Tax Protocol

The Idea Behind It

The story begins when the price of PARSE drops under its target. In this situation, the tax protocol will be activated, and the contract imposes some degree of tax on every transaction which sellers must pay. Tax Protocol aims to penalize short-term speculative traders and incentivize sellers to vend their PARSE with a higher price. Imposed tax varies from negligible to significant amounts. It depends on the difference between the current and target price and also on the protocol parameters.

More In Depth

How is tax calculated?

There are three hyperparameters for the tax protocol. $s$​ is a step, $\theta$​ is a threshold and $v$ indicates how much the tax increases after each step. Suppose that price of PARSE is $p$​. If $p>1-s-\theta$​ then, the contract does not impose any tax on transactions. But if there exists a natural number $k$ such that:

$$1-(k+1)\cdot s-\theta<p<1-k\cdot s-\theta$$

Then the tax rate is $k\cdot v \%$.

Please consider that the only way of altering hyperparameters is through DAO.

Step hyperparameter

This section aims to analyze the effect of changing $s$ in calculating tax rates. Suppose that $\theta$ and $v$​ are constant. For prices in the range 1$ to 0.5$ and $s$ in the range 0.1 to 0.01, the tax rate is plotted as follows:

It is easy to see that when s decreases, the tax rate increases exponentially. Note that the relationship between the tax rate and the price is always linear.

Threshold hyperparameter

Now suppose that s and v are constant and $\theta$ and price are variable.

$\theta$ works like a threshold, meaning the tax rate remains zero when the gap between the price and its target is smaller than $\theta$. When that gap is grader than $\theta$, the tax rate and $\theta$ have a quite linear relation.

Note that Tax Protocol will be deactivated (zero tax rate) When the price goes below the rebase lower threshold. for more detail see this.

Scheduling

Updating the tax rate is a voluntary job. It should be done every 24h. There is a window starting from 2 AM UTC and ending at 4 AM UTC. The purpose of restricting the updating interval is for the predictability of the system's behavior.

Warning: Updating the tax rate every 24h is vital for the functionality of the system.