How does HoloFuel’s dynamic supply work?

As a mutual credit currency, HoloFuel’s supply is determined by the interactions between agents with positive and negative balances. The key factors influencing the supply are:

  1. Hosts’ spending behaviors into and out of negative balances (confined by their credit limit)
  2. How often people buy fuel from reserve accounts vs. regular exchanges
  3. Hosts’ redemption behaviors

HoloFuel is a mutual credit currency:

Transactions between two accounts with positive balances (or two with negative balances) have no impact on circulating supply. To see why, consider this example:

Fatima and Ellie both have a balance of 100 HoloFuel, representing a supply of 200 HoloFuel total. Fatima agrees to pay Ellie 50, so that Fatima ends up with 50 and Ellie ends up with 150, resulting in the same 200 HoloFuel in circulation—exactly what existed before they transacted.

In contrast, consider this variation:

Fatima, an application provider, has a balance of 200 HoloFuel. Ellie, a host, has a negative balance of -200. These balances represent a total active supply of 200 HoloFuel total. Fatima agrees to pay Ellie 50 HoloFuel for hosting services. Fatima ends up with 150 and Ellie ends up with -150, paying off part of Ellie’s debt and removing 50 HoloFuel from circulation.

Therefore, it is only accounts with credit limits, host and reserve accounts, that determine the supply of HoloFuel. When their balances go negative, circulating supply goes up. When their negative balances move toward positive again, in other words, as their debts are paid off, supply goes down - as long as the negative account is transacting with a positive one.

Here are the specific factors that determine how HoloFuel’s supply changes over time (key points are in bold):

  1. Supply decreases every time a host with a positive account balance redeems the fuel they earned through hosting. Since Reserve Accounts always have a negative HoloFuel balance, backed by fiat reserves, supply is removed from circulation when a host redeems for an outside currency through the reserve, paying off part of the reserve account’s HoloFuel debt.
  2. Hosts have the right to spend below zero, the credit limit being determined algorithmically based on their demonstrated ability to earn back that debt through hosting (i.e., their fuel debt is backed by hosting power). Circulating supply changes depending on how much hosts choose to spend (supply goes up) or pay off (supply goes down) their credit.
  3. HoloFuel can be purchased from Reserve Accounts or acquired by trading on regular exchanges. The price of HoloFuel on Reserve Accounts will be determined by an algorithm that takes into account the price at which Hosts are willing to redeem. When people buy fuel from the reserve (e.g., if the price is lower on the reserve than the exchange), the circulating supply will increase. Buying from an exchange will have no impact on supply.

To summarize: The supply of HoloFuel can expand and contract in response to demand, adjusting to the actual market behavior of its users.

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