In order to contract CENTUS supply and recover the price of CENTUS to the level of peg (1 US CENT), we must properly incentivize holders of CENTUS to lock up their CENTUS in exchange for future payoff. We do this when you issue BILLEX tokens (Discount Bill of Exchange) through a smart contract in exchange for locking your CENTUS.
As discussed earlier, BILLEX tokens are issued on open auction for prices that are generally less than 1 CENTUS. In return, they promise a future payout of 1 CENTUS when the system is expanding and when there are no older outstanding BILLEX.
First, we discuss the open auction system. In order to issue BILLEX, the smart-contract runs a continuous auction in which bidders specify a bid and bid size for new BILLEX tokens. In other words, auction participants specify how much CENTUS they want to lock for each BILLEX and how many BILLEX tokens they want to issue at that price. For example, one can specify that they would like to issue 100 BILLEX for 0.9 CENTUS per BILLEX.
When the smart-contract decides to contract coin supply, it chooses the orders with the highest bids and converts the holders’ coins into BILLEX until sufficient CENTUS has been destroyed.
As an example:
• Suppose you want to issue 100 BILLEX.
• Suppose that there are three buy orders on the order book: One bid for 80 BILLEX at 0.8 CENTUS each, one bid for 80 BILLEX at 0.6 CENTUS each, and one bid for 80 BILLEX at 0.4 CENTUS each.
• The system will compute the clearing price, which is a single price at which all offered BILLEX would have been bought at. Here, the clearing price is 0.6 CENTUS.
• The system will fill the winning bids at the clearing price: The first user will receive 80 BILLEX in exchange for 80 * 0.6 = 48 coins, and the second user will receive 20 BILLEX in exchange for 20 * 0.6 = 12 coins.
The protocol currently sets an artificial limit for the price of BILLEX tokens at 0.50 CENTUS per BILLEX.
The payout of BILLEX works as follows.
First, the smart contract counts BILLEX tokens in circulation and orders them according to when they were created, with the oldest first. This forms an ordered sequence of BILLEX, the so-called BILLEX Queue. The smart contract also counts all locked CENTUS tokens. Then, the smart contract mints N new CENTUS and distributes them as follows:
BILLEX maturity payouts are processed on a first-in-first-out (FIFO) basis. The smart contract begins converting BILLEX into CENTUS according to their order in the BILLEX Queue, one-for-one. For example, if we need to mint 100 CENTUS, we convert the 100 oldest outstanding BILLEX into 100 new CENTUS coins. The FIFO queue incentivizes people to buy BILLEX and lock their CENTUS earlier rather than later, since BILLEX created earlier are paid out before BILLEX created later.
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