Eclipseum Price Floor Explained
One of the unique game theory mechanisms included in Eclipseum is the Soft Sell ECL function. This is an alternative to the Sell ECL function that can be favorable to ECL sellers in certain situations. It allows the user to sell ECL to the contract and receive ETH and DAI from both AMM liquidity pools, as shown below.
- The user sends ECL to the contract using the Soft Sell ECL function.
- The contract sends the user ETH from the ECL Pool.
- The contract sends the user ETH from the DAI Pool.
- The contract sends the user DAI rom the DAI Pool.
- ECL is burned from the ECL Pool.
While the user receives both ETH and DAI from this function, the equivalent amount of ETH the user would receive if the DAI is converted to ETH can be calculated using the below equation.
The derivation for this equation is shown in Section 4.5 of the Eclipseum whitepaper.
A unique characteristic of the Soft Sell ECL function is that it does not decrease the ECL / ETH price, since ECL and ETH are removed from the ECL pool in equal amounts due to the ECL burn. However, the function does decrease the ECL supply, and therefore the ECL market cap does decrease.
So this function creates the ability for sell pressure to be relieved without decreasing the ECL / ETH price, effectively creating a price floor. It is important to note that this price floor can increase or decrease, as it is heavily influenced by the ETH / DAI price.
If the ETH / DAI price decreases, the Soft Sell ECL / ETH price increases.
If the ETH / DAI price increases, the Soft Sell ECL / ETH price decreases.
At the time of writing (12/14/2020), the ECL / ETH price has effectively reached this price floor as shown in the chart below.
The data shown in this chart can also be plotted using the chart tool on the Eclipseum website.
If sellers continue to use the Sell ECL function instead of the Soft Sell ECL function, a profitable arbitrage opportunity emerges in which a user could Buy ECL, then immediately sell the ECL using the Soft Sell ECL function. Every time this arbitrage round trip is made, the ECL / ETH price increases.
In summary, the ECL / ETH price has decreased down to a soft ECL / ETH price floor that is created by the Soft Sell ECL function. While this floor can increase or decrease as a result of ETH / DAI price movements, and can by no means guarantee the ECL / ETH price will increase, the ECL / ETH price has significantly reduced downside price potential at this current state.