The Cultivation System: Optimal Soil Issuance

This document assumes familiarity with the Field and associated terms. For an introduction, see The Field: The Most Innovative Lending Facility In Crypto.

One of the most difficult problems in the history of credit based algorithmic stablecoins has been determining how much debt the protocol should be willing to issue given the circumstances.

Offering in excess of what the market demands sends a negative signal that the protocol is not being viewed as creditworthy. Offering less than the protocol wants to borrow and there is demand for means the protocol is not borrowing from the market efficiently. Pinto’s response to this dilemma is to start small and ramp up the number of Soil available to meet demand.

This document is intended to provide a high level intuition for Soil issuance rather than a detailed explanation of how it functions in practice. For such a description, see the Pinto whitepaper.

Elements of the Cultivation System

The Cultivation System determines Soil issuance every Season relative to the maximum number of Soil the protocol would be willing to issue given its current state and infinite demand for Soil. It has three elements: the Cultivation Factor, the Cultivation Temperature, and two manipulation resistant thresholds to determine whether Soil sold out or almost Sold out in the previous Season.

The Cultivation Factor is a scalar from 0.01 to 1 that determines the number of Soil the protocol is willing to issue, where 1 means the protocol issues the maximum Soil.

The Cultivation Temperature is the Maximum Temperature from the last Season in which Soil either sold out entirely or almost sold out and demand for Soil was steady or increasing. It is used to prevent instances where the protocol gets stuck oscillating the Maximum Temperature downward and the Cultivation Factor upward, and the Maximum Temperature upward and the Cultivation Factor downward.

The Cultivation System In Action

The simplest way to understand the Cultivation System is to observe how it ramps up Soil issuance to meet newfound demand after a period of zero demand for Soil. Prior to the discovery of new demand for Soil, the Cultivation System is at rest: the Cultivation Factor will remain at 0.01, such that there is a very small number of Soil available, the Maximum Temperature will rise each Season in an attempt to find new demand at higher interest rates, and the Cultivation Temperature is irrelevant. Once the interest rate at which demand for Soil is discovered, the Cultivation System kicks in, ramping up Soil issuance to meet the demand and setting a new Cultivation Temperature to prevent the erroneous oscillation mentioned above.

This chart gives a step by step flow of the logic of the Cultivation System in action. The rest of the document will explain the reasoning behind each step in the process.

Step 1: Did Soil ‘Sell Out’?

Once the demand for Soil exceeds the threshold that determines it was sold out, the Cultivation Factor increases and the Cultivation Temperature is set at the current Maximum Temperature unless demand for Soil is decreasing. The reason to increase the Cultivation Factor is simple: given that the protocol is trying to borrow, if Soil sold out, the protocol should offer more the following Season.

Note: the mechanism that adjusts the Maximum Temperature each Season is independent from the Cultivation System but typically decreases (and never increases) it in the instance where Soil sold out.

Step 2: If Soil Did Not ‘Sell Out’, Did It ‘Mostly Sell Out’?

If the number of Soil sold exceeds the 'mostly sold out' threshold, but does not exceed the ‘sold out’ threshold, the number of Soil available was very close to demand. Lowering the Cultivation Factor in this instance would likely result in a Soil supply lower than demand. Therefore, the Cultivation Factor is kept constant.

The Cultivation Temperature is set to the current Maximum Temperature unless demand for Soil is decreasing.

Step 3: If Soil Did Not ‘Sell Out’ Or ‘Mostly Sell Out’, Was Demand For Soil Increasing, Steady or Decreasing?

If Soil neither ‘sold out’ nor 'mostly sold out', there was excess Soil available relative to demand. If the demand for Soil is increasing or steady compared with the prior Season but still not meeting the threshold for being mostly sold out, the protocol can decrease the Cultivation Factor so there is less Soil available the next Season without offering too little Soil to meet demand. This minimizes instances where there is demand for Soil but the protocol offers more than the market is willing to purchase.

This step handles the case where a new Tractor order enters the market with a lower maximum demand for Soil per Season than the 'mostly sold out' threshold at a lower Temperature than the Cultivation Temperature. In this instance, the protocol should lower the Cultivation Factor to scale supply of Soil down to match the demand at the lower Temperature.

Step 4: Is the Current Maximum Temperature Lower Than the Cultivation Temperature?

If Soil neither ‘sold out’ nor 'mostly sold out' and demand for Soil is decreasing, that means that the protocol is offering too much Soil and should consider decreasing the Cultivation Factor. However, before it does so, the protocol checks whether the current Maximum Temperature is less than the Cultivation Temperature. This check prevents the case where there is demand for Soil at a given Temperature, but because the demand for Soil increased over the prior two Seasons, the Maximum Temperature decreased such that the demand for Soil in the Tractor order was not met.

In this instance, the protocol would effectively get “stuck” with the Cultivation Factor going up and the Temperature going down in one Season, thus logging decreasing demand, and causing the Cultivation Factor to go down and the Temperature to go up in the following Season, leading to excess demand. In this case the Cultivation Factor would never increase to match demand for Soil, resulting in the protocol perpetually under-issuing Soil.

In Summary

The Cultivation System is one of the most complex components of Pinto, refining the Field to closely match Soil issuance with demand, thereby minimizing instances where Soil supply is significantly greater than demand and maximizing Pinto's creditworthiness. Pinto uses the Cultivation Factor to ramp up the Soil supply, and the Cultivation Temperature to track the most recent Maximum Temperature when Soil last sold out or almost sold out and demand was not decreasing, preventing the protocol from getting stuck in a state where it issues less Soil than there is demand for.

FAQ: Why does the Cultivation Temperature get set if the Soil 'sold out' or 'mostly sold out' AND demand for Soil is steady or increasing, and not just if Soil 'sold out' or 'mostly sold out'?

The protocol could safely set the Cultivation Temperature by merely checking whether Soil ‘sold out’ or ‘mostly sold out’. However, there is an edge case where there is potential for slight manipulation where someone could cause demand for Soil to decrease even if Soil ‘mostly sold out’ such that the Maximum Temperature, and therefore Cultivation Temperature would increase, which means that the protocol may keep the Cultivation Factor higher for slightly longer. By checking whether demand for Soil is increasing or steady before setting the Cultivation Factor at the current Maximum Temperature, the protocol is slightly more prudent with its Soil issuance.