Liquidity Management (Stability)
Stability & Growth By Design
Elephant Money was designed with price stability and growth in mind. This is achieved through the implementation of two passive systems to address liquidity depth (price stability) and price appreciation (growth) simultaneously.
The buyback system and front office (token buyers) drive price appreciation by removing ELEPHANT tokens from the LP.
The transaction fees on PCS and graveyard rebalances build liquidity depth by continuously adding more LP tokens to the ELEPHANT/WBNB liquidity pool.
In AMMs (like PCS) the token price is determined by the ratio of two assets in the LP and when a buy or sell occurs this creates a change in the ratios moving the price up or down.
The AMM uses a formula called the Constant Product Formula to make sure the two assets in the LP always stay at a 50/50 value ratio. When the pool becomes out of balance the AMM rebalances the "price" back to a 50/50 ratio constantly.
By increasing the liquidity depth through the addition of more LP tokens this creates more depth in the liquidity pool, meaning it now takes more capital to move the price
To keep things simple I will not use the formula but I will show the results of how the AMM works in a simplified manner.
For this example the price of TRUNK is at $1.00 and the liquidity pool is TRUNK/BUSD.
For this example the LP has $1000 USD value
500 TRUNK/ 500 BUSD LP
If someone buys 20 TRUNK, this swap would be routed through the BUSD side. Adding more BUSD to the pool and removing the equivalent value in TRUNK from the pool.
BUSD in, TRUNK out
The pools balance has now shifted.
480 TRUNK / 520 BUSD LP
The AMM then rebalances the prices back to a 50/50 ratio.
Now there are only 480 TRUNK in the LP but the value need to equal to the other side of the pair (520 BUSD). So the AMM adjusts the price of TRUNK to maintain the 50/50 value ratio.
And what does this look like?
520/480 = $1.083 (+8.3%)
$1.083 is the new price of 1 TRUNK and now the pool value is back to 50/50 value ratio.
Now let's look at this same transaction with Deeper Liquidity.
For this example the LP has $10,000 USD value and TRUNK is at $1.00
5000 TRUNK / 5000 BUSD LP
20 TRUNK purchased with 20 BUSD
This adds 20 BUSD to the LP and removes 20 TRUNK
After the purchase LP ratio is at:
5020 BUSD / 4980 TRUNK
The AMM will rebalance by adjusting the price of TRUNK to make sure both assets are at a 50/50 value ratio.
5020/4980 = 1.008 new TRUNK Price (+0.8%)
So we can see from this example a $20 buy moved the price 8c with a $1000 USD value LP while that same $20 transaction with a $10,000 USD value LP failed to move the price 1c.
Furthermore, these principles work in reverse as well. So on the flip side removing BUSD from the LP and adding more TRUNK (selling) will have a declining effect on the price.
As you can see from the example above increasing liquidity depth helps to increase price stability, the benefit of this is it allows holders to move medium to large size positions in and out of ELEPHANT token without it causing a huge price impact to the upside or downside.
The Elephant Money ecosystem utilizes a strategic combination Elephant buybacks and purchases by holders to drive long-term price appreciation for ELEPHANT token.
This next section we will cover how this is achieved.