Price Pegging Mechanism

BTCH Target Price

The target price is always obtained from the 365 days TWAP of Uniswap BTC / USDC pair divided by 10000.

BTCH Market Price

The current market price is obtained from the Uniswap BTCH / WBTC / USDC. 24 hours TWAP Market Price will be used when rebalancing, that means, after the protocol launches, in the first 24 hours there will be no rebalancing.

The Price Gap

The Price Gap is the percentage of the price difference between the BTCH Market Price and the BTCH Target Price.

For example: The Target Price of BTCH is $4.0614, the current BTC market price is $60768, so the target BTC/BTCH price is 60768 / 4.0614 = 14962.32826119. TWAP Market Price of BTC/BTCH is 15212.345, the Price Gap is (15212.345 - 14962.32826119) / 14962.32826119 = 1.67097482% (18 decimals)

Target Price Gap Range

The Target Price Gap Range is to decide whether a rebalancing will take effect. It is a [floor, ceiling] range. When the Price Gap is out of the range, rebalance action could be invoked by anybody.

Rebalancing

Rebalancing is the core mechanism to keep the BTCH index pegged to the 365-day moving average price of BTC. TWAP market price will be used to determine whether a rebalance needed to be executed.

When Rebalancing can be triggered

When the Price Gap is out of the Target Price Gap Range, rebalance action could be invoked by anybody. Whoever successfully invoked the rebalance action would get a 5% (Rebalance Incentive Rate) of the BTCH that is supposed to go to the reward pool, and the rest 95% BTCH will go to the reward pool.

What happens in rebalancing

When the Price Gap Rate drops below the Price Gap Range

An upwards-rebalance will happen. The Protocol Treasury will withdraw PCL from the dex and re-provide the liquidity using the current target price, using all WBTC in the PCL. BTCH will be left, a 1% (Upwards Rebalance Rate) of the left out BTCH will be sent to Staking Reward Pool (in which 5% will go to the rebalance initiator, and 95% will actually go to the Reward Pool). The rest of the left BTCH will be burnt.

When the Price Gap Rate rises above the Price Gap Range.

A downwards-rebalance will happen. The protocol will withdraw PCL from the dex and re-provide the liquidity using the current target price. BTCH will not be enough, a corresponding number of BTCH will be minted and paired with all the WBTC. A 1% (Downsides Rebalance Rate) of the minted BTCH will be minted in additional and sent to Staking Reward Pool (in which 5% will go to the rebalance initiator, and the rest will actually go to the Reward Pool).

Please keep note that a small swap transaction between BTCH and WBTC may be required, after withdrawing the LP by Protocol Treasury, to adjust the BTCH's price back to the target price.

The rebalancing frequency

In order to reduce the frequency of rebalancing, a rebalance Interval will be set. Only when a predetermined certain block passed after the last rebalance, could a new rebalancing take place.

Rebalancing Algorithm

remove all LP, get N(BTCH) and N(BTC);
If (not all LP) do some swap to make market_price == target_price;
If target_Price > market_Price
// upwards rebalance
remove some New(BTCH) = N(BTCH) - N(BTC) / market_price;
send BTCH = New(BTCH) * Upside Reward Distribution Portion to reward pool and burn the rest;
else
// dowards rebalance
mint New(BTCH) = N(BTC)/market_price - N(BTCH);
mint BTCH = New(BTCH) * Downside Reward Distribution Portion to the reward pool;
 
Add into LP based on the market_price