Stabilization Incentive Burn (SIB)

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The Stabilization Incentive Burn (SIB) is a mechanism to stabilize and support the market price of ndau. When in effect it is imposed as an additional fee when ndau are transferred from one account to another. Based on observed transactions, a current Market Price is regularly published to the ndau network. If the Market Price of ndau drops below 95% of the current Target Price, the SIB fee is imposed on all transfers. If the Market Price is 95% of the Target Price, the SIB fee is 0%. It increases linearly until it reaches 50% if the Market Price equals the Floor Price. To reduce the supply of ndau and support the Market Price, ndau paid as SIB fees are removed permanently from circulation (“burned”).

Similar to other digital currencies, all ndau transactions are subject to a small fee that supports the operation of the ndau network. ndau, however, has an additional, unique feature known as the Stabilization Incentive Burn (SIB) system to mitigate downward volatility. When the Market Price of ndau drops to 5 percent below the Target Price, the SIB activates. The SIB is a fee that is applied on top of normal transaction fees. The SIB rate progressively increases as the Market Price approaches the Floor Price, and the ndau collected through the SIB fee are permanently removed from circulation.

The SIB begins at 0 percent when the Market Price drops to 5 percent below the Target Price and climbs to 50 percent as the Market Price approaches the Floor Price. The SIB reduces the incentive to sell during down market conditions because the cost to do so grows higher the more the market declines.

Individual incentives created by the SIB and the aggregate, cumulative effects of removing ndau from circulation serve as stabilizers for ndau. This mechanism functions as a spring that gets stronger in pushing the Market Price back up toward the Target Price; the more the Market Price diverges from the Target Price, the more buoyant the Market Price becomes. The cumulative restorative effect due to a rebalancing of supply and demand also gets stronger the longer that divergence continues.

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