By allowing participants to both buy and sell SGA, Saga’s smart contract acts as a market maker.
To buy SGA tokens, participants send funds to Saga’s Smart Contract, where they are kept as part of the variable reserve of conventional currencies, hosted by reputable banks.
The primary purpose of Saga’s reserve is to ensure participants can sell SGA; the contract will always offer to buy SGA, drawing on funds from the reserve.
The SGA token will be available for purchase starting Q4 2018.
Directly from the Smart Contract, using ETH as a base asset
Directly from one of the banks holding Saga’s reserve, using the local fiat currency as a base asset
SGA’s price fluctuates according to market demand. However, price volatility is moderated by the interplay between the money supply and the reserve. By buying and selling SGA, Saga’s smart contract adjusts the money supply to meet market demand. Therefore, the reserve acts as a buffer, limiting the impact of market fluctuations.
In practice, when the economy expands, the contract increases SGA supply, slowing price appreciation. Conversely, when Saga’s economy shrinks, the contract reduces the money supply, thereby curbing any large drops in SGA price.
Within the range set by the contract’s bid and ask prices, Saga operates a price band. When the price in secondary markets deviates from the price band, the contract intercedes, altering the supply of SGA. The price band is designed to limit price volatility, while allowing the secondary market to freely set the price within the band. The width of the price band is designed to increase as Saga’s economy matures, allowing the secondary market to exert increased influence.
Revenue from the contract’s bid/ask spread is deposited into Saga’s reserve, raising SGA price. When volatility triggers the market-making mechanism, this additional revenue is funnelled into the reserve, effectively compensating long-term SGA holders for weathering periods of volatility.
SGA price is based on two sources of value:
(i) its variable reserve backing of conventional currencies
(ii) inherent value
The fraction of value based only on the reserve is known as the reserve ratio.
The reserve ratio can also be viewed as a measure of market trust in Saga. Here we observe an inverse relationship: the higher the trust, the lower the reserve ratio.
Saga’s reserve-based value is a stabilising factor. While stability is prized, the limitation is clear: in a fully backed currency there can be no price appreciation.
The internal value of a currency is prone to volatility: it can both rise and fall, reflecting the strength of the economy it represents.
This delicate balance, the interplay between reserve and inherent value, should be managed to allow SGA price to grow along with its economy, while controlling volatility.
When the economy is small－and the inherent value is especially volatile － Saga applies a high reserve ratio, supporting stability. As the economy grows and volatility decreases, Saga’s reserve ratio decreases in tandem, encouraging growth in SGA price.
Saga’s price volatility is always restrained－a substantial cash flow is needed to dramatically alter SGA price. When the economy is small, the high reserve ratio protects it. When the economy is large and the reserve ratio is low, its sheer size ensures stability.
Should Saga’s economy shrink, the contract will deliberately increase the reserve ratio.
This enhances the volatility-restraining mechanism, acting as a counter-cyclical boost to the economy. A higher reserve ratio will alleviate panic, and help stimulate a recovery.
Saga Genesis (SGN) is a voucher token convertible to a maximum of 15 SGAs.
SGN vouchers were offered to early backers in order to fund the development of Saga’s ecosystem.