How does the protocol stabilise the price of FLOAT?
We stabilise the price of FLOAT by controlling the supply of FLOAT on the market.
If the price of FLOAT is away from its target price, we want to change the supply by minting (expansion) or buying up and burning FLOAT (contraction). We do this through a dutch auction (in an expansion) and a reverse dutch auction (in a contraction), respectively.
The maximum length of each Dutch auction is 150 sequential blocks on the Ethereum Blockchain. In these auctions, arbitragers will be given the opportunity to buy new FLOAT below market price (in an expansion) or sell FLOAT above market price (in a contraction) to make a profit. In doing so, arbitragers will very quickly change the supply of FLOAT on the market. The reason we chose the auction model is a) it allows us to intervene in the market without having to trade FLOAT ourselves and b) it also allows the system to be very efficient.