Swap Mechanism

For the Vacas ecosystem to operate smoothly, it is essential to enable the exchange between VRT and partner reward points (RP) through the Points Swap function, while maintaining sufficient VRT liquidity within the Reserve System. To achieve this effectively, the exchange ratio between VRT and RP is dynamically adjusted in real time using a weighted constant known as the Reserve Ratio.

Fluctuations in this exchange ratio are influenced by market supply and demand, which can in turn induce arbitrage activity. Through this process, the Vacas Reserve System aims to maintain stable VRT liquidity and ensure a consistent and reliable Points Swap function for users.

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Terminology

1. Swap Reserve

   • The VRT Reserve dedicated to VRT ↔ RP swaps.

   • Activated exclusively through VRT → RP or RP → VRT transactions.

     • When RP → VRT: Partner RP is burned, and VRT of equal value is transferred from the Reserve to the user’s wallet.

     • When VRT → RP: VRT is sent from the user’s wallet to the Reserve, and new RP is minted by the partner.

2. Liquid Quantity (LQ)

   • The total amount of VRT circulating in the market that is not locked and available for VRT ↔ RP swaps.

$$LQ = (SwapReserve_{Unlocked}) + (Else_{Unlocked}) - (VRT_{burnt})$$

1. Reserve Quantity (RQ)

• The total amount of VRT held within the Swap Reserve.

1. Reserve Level

• The ratio of Reserve Quantity to Liquid Quantity.

$$ReserveLevel = \frac{LQ}{RQ}$$

1. Reserve Threshold

• Determines circulating VRT supply by comparing against the Reserve Level.

  • Adjusts supply and demand for VRT ↔ RP swaps.

• If Reserve Threshold < Reserve Level → incentivizes RP → VRT (reducing VRT in Reserve).

• If Reserve Threshold > Reserve Level → incentivizes VRT → RP (increasing VRT in Reserve).

1. Reserve Ratio

• The ratio of the Reserve Level to the Reserve Threshold.

$$ReserveRatio = \frac{1}{ReserveLevel} - ReserveThreshold$$

• ReserveRatio > 0

  • incentivizes RP → VRT (reducing VRT in Reserve).

• ReserveRatio < 0

  • incentivizes VRT → RP (increasing VRT in Reserve).

Determination of VRT ↔ RP Exchange Rate

• Parameters

  1. VRT market price

     • Price API Feeding

  2. Reserve Ratio

• Determining Formula

  • The VRT market price is adjusted with a Reserve Ratio-based weighting factor (discount/premium).

    $$P_{VRT} = P_{ex} \cdot f(r)$$

    $P_{VRT}$: Exchange value of VRT in Vacas’ RP ↔ VRT process

  $P_{ex}$: Current market price of VRT

  $r$ : Reserve Ratio

  $f(r)$: Weighting factor (discount/premium) applied according to Reserve Ratio

Formula f(r)

• $f(r) = Vacas Swap Rate$

  • Reserve Ratio $r$

    • $-1 ≤ r ≤ \frac{1}{ReserveThreshold} -1$

  • Let

    • $ReserveThreshold = T$

  • $f(r)$

    • if $r=0$

      • $f(r) = 1$

    • for $-1 ≤ r < 0$

      • $f(r) = \frac{1+3^{1/r}}{1-3^{1+(1/r)}}$

        • Graph

        

    • for $0 < r ≤ \frac{1-T}{T}$

      • $f(r) =\frac{4}{1+3^{-\frac{1-T}{Tr}}}-3$

      • if $T=0.8$

      

      • if $T=0.5$

      

      • if $T=0.2$

    

    • $T=0.5$ , $-1≤r≤1$ , graph of $f(r)$

  

  • Around values close to zero (-0.25 ~ 0.25), the curve is smoothed for the user's swapping utility, ensuring that the exchange value does not fluctuate by more than ±5%

    • In other ranges, steeper exchange rate adjustments are applied to control the circulation of VRT.

    • $r = -0.25$

      • $(r,f(r)) = (-0.25, 1.051)$

    • $r = 0.25$

      • $(r,f(r)) = (0.25, 0.951)$

Determination of Reserve Threshold

The Reserve Threshold is a critical parameter in managing market liquidity. It must be adjusted based on the conditions of services and partner companies, including:

• Circulating supply over recent periods

• Average transaction volume among partners

• Current partner status and agreements

• Upcoming service launches

By incorporating these factors, Vacas ensures that the exchange ratio between VRT and RP is managed effectively, sustaining stability within the ecosystem.