The price of MAMA token will ultimately be determined by the market. If buying pressure is high, The price rises when the buying pressure for MAMA is high. Vice versa, the price falls when selling pressure is high. These self-reinforcing behaviors will rely upon the way in which the investor interacts with the protocol.
Stakers care mainly about their MAMA balance. While price is important in valuing their MAMA and determining the rate at which it grows, it is not the main goal. A smart staker cares should care more about the long-term growth prospects of the network than immediate price action since the protocol dictates a rising price floor of MAMA tokens.
A Rising Price Floor - Stakers’ equity will increase over time, creating a steadily falling cost basis. Therefore MAMA balance is more important than face-value price.
A Falling Cost Basis - when investors stake their MAMA tokens, they will receive compounding rewards. Given that the protocol uses bond sales to create a rising price floor for MAMA dictated by the backing per MAMA token, over the long-term, price volatility is not a risk for stakers, since their cost basis will eventually fall below the backing per MAMA token.
Bonders care mainly about MAMA price. When they bond, these users lock in a fixed reward in MAMA. Therefore, network profitability is only helpful in calculating opportunity cost or gain; bonders have their MAMA gains locked in.
Let’s take an example where the price of MAMA is exactly $1 and a bonder buys a bond of $100 worth of MAMA. Their fixed assured reward will be 100 MAMA. If the price of MAMA now increases to $2, the bonder will gain $200 USD in MAMA. Therefore, bonding is sensible in anticipation of increasing MAMA prices. Given that bonds are issued at a discount, bonders will also profit if the price of MAMA remains the same. In essence, this acts similarly to staking in that Bonders' MAMA holdings will increase over time as the bond matures.
Rising Bond Prices - the ideal scenario for a bonder is for price to go up in favourable market conditions; in this case, the bonder benefits from their discount on MAMA and the increase in price. Bond prices will trail below market prices, thus incentivising investors to buy MAMA from the protocol directly for a discount. This would help to grow the treasury and increase APYs, ultimately strengthening MAMA DAO.
Stable Bond Prices - Bonders are still happy if price remains flat; their profit is the discount from the bond. Like stakers, bonders profit from inactivity at or around their buy-in via an increasing balance.
Falling Bond Prices - Bonders only lose when price goes down beyond the discount on the bond in declining market conditions. Therefore it is more profitable to buy from the market during dips. This in turn stabilises prices and allows bond prices to re-adjust and offer discounts once more.
The default state of the network is at intrinsic value. After some long period of inactivity, price will always return to this level.
Contractions will and can occur when triggered by short-term liquidity crises. Since MAMA holders have a guarantee that price will come back above intrinsic value eventually, the only sellers below should be those who need a short-term exit and are willing to take the extra loss.
Expansions can be triggered by an increase in staking or bonding.
The volatility of MAMA's price will be higher at first. In periods of high demand for bonds, the protocol will be able to create higher staking rewards which in turn will bring in more stakers and drives demand further. This will create a flywheel effect leading to expansion of MMA DAO treasury and an increasing MAMA price. This allows the DAO to increase the liquidity kept in its reserves.
Meanwhile, the rising price increases the bond discount and creates capacity for new bonds. These are preceded by new liquidity, which improves the protocol's ability to carry out sales and increases available exit liquidity.
This positive price-liquidity feedback loop should serve to create sustainable to expansionary periods. However, they work both ways.
In period of low demand, it decreases staking rewards and bond rewards, causing demand to fall further. This is an inevitable fact of systems like this; even the best (i.e. Bitcoin) are no stranger to significant declines after periods of expansion.
But we can work to mitigate busts. This is where the protocol's reserves step in and to catch the market when velocity turns too far to the downside. When prices fall below the intrinsic value, the protocol will use its reserves to buy MAMA and stabilise it. The treasury ensures that, although bear markets and contractions can and will occur, the protocol can exist perpetually.