# Errata on Continous Auction

## Game Theory Implications

A major reoccurring question is whether or not this sort of approach can lead to collusion on the part of Suppliers to get better terms for their deposits. This mechanism is collusion resistant.

To unpack this, we need to build an intuition about how the parameters function.

Let's take a simplified example. We make momentum decay by 10% a day. Let's say the volume coefficient is 100. The floor is set to be 1% of Basket's average TA. Let's observe how this math would shake out.

Deviation from Basket Average TAMomentum at deviationDeposits to maintain this level

-1%

0

$0\:t\:CO_2 e/day$

-0.5%

50

$5\:t\:CO_2 e/day$

+0%

100

$10\:t\:CO_2 e/day$

+0.5%

150

$15\:t\:CO_2 e/day$

+1%

200

$20\:t\:CO_2 e/day$

+1.5%

250

$25\:t\:CO_2 e/day$

+2%

300

$30\:t\:CO_2 e/day$

From this, we can see that the model will let less new supply into the system as the offered rates become unfavorable. On the other hand, it will capitalize significantly on new supply entering the system at favorable rates.

If their goal is to sell into the system, a rational Supplier will maximize gross margin over relative margin. Since they could bring in 2x less supply at -0.5% than at +0%, it would make more economic sense to capture spreads at +0%. Since this game would find a non-race-to-the-bottom market equilibrium with a supplier, it does not provide a significant collision surface at 2 Suppliers.

Ultimately supply comes into the system if a Supplier can benefit from selling their Collateralized Basket Tokens at a premium for what they anticipate the underlying value is at that time.

Finally, suppose no significant demand materializes for Collateralized Basket Tokens, and the price trends downward. In that case, LPs will be less impacted in carbon-denominated terms since sell pressure won't be amplified by significant new supply coming in at even less desirable terms. Additionally, the parameters can be updated if they lead to undesirable results.

## Deposit Size and Time Implications

The system privileges slow and steady supply increases over massive supply shocks of new Collateralized Basket Tokens. It does this through the Volume Coefficient parameter. This parameter can be increased regularly as the total supply of Collateralized Basket Tokens increases.

Due to some underlying business logic, it's marginally better to do one larger transaction instead of multiple tiny ones within a small time period. "Slow and steady" is generally intended to mean regular supply increase on a daily/weekly basis. There are no significant benefits for hourly deposits.

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