tokenomics audit

October 2022

Introduction
Assumptions
Tools of the analysis

334Summary and Conclusions of the Audit
Rating4
4

Algem Token Flow

5

Liquid Staking
How It Works

6
6

Liquid lending
How It Works

8
8

Stake to Earn
How It Works
How Staking Slots Work

15
15
16

Potential Risks
Liquid Staking & Liquid Lending
Response to Potential Risks
Stake to Earn
Verdict

16
16
17
17
18

Fees

18

Marginal cases analysis
Case: ASTR:nASTR peg stability
Risk mitigation

18
18
19

Token appreciation model

20

Distribution

21

Appendix 1
Simulation 0
Basic definitions
Simulation 1
Simulation 2
Price Simulations
Demand and sell pressure simulations
Rocket Pool Demand Pressure
ETH Demand Pressure
Lido Finance Demand Pressure
Simulation 3
Simulation 4
Addendum: alternative estimation of price

24
24
24
26
27
28
28
29
30
31
32
35
36

Appendix 2
Adjustments and Changes

37
37

Audit overview
Introduction
The goal of this document is to provide a tokenomics audit for Algem. Algem is a liquid staking DeFi
app for Astar Network and Polkadot.
The goals of this audit are to:1) Test whether Algem’s economy is robust and sustainable.
2) Understand whether Algem can experience price appreciation.
3) Investigate whether Algem is exposed to overleveraged positions which could break theoverall system.
Algem has three main functions:1) Liquid staking.
2) Liquid lending.
3) ALGM stake to earn.
Down below we will break down all of the functions.

Assumptions
1) Algem interacts with various external actors, and hence is exposed to external forces. Morespecifically, it deals with ASTR (Astar Network’s native token), and various dApps on thisnetwork. The stability or reputation of these apps as well as other external forces is taken as
a separate concern.
2) The audit is not concerned with Algem’s business or marketing model. If, for example, thedApps chosen are not popular, or PolkaDot faces issues (for whatever reason), this is acompletely separate concern. These are choices made at the governance level.

Tools of the analysis
1) Structural: System break down.
2) Numerical techniques and simulations.
3) Marginal case studies analysis: Examine scenarios of complete instability (e.g. excessive
demand or excessive sell pressure), and whether Algem would hold.

Summary and Conclusions of the Audit
The audit examined Algem’s using structural analysis, data from other projects, as well as
simulations.
The conclusions are the following:
Conclusion 1
Algem’s tokenomics are robust, and there are no Ponzi-like elements or self-feeding loops which
could cause a pump-and-dump. To that extent, Algem’s only weak point are dependency on Astar’s
ecosystem and the wider crypto market. Similar dependencies and externalities exist for any kind of
project and therefore are not a tokenomics concern.
Conclusion 2
Much like many other early-stage crypto-projects, Algem has to use a significant part of its supply in
its early stages for investors, airdrops, and community rewards. This can often lead to an oversupply
of tokens, which can put downward pressure on the price. The audit led to the creation of two newmechanisms (explained in Appendix 2). Both mechanisms are also controlled through governance,
so they are adaptive, but they also give extra incentives and motives for users to participate ingovernance.
Final conclusion
Algem was found to have robust tokenomics. There are no problems with the internal design of thesystem, or the token allocation and distribution strategy. Algem is also fairly adaptive, withgovernance playing a key role in some of the mechanisms that control demand and supply.
Any issues that arise in the project are more likely to come from outside forces (such as market
conditions). Therefore, the project’s tokenomics clearly pass all checks and it is awarded an AAA
rating.

RatingStructure: 5/5
Allocation: 5/5
Distribution: 5/5
Stress tests: 5/5

About the auditor
Dr. Stylianos Kampakis
Dr. Stylianos (Stelios) Kampakis is a data scientist and blockchain expert with more than 10 years ofexperience in technology. He has worked with decision-makers from companies of all sizes: fromstartups to organizations like the US Navy, Vodafone, and British Land. His work expands multiple
sectors including fintech (fraud detection and valuation models), sports analytics, healtech, generalAI, medical statistics, predictive maintenance, and others. He has worked with many different typesof technologies, from statistical models to deep learning to blockchain and he has 2 patents pending.
He was one of the first researchers in the area of tokenomics, as well as one of the first to create
valuation models for NFTs.
He is a member of the Royal Statistical Society, honorary research fellow at the UCL Centre for
Blockchain Technologies, editor at the Journal of the British Blockchain Association, a data scienceadvisor for London Business School and CEO of The Tesseract Academy.
https://uk.linkedin.com/in/dr-stylianos-kampakis
http://thedatascientist.com

Audit breakdown
Algem Token Flow

Algem Token Flow:

AlgemValueFlow.jpg

Liquid Staking
How It WorksIntroduction
The first and most important component of the Algem protocol that leverages the Astar network'sdApp staking is liquid staking. Algem's liquid staking solution, which employs tradable liquid nASTR
tokens, allows users to continue collecting dApp staking rewards while boosting their revenue.
The purpose of liquid staking is to overcome difficulties such as liquidity and fund utilization
efficiency. Users are regularly faced with a decision between protocol staking and liquidity mining
in dApps, and the Algem approach allows users to achieve the preferences of both methods at thesame time.
Summary
1) When staking their ASTR with Algem’s liquid staking mechanism, users receive liquidnASTR tokens on a 1:1 basis.
2) Users’ new nASTR tokens can be used for farming, lending, etc.
3) nASTR is pegged to ASTR, therefore dApps can implement the same use cases for this nASTR
as they would for ASTR and in turn increase their liquidity.
4) For users, staking rewards are distributed according to the current dApp staking APR andrules.
Step by Step Process
1) ASTR is staked by the user using the staking form:

Algem Staking Form

2) Deposited ASTR tokens are delegated immediately to the Astar network's Staking dApps by
Algem's smart contracts and begin collecting staking rewards.
3) nASTR tokens are minted automatically on a 1:1 basis. No need to claim manually.
4) Staking amount and rewards are shown on the staking dashboard:

Algem Staking Dashboard5) The rewards are distributed every ERA according to the current staking APR and amount ofnASTR tokens in the user address (nASTR in pools on other dApps are also counted).
Claimable manually. Algem charges a management fee from the staking reward.
6) It's possible to unstake ASTR anytime via the unstaking form:

Algem Unstaking Form

7) When unstaking, users can opt to receive ASTR tokens immediately via Algem unstaking
pool. In this case, Algem charges a commission. Or users can wait for 10 ERAs and unstake
without commission.
8) Algem sends 10% of the revenue (commissions + build-to-earn1 rewards) to the unstaking
pool.

1

https://docs.astar.network/docs/dapp-staking/Liquid lending
How It WorksIntroduction
Algem's second and most essential feature is liquid lending, which introduces a new concept andservice to the entire DeFi market. Users may continue to earn lending or farming rewards while
increasing their revenue with ALGM rewards and tradable liquid nASTR tokens using Algem's liquid
lending solution.
Liquid lending utilizes the same processes as liquid staking, but instead of engaging just with
Astar's dApp staking, it is directly linked to other dApp protocols throughout the Astar network.
Users may use Algem to give and lend their tokens to dApp protocols in exchange for liquid nASTR
tokens indicating their lending position. Through Algem, ASTR holders can provide or lend theirtokens to lending or staking platforms, stablecoin projects, decentralized exchanges, or other DeFi
protocols.
Summary
1) User provides ASTR to a lending vault. The vault then hands out triple rewards:a) Rewards in the governance token of the dApp.
b) ALGM rewards.
c) nASTR.
2) The same as in the liquid staking case, users’ new nASTR tokens can be used for farming,
lending, etc and nASTR is pegged to ASTR, therefore dApps can implement the same use
cases for this nASTR as they would for ASTR and in turn increase their liquidity.
3) To obtain the incentives in governance tokens, the user must stake all of the ALGM acquired
as rewards back into the vault.
4) The rewards in governance tokens and ALGM are calculated by formulas (equations will be
explained below) and distributed back to users.

Step by Step Process
1) Users choose between three vaults:

Algem ASTR Vaultsa) Vaults differ in terms of time (100, 200, or 300 days) and the quantity of ALGM
rewards; vaults with a longer period get higher ALGM incentives. This is not a lock; it
is simply a depiction of how many days customers will earn ALGM rewards. Tokens
can be unstaked at any moment.
2) Then users choose a partner dApp to supply ASTR.
a) Step 1: the user chooses a dApp.
b) Step 2: The user specifies the number of tokens to supply.

Partner dApp Selection3) Partner dApp generates lending rewards using this ASTR; Rewards type and current APR for
every partner dApp are shown in the first step:Partner dApp APR

4) Then users can manage their deposit on the dashboard:

Management Dashboard5) Incentives distribution:a) Users get ALGM incentives according to their % share of ASTR in the vault.
b) Incentives are distributed once a week. (1 week = 1 cycle).
c) Need to claim and re-stake in the corresponding staking pool.
6) Partner dApp lending rewards distribution:a) Rewards are distributed among ASTR suppliers in proportion to the ASTR in theirvault and the ALGM in their corresponding staking pool.

Part of the ALGM staking pageb) Rectangle shape under the "Algem revenue" refers to the distribution of Algem's
dApp revenue (build-to-earn, fees, etc.). Users could stake ALGM to get a part ofAlgem's revenue in ASTR tokens.
c) Under the "Partner rewards" title are shown corresponding to partners'
dApps/protocols ALGM staking pools. The pools accumulate partnerstaking/lending/farming rewards and then distribute them to the suppliers.
Rewards are defined by the following equations2:

2

Rewards are distributed among ASTR suppliers in proportion to the ASTR in their vault and the ALGM in their corresponding
staking pool (above in the picture we can see an example of the Kagla staking pool).

𝑢𝑠𝑒𝑟

𝑟𝑒𝑤𝑎𝑟𝑑𝑠𝑎𝑙𝑔𝑚 = 𝑣𝑎𝑢𝑙𝑡𝑎𝑙𝑔𝑚

𝑎𝑙𝑔𝑚

𝑢𝑠𝑒𝑟

𝑢𝑠𝑒𝑟

𝑟𝑒𝑤𝑎𝑟𝑑𝑠𝑔𝑜𝑣𝑡𝑜𝑘𝑒𝑛 = 𝑎 * 𝑣𝑎𝑢𝑙𝑡𝑎𝑙𝑔𝑚 + (1 − 𝑎) * 𝑣𝑎𝑢𝑙𝑡𝑎𝑠𝑡𝑟
𝑎𝑙𝑔𝑚

𝑎𝑠𝑡𝑟

a: A weighting parameter that determines the balance between ALGM and ASTR required for thegovernance token of a vault. The parameter takes values in [0,1].
𝑢𝑠𝑒𝑟𝑎𝑙𝑔𝑚: the total amount of ALGM staked in this vault by this particular user
𝑣𝑎𝑢𝑙𝑡𝑎𝑙𝑔𝑚: the sum of all ALGM staked in the vault across all users
𝑢𝑠𝑒𝑟𝑎𝑠𝑡𝑟: the total amount of ASTR staked in this vault by a particular user
𝑣𝑎𝑢𝑙𝑡𝑎𝑠𝑡𝑟: the sum of all ASTR stated in a vault across all users
The parameter a is determined by a linear function, that is a function of the week. The function
starts at 0 and reaches 100% over the lifetime of the vault.
𝑛𝑎 = 𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒
Where n is the current week of participation for a given user, and lifetime is the total lifetime of avault. Lifetime is measured with respect to when a user joined. Hence, if the total lifetime of a vault
is 10 weeks, one user could be in week 9, but another user could be in week 1.
This defines a simple linear function as shown below:

Percentage of ALGM required to stake (versus ASTR) in order to receive governance token rewards

7) nASTR
In addition to the above, the user also gets back nASTR. However, in contrast to liquid lending, theuser receives the nASTR over time. The nASTR are unlocked daily over the lifecycle of a vault.
8) Users can resupply their ASTR tokens to other partner dApp/protocols. To do this, he has tounstake ALGM from the current staking pool (dApp) and stake to the new pool:Unstaking Page

Stake to Earn
How It Works
ALGM stake-to-earn mechanism is conceptually the same as staking.
Users stake and lock ALGM in order to get value in return:1) To receive part of Algem revenue in a form of ASTR and partner dApp governance tokens.
80% of Algem revenue is allocated for the stake to earn pool.
2) To receive veALGM for voting. veALGM holders will be able to vote for:a) dApps in Astar dApp staking to stake ASTR via Algem's liquid staking solution.
b) dApps to supply liquidity (ASTR tokens) from Algem liquid lendings feature andshare a part of their rewards.
c) In which proportions to distribute ALGM incentives between the vaults.
There are several types of staking options, which vary by duration and APR. There is one “free”
option for every ALGM user - 10-days staking/locking. To be allowed to stake for a longer period(and get a higher APR) users have to have the slot.
Only users of vaults (liquid lending) have a guaranteed protected slot.

Potential Risks
Liquid Staking & Liquid Lending
The only risk that a liquid staking and lending token can face from a tokenomics perspective is if it isinvolved in leveraged positions. Liquid staking and lending tokens themselves face no problems, as
they are truly backed by 1:1.
1) Algem uses the staked ASTR in order to generate yield in partner apps that might expose
them to the risk of permanent loss. Anchor Protocol, for example, used borrowers' collateralin leveraged positions to earn the yield with a high risk of losing the whole collateral or atleast part of it.
2) If the users use the adapter contract in order to stake nASTR, then they receive backgovernance tokens from the respective dApp. If those dApps used the nASTR to enter
leveraged positions, then, the protocol could end up in a situation where the total nASTR
held by the various dApps is more than the ASTR that was originally staked in the Algem
protocol.

Response to Potential Risks
Regarding point 1, the main way to avoid this problem is to either:
1) Avoid this practice altogether.
2) Follow this practice but through more conservative investment products. In this case, theprotocol’s sustainability will be more exposed to the way the treasury is managed, as market
conditions. If the treasury’s investment practices are not profitable, or it experiences a“bank run”, then the protocol could end up crashing.
Algem commits to taking no leveraged or managed positions with held ASTR, hence point 1 is a
non-problem.
Regarding risk number 2, this seems to be impossible, given that third parties dApps can't create
new nASTR. The only way to create nASTR is to stake ASTR through Algem. Algem has a special
contract which is named nDistributior. This contract control nASTR supply and even if third-partydApps would try to get around and somehow mint new nASTR, the transaction would be reverted
because of the balance inconsistency.

Stake to Earn
There is no risk in this process from a token economy perspective. There is no self-reinforcing
feedback loop, and the veToken process is well-known and widely used already.

The essence of the veToken model is the locking of its native governance token and getting veTokenin exchange which represents a non-transferrable claim on the native governance token, meaninguser holdings are illiquid for the locking period. Each holder can choose to lock for as little as one
week or as long as four years, with governance power proportional to the length of time theychoose.
Many native tokens already include voting rights, however, it has some flaws:●●●●

Controlling the liquidity of native tokens is difficult (dump and pump may happen);
Governance is simple to game (e.g. instantly purchase a large mount);
People are more concerned with short-term gains than with long-term interests;
All of the above may cause community division;

By its nature veTokens as derivatives of native governance tokens are non-transferable andnon-tradeable as well it has zero economic value. However, it brings some value proposition to theprotocol itself:●●●

Lock-in reduces the liquidity of native tokens so reduces selling pressure;
Locked voting rights align the interests of the community (malicious behavior will lead to a
decline in the value of native tokens);
The compensation for locking is protocol revenue distribution to veTokens system
participants;3

Verdict
There seem to be no internal issues with Algem’s token system. Any issues might come fromexternal market forces, which might break the nASTR-ASTR peg. This presents exceptional
circumstances and is analyzed later in the marginal use cases section.

Fees
Same as with liquid staking (10% when a user is using the adapter contract) Algem proposes aliquid lending management fee (10% fee on lending reward). While this seems like a reasonablevalue, there is nothing to suggest that this is the optimal value, and in reality, the system might beable to sustain higher or lower fees, depending on economic conditions.

3

https://www.hashkey.com/en/insights/vetoken-model-and-its-impact

Marginal cases analysis
The goal of this section is to look at some of the system's edge cases. These are scenarios that, while
unlikely to occur, could hinder the system's stability.

Case: ASTR:nASTR peg stability
Lido Finance is the leading liquid staking solution across multiple blockchains, with headquarters
on Ethereum. By staking with Lido, your assets remain liquid and can be used across a variety of
DeFi applications to earn additional yield. So conceptually the same as in Algem protocol.
However, several prominent protocols were highly exposed to stETH and the Terra-Luna collapse
forced companies into huge sell-offs of stETH for ETH. That has been causing slippage in theliquidity pools, which de-pegged by around 5-6% and heavily imbalanced stETH/ETH. The
unbalanced pools represented one of the assets, stETH in this case, becoming more illiquid, i.e.
difficult to sell due to a lack of ETH liquidity to incorporate sell orders of stETH at current prices.

stETH:ETH Peg Monitor: https://dune.com/dataalways/stETH-De-Peg

So we can see that external market factors may impact the peg. The exchange rate between
stETH:ETH reflects a fluctuating secondary market price rather than the underlying backing of yourstaked ETH. So the discount poses little risk to people who have only staked their Ethereum andreceived stETH in exchange. However, traders with leveraged positions, which means they used

their stETH as collateral for a loan, may be at risk if the discount widens enough to force them toliquidate their Ethereum.

Risk mitigation
The same as in the Lido Finance case, on the Algem protocol, there is always a 1:1 ratio for minting
and returning nASTR. Regardless of the market's nASTR/ASTR pair ratio. The same amount of ASTR
can always be redeemed from nASTR tokens. However, if nASTR holders use their tokens in DEXs toprovide liquidity, they risk permanent loss and depeg, just like any other farming in DEXs.
To mitigate this risk, users can use swap, stake, and unstake functions to perform arbitrage
strategies between DEXs and the Algem protocol. Users have financial incentives to keep the
ASTR/nASTR peg and stabilize the ecosystem in this way.

Token appreciation model
Demand factors
1. Stake ALGM in vaults in order to receive governance token rewards->𝐷𝑣𝑎𝑢𝑙𝑡
2. Stake ALGM to earn revenue->𝐷𝑔𝑜𝑣𝑒𝑟𝑛𝑎𝑛𝑐𝑒
3. Stake ALGM to earn VE tokens->𝐷𝑣𝑒
Supply factors
1. Rewards from vaults (liquid lending incentives) -> 𝑆𝑣𝑎𝑢𝑙𝑡
2. Airdrop -> 𝑆 𝑎𝑖𝑟𝑑𝑟𝑜𝑝
All of the above variables are denominated in ALGM.
Hence, in order to avoid selling pressure, the system requires that:
𝐷𝑣𝑎𝑢𝑙𝑡 + (𝐷𝑔𝑜𝑣𝑒𝑟𝑛𝑎𝑛𝑐𝑒 + 𝐷𝑣𝑒) > 𝑆𝑣𝑎𝑢𝑙𝑡 + 𝑆𝑎𝑖𝑟𝑑𝑟𝑜𝑝
Per equation of exchange, fair valuation (which primarily serves as a lower bound) is:
𝑃=

𝑇*𝐻
𝑀

Where
M: Total supply of tokens at a given unit of time
H: Average holding time, expressed in the same unit of time as M
T: Size of the economy over the unit of time.
The maximum potential circulating supply of ALGM stands at 100million.
The size of the economy is determined by the demand for ALGM token denominated in fiat or someother token that can be converted to fiat. More specifically, we can define the following variable
Hence we define that:𝑇 = (𝐷𝑣𝑎𝑢𝑙𝑡 + 𝐷𝑔𝑜𝑣𝑒𝑟𝑛𝑎𝑛𝑐𝑒 + 𝐷𝑣𝑒 − 𝑆𝑣𝑎𝑢𝑙𝑡 − 𝑆 𝑎𝑖𝑟𝑑𝑟𝑜𝑝) $This means that the size of the economy is simply the difference between the supply and thedemand, but denominated in $USD.
1) An estimation of the difference between supply and demand at any given point in time.

2) An understanding of the total rewards that can be gained using ALGM at that point in time,
denominated in $USD.
Hence we have a limiting price (when all tokens have moved into the circulating supply)
𝑃=𝑇

𝐻
8

10

This is all further investigated within a simulation in Appendix 1.

Distribution
The distribution proposed by Algem is shown in the following table.

ALGM Tokenomic
Supply %Total Supply

ALGM

100.00%100,000,000

50.00%

50,000,000

12.00%

12,000,000

38.00%

38,000,000

Team

18.00%

18,000,000

Early investor

15.00%

15,000,000

Investor 1

1.40%

1,400,000

Investor 2

2.857%

2,857,142

Investor 3

0.304%

304,300

10.439%10,438,558

Reserve

8.00%

8,000,000

Community
growth7.00%

7,000,000

Sirius Finance incentives

0.10%

100,000

Kagla Finance incentives

0.075%

75,000

Sio2 Finance incentives

0.10%

100,000

Starlay Finance incentives

0.075%

75,000Artswap incentives

0.10%

100,000

6.55%

6,550,000

2.00%

2,000,000

Astar Degens Community

0.75%

750,000

dApp staking

1.00%

1,000,000

Incentives
ASTR Vaults
Other vaults and incentives

Allocation remaining

Reserve remaining

AirdropTestnet participantsCommunity activities

0,25%

178,000
72,000The distribution allocation are tested in simulations in Appendix 1. The following conclusions weredrawn:

1) ALGM will face the largest pressure during the first two years. These coincide with
forecasted economic turmoil in the global markets.
2) After two years, a large part of the tokens will have moved into the market. Algem needs tokeep providing incentives for users to buy those tokens and use them.
The conclusions from the simulation led to the creation of two new mechanisms that will further
enhance ALGM demands.
More specifically, this led to the creation of staking slots with no governance rights, and lower APY.
These slots can be adjusted dynamically (through governance).
Similarly, it was decided that governance will adjust the rate at which ALGM is being emitted.
Finally, there will be a pool of ASTR which will be given to ASTR stakers. This will be a small poolthat will be used in the initial stages to further boot ALGM adoption.
All adjustments and changes can be found in Appendix 2.

Appendix 1
Simulation 0
Initially, only incentives, team, and investor distribution will be used. Based on the information
given, this is what the total amount of tokens looks like, without any selling pressure.

Initial token allocation schedule

Basic definitions
The time unit is a month.
Sell pressure is defined as follows (for a given segment)
amountt+1=amountt-amountt*|N(,2)|
Where s is a parameter in the range (0,1] that defines the standard deviation of the sell pressure,and mu defines the expected
The term |N(,2)| defines a half normal distribution.

Hence, here’s an example. Let’s say that at any given point in time, the standard deviation sellpressure for a given segment (e.g. the team) is 10% of the total circulating supply, and =0.2. Thenthe actual sell proportion for a given month would follow the distribution shown below.

Sell pressure histogram

It’s clear that in this model we assume that the sell proportion is constant across time, but the actual
amount changes, as more tokens are released. We might want to change this assumption later.
We assume that once the tokens are sold, they move into the circulating supply.
We also assume that while each segment (investors, teams, incentives from vaults) face a different
mean of sell pressure, the standard deviation across them is the same. This is done for reasons ofsimplicity, and we propose to keep it this way unless there is information that would suggest
otherwise.

Simulation 1
We assume a low sell pressure from ASTR vault incentives and higher ones from investors and team.
Std stays at 0.25
Mean of sell pressure
investor_sell_pressure=0.25
team_sell_pressure=0.2
astr_vault_incentives_sell_pressure=0.05
sell_pressure_std=0.25
Results from a typical run.
The graph shows the total number of tokens in each pool. The exception is the selling pressure,which is indicated only on a month-by-month basis. Hence, for month 20 we can see that the total
amount of team tokens was close to 10 million, and the selling pressure for that month was close to
1 million.
Open market liquidity is the pool where all the tokens go once they are sold.

Simulation 1 results

This simulation does not accommodate tokens being sent back into the vault. This is done in thenext simulation.

Simulation 2
The second simulation is more advanced. It adds an extra process to the first one. After the sellpressure calculations, we calculate the demand for ALGM from the open market. This demand istrying to buy ALGM in order to provide it to vaults, or for staking and governance.
Once the demand is satisfied, it’s removed from the market liquidity.
Once again, the demand is defined by a half-normal distribution. The parameters for the case below
were:demand=0.05
demand_std=0.1

Simulation 2 resultsPrice Simulations
Using the equation of exchange, we can run a simulation of what would be a fair price for the token.
This is simply defined as
𝑝𝑟𝑖𝑐𝑒 =

𝑇*𝐻
𝑀

Where T is the size of the economy in fiat, M is the total circulating supply and H is the holding time.
We also need a starting price for the token, which in this case was set to $0.01
Holding time is set to 6 months. That is, the average user holds for an average of 6 months.

Demand and sell pressure simulations
In order to come up with a realistic figure for the demand pressure, we collected data from different
protocols. We calculated this quantity as follows:
1) Get the daily market cap. Let the market cap at a given day n be 𝑐𝑛2) Calculate the first order difference 𝑑𝑛3) Calculate−𝑑𝑛𝑐𝑛

We can then take the 30-day rolling average, in order to smooth out the time series. We get thefollowing results.
What our research indicates is that the pressure is essentially a random walk. It follows a standard
normal distribution. The standard deviation of ETH is close to 0.05, so we use that in our
simulations.

Rocket Pool Demand Pressure

ETH Demand PressureLido Finance Demand PressureSimulation 3
Simulation 3 was like simulation 2, but we used demand pressure which was sampled from ahalf-normal distribution with std=0.05.

Demand pressure simulation histogram

So, when we put the selling pressure and the buying pressure together, we get a shape thatapproaches normal with wider tails

Demand and selling pressure simulation histogramWe can’t just use a normal distribution for sell pressure, because we’ve decomposed it in a moredetailed way, based on where the supply is coming from. However, the previous histogram
demonstrates that our assumptions match what would we would expect to see in real life.
We also added 9 million tokens for community growth and airdrops, with a 2-year vesting schedule.
So, we had the following parameters:
investor_sell_pressure=0.25
team_sell_pressure=0.05
astr_vault_incentives_sell_pressure=0.1
community_growth_sell_pressure=0.5
sell_pressure_std=0.05
Based on that we get the following results:

Simulation 3 results

Note that the equation of exchange is simply a model which is useful in determining a lower boundfor a price, and in practice the market conditions will exert a huge influence. What is encouraging isthat the price holds its level. There doesn’t seem to be anything in the distribution that would
suggest that the price is going to crash.

Simulation 4
Like simulation 3 but used a team vesting schedule of 3 years

Simulation 4 results

The results confirm what we said earlier. What is very important to do, is to ensure that by the time
the total open market liquidity has reached a certain size that surpasses the other pools, there areenough incentives to buy the token and hold it.
The current holding time (as discussed) was 6 months, but this could easily go up depending on thevaults being released.
Maybe Algem should also consider some automatic staking options, so users get ALGM, and they areautomatically staked somewhere else. Hence, the ALGM is not sold but circulates within the
project’s economy. This also counts as “holding time” for the model, since ALGM is not exchanged
for USD, and hence there is no sell pressure.

Addendum: alternative estimation of price
The calculations above used the total amount of tokens in circulation. This makes for a pessimistic
estimation of the price since we assume that all tokens that have been sold could participate in the
selling pressure. If we use only the simulated sell pressure at a given month, then we come up with amore optimistic price estimate, as seen below. This should be taken as some kind of upper limit on
the price.

Alternative price simulation, which shows wider volatility and appreciation.

Simulation 4.1
The same simulation as simulation 4 but with a starting price of $0.07.
Pessimistic scenario

Price simulation. This graph has to be taken as an effective lower value or fair value on the price ($0.07 price).

Optimistic scenario

Alternative price simulation, which shows wider volatility and appreciation ($0.07 price).

Appendix 2
Adjustments and Changes●

Equations, which define rewards in Liquid Lending were changed:

A simple linear rewards distribution model was updated to:𝑢𝑠𝑒𝑟

𝑟𝑒𝑤𝑎𝑟𝑑𝑠𝑎𝑙𝑔𝑚 = 𝑣𝑎𝑢𝑙𝑡𝑎𝑙𝑔𝑚

𝑎𝑙𝑔𝑚

𝑢𝑠𝑒𝑟

𝑢𝑠𝑒𝑟

𝑟𝑒𝑤𝑎𝑟𝑑𝑠𝑔𝑜𝑣𝑡𝑜𝑘𝑒𝑛 = 𝑎 * 𝑣𝑎𝑢𝑙𝑡𝑎𝑙𝑔𝑚 + (1 − 𝑎) * 𝑣𝑎𝑢𝑙𝑡𝑎𝑠𝑡𝑟
𝑎𝑙𝑔𝑚

●

𝑎𝑠𝑡𝑟

Vesting schedule of the team is increased:

Investors and team vesting schedule were the same. Algem increased the team schedule by 1 year
(from 2 years to 3 years).
●

Additional mechanisms to reduce token velocity were added:

To limit selling pressure Algem will provide an access to the staking to users who don't have the slot
and introduce “free” slots4.
●

Additional APR bonus for the auto compounding of the ALGM incentives.

●

Updated staking slots mechanics based on specific goals:

1) Incentivize participation.
2) Prevent whales from acquiring all slots.
3) Increase demand for ALGM.
●

ALGM incentives linked with users and ASTR supplied through the vaults:

Algem has allocated 12 000 000 ALGM for the ASTR vaults over the 6 years or 2 000 000/year and5480/day. Initially, Algem will have a small number of users and they would get the same number ofrewards/daily as a way higher number of users several months later. Inflation would be
disproportional in comparison with the number of users.

4“Free” slots will have 10-day unstaking period and will not give voting rights. These slots are generated via governance. It’s
impossible to get this slot through the action or somehow else. When a user unstake ALGM, this slot is burned.

Instead, Algem will decide the number of daily incentives via voting and begin with e.g. 1800
ALGM/day instead of 5480. With the growth of the user base, the governance community willconduct voting to increase this number. This number will rise until it reaches 5480 ALGM / day.
With this approach Algem will achieve several goals:
1) Algem will decrease inflation in the early stages of Algem.
2) The APR in vaults will not decrease with the growth of the user base and TVL because
Algem will increase the number of incentives via voting.