WLDT Manager

The WLDT Manager is in charge of manipulating the supply of WLDT to keep its price stable at $1.

5.2.1 Raising the Price

Whenever the market price of WLDT falls below $1, the WLDT Manager will buy Re- serves at the market price using Vault assets and burn them. These trades are executed through the Auctioneer with a maximum price and maximum quantity. The maximum acceptable price for buying WLDT is $1 of the asset of exchange, and the maximum quantity of WLDT to trade for is:

r · Quantity of WLDT · $1 − WLDT Price , $1

where r is a damping factor7 to prevent sudden overreactions and price oscillations. 5.2.2 Lowering the Price

Whenever the market price of WLDT is above its target price plus a stability spread,8 the WLDT Manager will auction WLDT tokens to lower the token supply and thereby lower the price. The auctions work differently depending on whether or not there is an excess pool of WLDT tokens.9 If this excess pool exists, then the WLDT Manager will sell WLDT tokens from that pool for $1 worth of WLDT Rights tokens each, allowing Rights holders to perform an arbitrage loop that brings the price back down to $1. If there is no excess pool of WLDT tokens, the manager will mint new WLDT tokens and sell them for vault assets. The Auctioneer executes these trades with parameters for minimum price and maximum quantity. The minimum acceptable price for selling

6The magnitude of the transfer fee will be controlled by the WLDT core team, and later it will be determined through governance. It’s difficult to reason about the effects of a transfer fee a priori, but we think it’s important to build flexibility into the system.

7This number has not been set yet. Most likely it will be empirically calibrated after the launch of the system, and it may become a dynamic factor based on running estimates of the WLDT recent price elasticity and liquidity of Vault assets. Its purpose is twofold—first, it lowers the odds that the protocol will overreact to price changes and launch inefficient auctions. Second, if some Vault assets turn out to be illiquid enough to cause problems, this damping factor can slow trading such that the protocol doesn’t lose too much money from trading illiquid assets.

8The stability spread has not been determined yet—it will depend on the price elasticity of WLDT, exchange fees, and the liquidity of assets held in the vault. At most it will be a few cents.

9see the Maintaining the Vault level section for more details.

17

WLDT is the target price plus stability spread. The maximum quantity of WLDT to trade away is:

r · Quantity of WLDT · WLDT Price − $1 , $1

where r is the same damping factor as above. 5.2.3 Lowering the Target Price

Under normal circumstances, the WLDT Manager obeys the behavior defined above and aims to defend a peg at $1. However, the WLDT Manager will defend a peg lower than $1 when the Vault Ratio drops below 1. In this case, the WLDT Manager will defend a peg equal to:

$1 · Vault Ratio

For example, if the Vault Ratio is 0.9, the WLDT Manager will defend a peg at $0.90. This behavior prevents a “run on the bank”. Instead of defending the $1 peg until some WLDT holders are left with a worthless token, the WLDT Manager defends a peg that allows all WLDT holders to redeem their token for equal value.