AVAR Burning Rate

Assume a mature market situation. Let's consider supply reduction through the Token Auction Mechanism. AVAR tokens will be burned by the Token Auction Mechanism at the average rate of 5,169 tokens per day; this number is arrived at by dividing the daily management fee by the AVAR fair price.

$$\text{burning rate} = \left(\dfrac{\text{daily management fee}}{\text{AVAR fair price}}\right)$$

For example, for the first day, if the AUM size is $1m with a 2% management fee, the daily management fee will be:

\text{daily management fee}=\left(\dfrac{$20,000}{365}\right)=$54.79

The AVAR fair price is:

\text{fair price}=\left(\dfrac{$20,000}{56,737,109}\right)\cdot30=$0.0106

AVAR tokens will be burned:

\text{daily burning rate}=\left(\dfrac{$54.79}{$0.0106}\right)=5,169\text{ tokens}

At the end of the year, if the AUM size is $300m with a 2% management fee, the daily management fee will be:

\text{daily management fee}=\left(\dfrac{$6,000,000}{365}\right)=$16,438

The AVAR fair price will be:

\text{fair price}=\left(\dfrac{$6,000,000}{56,737,109}\right)\cdot30=$3.17

AVAR tokens will be burned:

\text{daily burning rate}=\left(\dfrac{$16,438}{$3.17}\right)=5,185\text{ tokens}

In a mature market, the burning rate is stable at around 1.89m tokens per year or 5,185 tokens per day. If the market is inefficient, the price of the AVAR token has been pressured under fair value; while AUM size is still the same, more AVAR tokens will be auctioned and burned.

For example, at the end of the year, if the AUM size is $300m with a 2% management fee, and the market price of the AVAR token is $1.585 or 50% below the fair price of $3.17. AVAR tokens will be burned:

\text{daily burning rate}=\left(\dfrac{$16,438}{$1.585}\right)=10,371\text{ tokens}

If the market price of the AVAR token is $0.634 or 80% below the fair price of $3.17. AVAR tokens will be burned:

\text{daily burning rate}=\left(\dfrac{$16,438}{$0.634}\right)=25,927\text{ tokens}

As a result, the supply of AVAR tokens will be reduced faster, helping to push the price of AVAR tokens to the higher price and establishing AVAR tokens' price in the long run.