefore widespread adoption. This explanation of the monetary model gives a mid-level overview of understanding. In-depth information, including the mathematics of the model, can be found in the official documentation.
The Sögur Monetary Model seeks to do five things:
1. Prevent bad actors from manipulating the reserve for unfair profit.
2. Ensure maximum solvency based on market sentiment.
3. Carry a pricing model where price reflects Sögur economy health. (Increase in price correlates to Sögur (SGR) circulating supply increase, increasing number of SGR holders, and increasing total SGR transaction volume.)
4. Regulate volatility in price to allow growth in value for SGR holders with minimal risk of a downward price drop.
5. Developing the SGR economy by way of incentive for early SGR adopters.
The SGR Monetary Model consists of three distinct parts: Market cap or the total number of SGR tokens in circulation is the first part of the monetary model. Reserve ratio, the amount of fiat currency held in deposit accounts to back the value of SGR, makes the second part. The third is the price, the amount the smart contract is charging to sell or paying to buy back SGR tokens.
Market cap is the indicator that changes the amount of backing held for SGR. This reserve ratio reflects the health of the Sögur economy. A reserve ratio of 100% means that enough funding is held in deposit to buy back 100% of all SGR tokens at the current price. A reserve ratio of 50% means that enough is held to buy back 50% of all SGR circulating at the current market price. SGR is a fractional reserve currency. This means that it will not always be 100% fiat currency backed. The reserve is incorporated to build trust at the beginning of SGR adoption. As the market cap increases, the reserve ratio decreases. This allows for value to increase and opportunities to capitalize for SGR holders.
The table and chart below show the correlation between the market cap, reserve ratio, and price. As the market cap increases, a reserve ratio decreases. The smart contract does a bunch of math (found here in the official monetary model) and sets a price for selling or buying that supports the reserve ratio determined for the market cap. In the case of increasing market cap, it can be inferred that the price of SGR would increase with higher demand.
As the SGR economy expands, the smart contract will increase the supply by minting and selling more. If the SGR economy contracts, the smart contract will decrease the supply by buying back and burning coins. The smart contract is designed to set prices that will encourage arbitrage of the overall SGR market price. This limits volatility.
Price, the final piece of the SGR monetary model, is controlled by the smart contract. This is designed to keep volatility at a minimum but allow maximum growth. The contract monitors overall market price and keeps a price band in which it will intervene with competitive buy or sell prices. The price band is a zone between the model's bid price and ask price where the contract wants the value to stay. It is set so that the price band increases along with market capacity. This will allow market sentiment to drive prices more in a growing SGR economy and will limit volatility in the case that the SGR economy was contracting.
This article is a mid-level summary of the Sögur monetary model. For all of the technical details, you can dive in here.