ERC-69, TARDONOMICS

First Undrainable Coins

ERC-69 is a new kind of tokenomics mechanism, one where sellers can never dump the market price below the price at which they bought in at, i.e.

$$\forall \text{ sales}, \quad \text{post-sale price} \geq \text{buy-in price} \\ \text{\underline{Eq 1. ERC-69 Central Invariant}}$$

Despite its simplicity, this property has never before been achieved by any other crypto-economic token mechanism, and in solving this, ERC-69 achieves a range of other firsts:

1. Goodbye Crypto Soroses: First “undrainable” tokenomics, because suddenly pump & dumpers can no longer profitably dump.

2. Crypto Winter Melts Away: First spec to make sub-1.0 MVRV impossible, neutralizing panic spirals before they can start.

3. Jeets Get Yeets: Preserving capital, by pumping the breaks on downward panic spirals.

4. Crypto VCs Go Find Other ERCs: Get more of the right kind of capital. Extractive speculative drainers like typical crypto VCs are deterred, true long term holders attracted.

5. Get Pamped: Achieving pumping-factors > 1.0, more pump with the same reserves.

6. Next level profound degen retardation.

In short, ERC-69 is pumpmaxxing, greater pumps with less capital, attracting more of the right kind of capital to the liquidity pools, and freeing up capital for productive uses beyond just sitting in reserves.

ERC-69, Sub-1.0 MVRV becomes impossible

Sub-1.0 MVRV has always meant badly oversold, so what if we simply made sub-1.0 MVRV impossible?

MVRV essentially measures whether the market's size-weighted average buy-in price is above or below the current market price. MVRV above 1.0 = above water, 1.0 = break-even, below 1.0 = below water.

ERC-69 is the first tokenomics mechanism to make sub-1.0 MVRV impossible, by definition, since the worst-case price that buyers can sell tokens at is the price at which they bought the tokens in the first place, which results in an MVRV for that buyer of 1.0, and so in the worst-case of all buyers doing that, the worst case MVRV would likewise be 1.0.

This new ERC-69 mechanism makes sub-1.0 MVRV impossible.

Yellow: Periods of sub-1.0 MVRV, which have always been the oversold bottom of each bear markets. Red: 1.0 MVRV.

ERC-69, Why this is harder than it looks: bounded AMM liquidity

But how's that possible? It can't be as simple as this equation, right?

$$\forall \text{ sales}, \quad \text{post-sale price} \geq \text{buy-in price}$$

Yes and no. While this first equation is all that needs to be solved, solving it for real-world tokens, in turn, involves having to account for finite AMM liquidity, which in turn involves solving problems that don't even have any closed form solution, all while repeatedly solving this all on-chain, for every single trade.

Without accounting for liquidity vs with accounting for liquidity.

In achieving this, we solve a broad range of problems, including enabling greater pumps with the same amount of capital, solving a wide range of speculative draining attack problems that have plagued tokens since their inception, and ultimately presenting the first palatable, on-chain solution to the elusive missing leg in the Trinity problem, something which has plagued crypto coins since their inception.

ERC-69, price can go up even when market cap goes down

How does the ERC-69 mechanism achieve being the first crypto-economtwic mechanism able to force the price of coins up, even when the market cap is going down? At a high-level, it achieves this by being a kind dynamic circulating supply adjustment mechanism.

Price going up as market cap goes up, and going up even faster as market cap goes down.

Essentially, as long as you bought in below the current market price, then all else being equal, as the token price drops and the tokenomics preemptively reduces the circulating supply, and with the ongoing stream of buys coming from the out-of the money buyers acting to pump up the price per token for those whose buys remain in-the-money, the price of your coins goes up.

ERC-69, feedback loop of tardation

Taking a closer look at what happens in the downward regime:

• Downward price pressure -> Supply reduced: via the dynamic supply adjustment mechanism,

• Reduction in circulating supply -> Upward price pressure.

• Since this mechanism is totally open and trustless, its effect can be anticipated ahead of time, further preventing downward pressure from happening in the first place.

A closer look at the bigger picture reveals the counterintuitive tokenomics is possible:

TARDONOMICS simulation, at a variety of buy-in levels, with market cap increasing in the first half, decreasing in second half.

How it works

The key to all of this is the through fulfillment of one deceptively-simple invariant:

$$\forall \text{ sales}, \quad \text{post-sale price} \geq \text{buy-in price} \\ \text{\underline{Eq 1. Central Invariant}}$$

That is, sellers can never dump the price below the price they bought in at.

Turns out that solving this sub-problem is nontrivial, and is a problem that has stumped tokenomics creators for as long as AMMs have been around, until now.

ERC-69 TARD equation, secret sauce

Enter, the TARD equation, the central optimization problem whose solution is the key in unlocking whole new classes of price-based tokenomics mechanisms.

$$\text{Maximize: } R = -\left( \frac{{\left( \frac{{\rho_0 \cdot \alpha - \zeta}}{{\rho_1 + \chi}} \cdot \alpha \right)}}{\alpha} - \gamma \right)$$

$$\text{Where: } \zeta = \frac{{\chi \cdot \rho_0 \cdot \alpha \cdot \nu}}{{\rho_1 \cdot \delta + \chi \cdot \nu}}$$

$$\text{Subject to: } \begin{cases} \rho_0 \cdot \alpha > \frac{\zeta}{\alpha} \\ R > 0 \end{cases}$$

$$\text{\underline{Eq 4. TARD Equation}}$$

TARD is able to rapidly solve this equation on-chain, in a surprisingly gas-efficient way, enabling the token to know exactly how much of a token can be sold without dumping the final dex price below the user's original buy-in price.

From there, thanks to the design of ERC20, with which AMMs essentially ask permission from the token contract prior to execution of every single trade, we are then able to strictly enforce the core invariant on all trades.

What about off-chain sales? Problem is, eventually a buyer will want to sell the tokens, but since the TARD mechanism passes along all buy records with all transactions forever, until a successful sale completes, this means that if the token remains out of the money, then the buyer will remain unable to sell it, unless he pumps up the liquidity himself.

ERC-69, unlock super-pumping

Through fulfillment of this one central property, ERC-69 is the first ever trustless tokenomics mechanism to enable coins to enter the super-pumping regime, that is, enabling coins to pump their prices far beyond what they can today, due to their lack of any trustless dumping attack mitigation mechanisms.

Proof of this is simple. Whereas the worst-case floor price of how much the price of coins can be pumped up, in terms of what fractions of initial buyers' buys that are dumped, is:

$$\text{classic pumping limit}_{\max\min} = \frac{1}{\text{fraction buys dumped}} \\ \text{\underline{Eq 2. Classic Pumping Limit}}$$

If we are to then loosely define the pumping factor as the ratio of the pumping limit a coin achieves versus the classic pumping limit, then any pumping factor of greater than 1.0 would enter into what we'd call the super-pumping regime.

$$\text{pumping factor} = \frac{\text{coin's pumping limit}}{\text{classic pumping limit}} \\ \text{\underline{Eq 3. Pumping factor, a measure of a coin's pumpability}}$$

Counterintuitively, achieving pumping factors into the super-pumping regime has the advantage of enabling projects to direct more of their liquidity to productive causes, instead of just using all raised funds for price support.

This problem of increasingly needing to direct all liquidity toward price support is one which has been plaguing crypto coins in recent years, who've been increasingly forced to allocate increasing fractions of initial sales to liquidity instead of any other productive building, as opposed to traditional startups, who kept 0% of their coins aside for buy-back liquidity.

The ERC-69 mechanism instead enables increasing the pumping price floor even higher, simply by reducing the fraction of would-be dumpers who are able to dump. Since the worst-case price floor that the price can be pumped to is simply the reciprocal of the fraction of initial buyers buys that are dumped, reducing that fraction increases this pumping factor by definition.

Classic pumping limits, surpassed by the new ERC-69 mechanism.

Fine-grained accounting, colors of accounts, colors of money

Though not immediately obvious, lurking in the central invariant is another challenge: Though we'd like to just track some kind of aggregate numbers, for example each user's average buy-in price, this breaks the common expectation that it should be equally advantageous to buy multiple times with one account as it is to buy multiple times with a single account. Essentially, an average buy-in price could put a users' earlier buys out of the money, excessively penalizing the buyer for performing an action that we want to ensure is always rewarded as much as possible: buying.

The only remedy for this turns out to be a full internal accounting of every single buy and sell, along with the color and buy statistics of each batch, making sure that this accounting is always passed among users so that it cannot be bypassed, and handling each basic account type. At a high-level, this internal accounting breaks down as follows.

In this system, there are 2 general classes of tokens:

• Unencumbered tokens: which only marketplaces are allowed to hold, and which the markets can freely sell to users at the current market price.

• Encumbered tokens: which regular users hold after buying from a marketplace, and the tokens are encumbered in that they can only ever be sold at a price greater to or equal to the price at which they were bought at.

And 3 basic transaction types:

• User -> Marketplace: Selling / addLiquidity actions take encumbered tokens, and convert them to unencumbered tokens held by the market. (You can only add liquidity at >= the price you originally bought the tokens for)

• Marketplace -> User: Buying / removeLiquidity actions take unencumbered tokens, and convert them to encumbered tokens held by the market.

• User -> User: Transfers between users, simply copy encumbered records from one user to another.

• Marketplace -> Marketplace: Transfers encumbered token totals from one marketplace to another.

Within encumbered transaction records, there are 3 core pieces of information:

• Token type: encumbered or unencumbered.

• Buy amount: amount of tokens bought in this batch.

• Buy price: price at which this batch of tokens is bought.

• Buy time: enabling future time-based encumbering strengthening or relaxation, governance-dependent.

Buy Transaction

Sell Transaction

Transfer Transaction

Lastly, this fine-grained mechanism runs into the problem of needing to search an unbounded number of records for those that are in-the money, on-chain, during every buy. To solve this, all fine-grained records are stored in red-black trees, for highly-efficient search for just those that are in the money, upon each buy.

ERC-69 flash-loan protection

Finally, a naive implementation of this mechanism could still be bypassed by a user who flash-loaned a large amount of tokens, put those into the liquidity in order to pump up the price above his in-the-money-price, cashed out, and then repaid the flash loan all in one block.

To prevent this, and incentivize real at-risk liquidity providing as the highest-rewarded type of liquidity providing, the mechanism includes anti-flashloan protections. On the buy side, the mechanism takes the lower price from the 2 options of the dex's current price and the price at some previous block. On the sell side, the mechanism takes the higher price from the current price and some previous block. These protections force any loans to be carried out over multiple blocks, increasing the risk of the loans not being repaid from near-zero, to dramatically higher, killing the economic effectiveness of this kind of attack.

ERC-69 reference implementation

Initially, the TARD token launched by tardonomics.com contains a reference implementation of the ERC-69 spec and code, along with additional ERC-20 code. In the coming days we will also release the stand-alone version of the ERC-69 spec, which any ERC-20 compatible coins may use.