> For the complete documentation index, see [llms.txt](https://bmv.gitbook.io/mundi-token-whitepaper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://bmv.gitbook.io/mundi-token-whitepaper/economic-model/balance-and-hedging.md). # 🧘♀ Balance & Hedging ### **Economy Equilibrium** Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand. The balancing effect of supply and demand results in a state of equilibrium. Economists find that prices tend to fluctuate around the equilibrium levels. If the price rises too high, market forces will incentivize sellers to come in and produce more. If the price is too low, additional buyers will bid up the price. These activities keep the equilibrium level in relative balance over time. The same principle applies to MDT for the Minting & Burning process in order to control inflation and currency deflation. One of the main objectives is to control "whales" that are characterized by buying a large majority of the tokens to generate supressed demand and cause the price of the token to increase to dump it later. An OBVMA (OnBalance Volume Minting Algorithm) script, is planned to run each hour or twice a day. The algorithm will examine issued token volume and check customers portfolio balance. If one of the portfolios has more than X percent (around 20%) of the total volume of **MDTCoin**, the algorithm will mint the delta. That is, if a portfolio makes a purchase of 18% of total tokens in less than a day, OBVMA will mint of between 10-18% to compensate that purchase in order to avoid a pumping strategy due to supressed market demand, forcing the whale to releases the tokens at a reasonable price. OVBMA will burn tokens to overcome inflation. ### Inflation and Burning Policy #### Inflation Inflation is the effect of money losing its value. Why does any good lose its value? One reason could be that there is too much of it. We call this oversupply. If we have an oversupply of money, it starts losing its value. But, is a lot of coin supply good or bad? It’s neither. But it will depend on how BMV policies controle this inflation. All cryptocurrencies experience inflation. For some, the inflation rate can be less than 1%, while for others, it can exceed 10%. Moderate level of inflation can drive coin spending, help grow the economy, and prevent people from holding on to their coins for too long. OBVMA analyze the offer/ demand volume and might release coins through flash discounts. This strategy will raise customer engagement and will control indexed price as well as free market total supply. The maximum expected inflation levels are of 20% on the first year, 10% for the second and less than 5% for the third year considering token deflation in subsequent years as market adopts ESG tokens as a financial standard. **Burning** “Burning” **MDTCoin** means permanently removing a number of tokens from circulation. This is typically done by transferring the tokens in question to a burn address, i.e. a wallet from which they cannot ever be retrieved. This is often described as destroying tokens. A project burns its tokens to reduce the overall supply. In other words, it creates a "deflationary" event. Burning will take MDTCoins are purchased too be consumed. Burning events will be registered by BMV and updated the core system for internal balance UCS sheets. All the MDTCoins that are assigned to the lot will be made available, in no longer than a year, in the certification on-line platforms where it is consumed; The price of the token does not necessarily increase when the burn takes place. Sometimes, other news or indexes related to the token can. Burning tokens tend to support an asset’s price and is considered a positive move as business evolves. ### Tragedy of the Commons In economic science, the **tragedy of the commons** is a situation in which individual users, who have open access to a resource unhampered by shared social structures or formal rules that govern access and use, act independently according to their own self interest and, contrary to the common good of all users, cause depletion of the resource through their uncoordinated action. A rival good means that only one person can consume an asset and, when someone consumes a unit that unit is no longer available for others to consume. All consumers migth become rivals competing for that asset and each person’s consumption subtracts from the total stock of the good available. Note that in order for a tragedy for the commons to occur the asset must also be scarce like a token, since a non-scarce good cannot be rivalrous in consumption. If each consumer maximizes the value they get from the asset by consuming as much as they can as fast as they can before others deplete the resource, and no-one has an incentive to reinvest in maintaining or reproducing the good since they can not prevent others from appropriating the value of the investment by consuming the product for themselves. The good becomes more and more scarce and may end up entirely depleted. #### How it applies to our ecomomy BMVs token is semi-ancored to the index price of a set of commodities. As a utility token, it might have price variations, but they should not surpass a 50% YTY pricing in trading ecossystem. Self-owned wallets with a high volume of token ownership migth send ask orders with an underprice, compromising the price variation of the whole ecomomy. As this occurance will affect all token holders we face a Tragey of the Commons case, thus, enforcing exclusive rights to economic assets to whowever might over-consume/ dump price tokens over the course of history becomes imperative. #### BMV regulatory hedging The solution is top-down regulation and direct control of common-pool and BMV customer´s custodial assets. Regulating transfers to self-owned wallets will prevent price tanking and preseve investment of other participants will prevent harmful speculation. Token transfer limits and quotas to self-owned wallets will apply. Technologically it means that BMV will measure token units to be transfered to self-owned customer´s wallets from it´s customers wallets BMV custody. This strategy is a popular solution to overcoming the tragedy of the commons as described by economists led by Nobelist Elionor Ostrom. {% hint style="success" %} **Reference**: Elinor Ostrom was the first woman, and one of just two women, to win the Nobel prize in economics. {% endhint %} Before the English enclosures laws, customary arrangements among rural villagers managed their use and conservation. By limiting use to local farmers and herders, managing use through practices such as crop rotation and seasonal grazing, and providing enforceable sanctions against overuse and abuse of the resource, these collective action arrangements readily overcame the tragedy of the commons, relying on measures to address the good’s rivalry in consumption by regulating consumption.