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1. Basic Structure of PDO Economy
Real demand for PDO creates demand for PDO in the exchange market. In order to recover the PDO value, inviting new projects using PDO is needed.
The Pollo ecosystem is as described in Figure 1. PoFi is the ticket to ride on the DAO to supply ideas for the PDO economy, where PDO is circulated as the method of payment. While the PDO economy keeps on going well, PDO value is sustained around $1.00, as expected, and the dividend on sPDO is distributed. The current urgent task for the Pollo Team is to invite various PDO use cases to show the roadmap to create vivid PDO economy.
A determinant of the demand for PDO is the “price of use” of PDO that means that transaction and entrance fees become the key factor of determining the demand for PDO. The transaction fee is easily understood since that is the fee levied on each transaction (e.g., 3% of the traded amount). The entrance fee is, however, a bit technical. There are several stages of entries for respective agent types. For example, the entrance fee for developers is the cost of integrating PDO onto their systems. If PDO requires complex procedures, the cost becomes high. If PDO has an SDK, the cost will be much cheaper. For another example, the entrance fee for PDO end users is the cost of making a wallet to send and receive PDOs. Notice “cost” in economics includes time, fatigue, and any other efforts not only pecuniary expense.
Determinants of the demand for PDO is not only the cost of use, but also usefulness of each content becomes another key factor. For instance, even if the cost of use is tiny, the demand for PDO does not become large if contents available on PDO economy are not exciting. Using some economics terminologies, we say that the price rises while marginal utility exceeds marginal cost.
This statement means that the value of PDO increases so long as the happiness from using PDO exceeds the cost of using PDO. Of course the PDO value must be kept around $1.00. Thus an increase in the potential demand for PDO implies that an increase in the dividend for sPDO (expansion of PDO supply).
The cost-benefit argument above implies that the dividend on sPDO increases as the cost of use is reduced and the attractiveness of PDO economy is increased. Therefore the urgent tasks for the team are creating a development kit, expanding entrance gates (PDO exchanges), and inviting exciting projects.
2. Stabilization of PDO Price
Market intervention is an ad hoc treatment for the price of PDO. Ideally PDO must keep $1.00 automatically using the stabilizing algorithm, which seems not working in the current DeFi market from watching other DeFi stable token prices such as Midas and bDollar. We may have to consult into the market until the team invite vivid projects to the PDO economy, but the resource is, of course, limited — -in my knowledge, there is no entity of unlimited resources including FRB, ECB, and the likes. To secure future operations, the team need to recover its fund before/during/after the market intervention. The recovery of the fund in not for the team but for the successive community.
The one-dollar stability is realized by additional two tokens: sPDO (shares token) and bPDO (bond token). When PDO exceeds $1.00 (target price), the PDO supply is expanded by distributing PDO as the dividend of sPDO resulting in a decrease in the price of PDO. When PDO price falls below the target price, the bond token is issued to burn PDO. After the price reaches the target price, bonded PDOs are redeemed. This mechanics autonomously makes market participants trade PDO to keep the target price unless they are irrational or myopic players: buy while the price is below $1.00 and sell while it is above $1.00. However, as shown in Figure 2, this mechanics seems not working not only in the PDO market but also in similar stable-token markets. In the short-run, administration teams need to persuade their community members how their stable tokens recover the target price range, which indicates that they have to show how to create respective token economies. For the Pollo Team, it is required to explain the mechanics of the stable PDO and present the coming future of the PDO economy. Once all participants understand the mechanism of the ecosystem, the price PDO will stay around the target price autonomously as expected.
3. Summary & Conclusion
Creating PDO economy creates the demand for PDO and that creates the sPDO dividend In addition, creating PDO economy may create demand for PoFi since service providers using PDO may want to involve in decision making processes of the DAO to make directions of PDO economy. The Pollo Team needs to take efforts to invite good services to the PDO economy, to explain the mechanics of the Pollo ecosystem, and to persuade community the future of the project.
Looking at other markets for similar tokens, PDO seems doing better. Yet, cooperations among the Pollo Team and other participants, such as current stakes holders and future PDO service providers, are required for the vivid future. The Pollo Team is responsible for building the basis of the future for the DAO until coming July.