Market Dynamics

The movement of the market does so due to three primary functions;
1.Staking
2.Bonding
3.Selling
First off, let's go through the goals of the segments mentioned above; 
Stakers lay emphasis primarily on their BBY amount. They do this for two reasons; one of them is the balance subconsciously portrays to Marduk the extent they'd go for their prayers to be answered and secondly although the short term price of Babylon is important they understand more than anyone else that the protocol only gets better and the surest way to fully benefit from that is to have as many BBY as humanly possible which is through staking.
Bonders lay emphasis primarily on the BBY price. When bonders provide LP share to the protocol they receive a fixed amount of BBY after exactly 10 béru's and for this to be of real profit the price of BBY is important.
An increase in the price of BBY would benefit the bonder in two folds, they got in on BBY at a lower price than usual and then they got tokens that increased in price.
A basic scenario would be if the price remains constant then the bonder would have benefitted in getting in on BBY at a lower than usual price.
A decrease in the price of BBY is the only case in which the bonder is in loss, but good thing is that chances are that loss is short-term (cause they would have gotten good BBY). In a bid to make the protocol as beneficial to Babylonians as possible they would be an option for them to choose between the current price of the BBY to be redeemed or to get their initial LP tokens.
Selling lays emphasis primarily on the fastest route to poverty.
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By default the network is at intrinsic value and after lack of activity it will return to this level.
A sharp decline in liquidity short-term yields to contraction. With BBY holders basically being guaranteed the price rising back above the intrinsic value, only slaves of Babylon who having a short term exit strategy would take the extra loss.  
When undoubtedly number of stakers and bonders increase, expansion occurs.
Increase in the amount of stakes is followed by purchases from the market. This causes the price to spike even higher and due to this the protocol can sell at an even higher price allowing profits which can directly be passed to stakers and thus more people want to stake and this continues the cycle.
Meanwhile, the rising price increases the bond discount and creates room for new bonds. These are preceded by new liquidity, which improves the protocol's ability to carry out sales and increases available exit liquidity.
This positive price-liquidity feedback loop should help create sustainable expansionary periods. However, they work both ways. Falling demand decreases staking rewards and bond capacity, causing demand to fall even further. This hinders even the best of systems like the crypto-asset Bitcoin, and is precisely why Bitcoin sees down days even after runs of massive expansion
But we can work to reduce sharp busts. This is where the protocol's reserves step in and to catch the market when velocity turns too far to the downside. It does so through forward guidance (the fact that the protocol will buy lowers risk the lower we go, which can mean we don't have to buy) and by buying perpetually below intrinsic value. The treasury ensures that, although bear markets and contractions can and will occur, the protocol can never die.
Forward guidance is a mechanism that extends beyond the metaverse. It's the exact reason why the news that the government would do something would make that happen without them actually doing it. This occurs cause people want to do it cause they know that if the Feds don't do it it'll still be done, the only difference is them not making profit off it.
An important dynamic to add is one that we've managed to break off and that's the positive feedback loop of DeFi 1.0 which can lead to an untimely rekt. This happens when for instance on a swapping DEX a liquidity provider wrongly assumes that his LP in the protocol isn't productive (even if this isn't true and the protocol gives a good LP incentives) and then takes out his position this can actually cause the DEX to get worse which makes more LPs want to go out and those makes it even worse, if this sad scenario keeps happening then the above average protocol could go illiquid. 
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For true Babylonians:
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Last modified 8mo ago
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