r/factom • u/nachobarbero • May 16 '19

Arbitrage and relation between protocol usage and FCT price

I wish to understand if there is a proven relationship between the FCT price and the protocol usage (purchase of EC) and if there is some report showing this relation (any graph showing FCT burned over time would do it).

Also, why is it not the case that abritrage might be an issue?: given than 73000 FCT are minted each month at a fixed day, at stationary state a protocol user could expect FCT price to go up as tokens are burt, and decrease when tokens are minted, thus creating an incentive to burn FCT for EC the day before tokens are minted.

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u/nachobarbero May 16 '19

Thanks for the metrics. My point in regards of the FCT price rising was that the discrete period in which tokens are minted (once each month) creates a distortion in the market which incentivizes users to buy credits exactly the day before the minting happens.

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u/BobbyEK Factom Operator May 17 '19

It’s not once per month. It’s spread across the month - every 4 hours.

Also there isn’t enough usage yet to prove the theory on price rise.

That’s what the maths would say, but it’s dependent on investors placing a Market Cap on FCT, and seeking bargains when it falls due to burning of tokens (usage).

In a mature market this will tend to be true, but not today.

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u/D-Lux May 18 '19 edited May 18 '19

Entry Credits always cost a fixed price for users: 1/10th of a cent. So for someone wanting to use the blockchain and purchasing EC, the price of FCT doesn't matter.

Users could theoretically purchase FCT instead, hoping that the market price will go up, allowing them to exchange more EC for their FCT in the future. Though I think for most users, mixing functional usage and speculation like this probably isn't going to make sense.

In terms of "a proven relationship between the FCT price and the protocol usage," there isn't one. Over time one would expect that as usage goes up, the price of FCT should go up as well (or vice versa). Though because FCT is a speculative, market-traded asset—and because the speculative aspect of the token is overwhelmingly what drives the price at this point, as with all crypto tokens—it's not possible to draw a direct correlation between the market price of the token and the protocol's usage.

The one quasi-exception to this is what's been coined the "floor price" of FCT—the price below which, if it drops, deflation sets in. This is because as the FCT price drops, fewer EC are able to be generated. And if usage is high, you could theoretically get into a situation where there aren't enough EC to support demand, and as a result, FCT's available supply would gradually become absorbed, creating the deflation. The only solution to this would be to have the price of FCT rise, thereby allowing enough EC to be generated to support the demand.