This article delves into $CACAO's value, highlighting its dual-purpose design, deterministic price concept, and speculative multiplier, showcasing stability and purpose in cryptocurrency.
One of the most common questions newcomers ask when delving into the crypto world is, "Where does the value of cryptocurrencies derive from?"
Before moving into the intricacies of Maya token’s value, it is useful to remember that both FIAT money and cryptocurrencies, along with many of the world's valuable assets, maintain a certain (often fluctuating) value simply because of the value people assign them. Generally, prices are determined by the delicate interplay between value perception and market forces (e.g.basic supply and demand).
For something to be perceived as valuable, it must serve some sort of purpose. With that in mind, cryptocurrency developers have designed their systems – and specifically their token – to enable specific functionalities within their blockchain, contributing to their project’s overall value accrual. Consequently, this accrued value manifests in the price of the project’s token.
“Value accrual” refers to how a token ecosystem captures and sustains user demand over time and generates value for the token holders.
$CACAO’S value accrual mechanisms, therefore, become pivotal in understanding the true and long-term worth of $CACAO. Rooted in the Maya Protocol design, $CACAO serves a dual purpose in powering the Maya ecosystem.
First, it is integral to securing the network: Participants must bond $CACAO to the network at a 1:1 ratio to earn any supplementary rewards. These smartly entwined first- and second-order utilities imbue $CACAO with manifold value (i.e., first-order brings value to the network directly, second-order brings value to the user directly).
Second, liquidity provision – the depositing of external assets (e.g., BTC, ETH, DASH) into swap-facilitating reservoirs–also demands an equivalent 1:1 $CACAO ratio, which again generates user rewards. Again, we have first- and second-order utilities braided together, the first to make assets tradeable on the network, the second to reward LPs.
This symbiotic relationship between $CACAO, the network, and network users ensures a constant demand for $CACAO, creating a robust value accrual mechanism.
So now that we have reviewed value, let’s jump into price.
Deterministic price is a concept that finds its home in the cross-chain ecosystem, notably within the Maya Protocol and THORChain. Different from many tokens in decentralized finance, deterministic price isn't ubiquitous. So, what exactly is it, and how does it function?
The deterministic price is the hard base price of $CACAO in Maya Protocol, as determined by the value locked in its liquidity pools. It represents the minimum possible price of the token at a given time.
This minimum price can be “determined” (i.e., precisely and accurately calculated) because, in Maya Protocol’s liquidity bonding & liquidity provisioning design, there is a defined, hard relationship between exogenous assets (e.g., BTC & ETH) and $CACAO.
Naturally, these exogenous assets have a market value/price; and remember, any amount of assets “locked” into the network through liquidity provision is locked by a 1:1 ratio with $CACAO. In other words, the amount of $CACAO needed to secure the pools equals the total value of assets locked in the pools. This is the deterministic price of $CACAO: the amount of $CACAO needed (by market cap) to lock the value of all exogenous assets in the protocol. In this way, the market price of $CACAO can never be below its deterministic price, as the design of the protocol demands that $CACAO be locked in the pools at a 1:1 ratio with all non-$CACAO assets.
Deterministic Price Formula
In the case of $CACAO, the deterministic price formula is:
Number of non-$CACAO Total Value Locked (TVL) in the Protocol / Total $CACAO in circulation.
Here’s an example with real data:
TVL in Maya Protocol: 44, 474, 679 M USD
Non-CACAO TVL: 22, 237, 339 USD
Total $CACAO in circulatiton: 100, 000, 000 USD
22, 237, 339 / 100 M = USD 0.22
Deterministic price: $0.22 USD
At a most basic level, the price of any asset is nothing more than the price where buyers and sellers are willing to transact.
With that said, nothing is stopping the market price of $CACAO from being higher than its deterministic price. This is where what is known as a “speculative multiplier” comes in.
The speculative multiplier represents the realm where perception and anticipation of earnings influence the token's price beyond the deterministic price. The speculative premium thus raises $CACAO’s market price higher than its baseline deterministic price.
Formula for Speculative Multiplier:
Market price of $CACAO divided by Deterministic price of $CACAO
Here’s an example with real data:
0.60USD/0.22USD=2.72
Speculative Premium: 2.72
Speculative Premium:
Note that the market price can never be below the deterministic price. Suppose some users are willing to sell $CACAO below the deterministic price. In that case, they will just swap it through the pools on Maya Protocol for the exogenous assets instead, thus eventually reducing the deterministic price to match the market price.
Conclusion
In conclusion, $CACAO's value-accruing journey unfolds within a fascinating interplay between deterministic value and speculative intrigue. As we navigate the intricate landscape of cryptocurrencies, $CACAO stands as a testament to stability and purpose, largely due to its brilliant – and hard-value-accruing design mechanisms.
Embracing a world where the value of assets is more than just speculation, $$CACAO propels us into an era where tokens derive value from tangible, sound economic, and mathematical designs.
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