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RCM Monetary Policy
RCM Monetary Policy will stabilize figment NFT's, in-game tokens, trading cards and land to ensure long-term value creation for participants in the world's first PLE web3 platform.
The RCM is an immersive gaming, educational and social platform that aims to captivate, upskill and engage its participants. The monetary policy serves those goals by stabilizing the price of figment NFT’s, in-game tokens, trading cards and land. Moreover, our centralized market for figment exchange is designed to achieve quick price discovery and identification of trade opportunities using cutting edge research on market design. This will make participants more confident in the long-term value of their investment in the platform and enable them to focus on what RCM has to offer. RCM is the first web3 platform to implement a credible, research-based monetary policy.
The Investment in the RCM
Someone who wishes to participate in the RCM gaming platform will need to purchase 6 figments, which are all ERC 1155 NFTs. She will also hold in-game tokens to engage in trading figments, figment augmentations, cards, land, land improvements and learning journeys. Thus, a participant has an investment in one or more elements of the platform. What happens to the value of that investment is of evident concern.
The Platform and the Return on Investment
We know that a person is more likely to invest if she feels confident that her downside risk is covered; that there is some limit to how far and how fast the price of her figment etc…will decline, and that she will be able to sell her assets at a fair price on the market if needed. We also know that someone who is serious about engaging in the platform will not want the figments or the tokens or any other assets to become part of a ‘pump-and-dump’ scheme that attracts speculators who are not interested in the multiverse per se.
To achieve these goals requires that we devise a policy that, on one hand, cushions a steep fall in prices and, on the other hand, slows the pace of a steep increase in prices. The former will instill confidence while the latter will discourage speculators from invading the ecosystem. It also requires that we have a functioning market to exchange the assets at fair prices.
How the RCM Monetary Policy Works
We use two instruments to achieve these goals. One instrument is to adjust the quantities of figments, in-game tokens, cards and land. The other instrument is to draw down on a stabilization fund into which a portion of platform revenues are placed. Let’s look at the policy response to a steep decline in the price of figments (in terms of dollars).
The policy algorithm monitors the price of new figments issued at periodic auctions. When the price falls steeply for a period of time, the policy instruments kick in: The number of new figments offered at auction is reduced, the price of splicing new figments is increased and the stabilization fund purchases, and retires, figments. The reduction in the quantity of figments (relative to what would otherwise occur) will increase scarcity and price.
The policy in response to a steep reduction in the price of in-game tokens works in a similar manner: The issuance of new currency is reduced and the stabilization fund purchases in-game tokens. The same policies are employed to stabilize a fall in the price of cards or land. Finally, actions in the opposite direction are used to temper a rise in price. A steep increase in price will be met with an increase in quantity.
The Credibility of RCM Monetary Policy
The adjustment of quantities - of figments, of tokens, of cards and of land will be written into the Constitution of the RCM DAO as an automatic algorithm. Similarly, the contribution of revenue into the stabilization fund and the expenditure from the fund when prices move steeply will be written into the Constitution of the RCM DAO. Consequently, the monetary policy will be automatic and credible.
The Limits of Monetary Policy
Part of the credibility of our monetary policy is to acknowledge its limitations. No matter how large it becomes, the size of the RCM will be small compared to the financial system into which it connects. Our monetary policy can only draw on resources that are internal to RCM. We lack the resources to counter a tsunami, but we can push against storms and we can discourage the tsunami from materializing.
Market for Figment Exchange
The key to success of a market is a mechanism to aggregate the relevant information distributed among market participants. This allows price discovery and leads to exchange of the assets when both parties would benefit from such exchange. A central difficulty in designing such a mechanism for figments is a multitude of distinct figment types that are related to each other. For example, in a usual financial market, all stocks of a company within a class are fungible. If one wants to buy an Apple stock, she can submit a buy order for such stock knowing that any of the stocks that she can buy are equally good. In contrast, a figment gets more valuable as it is used, and any two figments will be likely to be different from each other, although some figments will be imperfect substitutes for each other while some others complement each other. We use periodic two-sided auctions and matching mechanisms to achieve quick efficient exchange. The assets put on sale are sold through simultaneous ascending bid auctions, while the demand for assets are filled by a version of deferred acceptance mechanism.
Muhamet Yildiz PhD
Professor of Economics, MIT
Chief Economic Advisor, RCM Labs
Daniel Aronoff PhD
Research Scientist, MIT
Senior Digital Currency Advisor, RCM Labs
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Editor’s note: In October 25th, 2022, Daniel joined RCM AMA and shared few high level thoughts on RCM Monetary System. Take a listen here:
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