How These Mechanisms Create an Economic Flywheel

The combination of reward rates and bond sales determines the supply inflation rate:

• Increased supply → Price drops

• Price drops → Lower premium

• Lower premium → Price increases

• Price increases → More bonds/selling

• More bonds/selling → Higher APY (as price recovers to RFV multiples)

• Higher APY → More demand/staking (3, 3)

• More demand/staking → Price increases


This cycle creates a self-reinforcing mechanism, driving growth and stability within the RWA Ecosystem.

Why is this economic flywheel a virtuous cycle?

The fundamental question is:

a. How to break the cycle of capital flows in DeFi?

b. How to connect DeFi to the broader financial system?

c. How to clarify the source of economic value in DeFi?

Only by answering these questions can decentralized finance (DeFi) move beyond being a regressive art form and elevate to the status of legitimate economic productive activity.

The RWA Ecosystem's reserve asset treasury model, or "protocol-owned liquidity" model (DeFi 2.0), provides the first answer to these questions through the risk-free value or intrinsic value familiar in traditional finance, albeit in a different form in decentralized finance.

The fundamental value basis for creating the economic flywheel is internal coordination, which can be summarized as:

• Because internal coordination (staking) offers significant returns;

• Treasury assets (revenues) will grow significantly.

• Then, price coordination (bonds) will yield significant returns;

• This ensures that internal coordination will also yield significant returns.

This virtuous cycle relies on internal coordination as the foundation of economic productivity within a specific digital economy. A third element, beyond supply and demand—internal coordination (the generalization of demand)—allows the RWA Ecosystem to exercise policy leverage and control the composition of the treasury, in order to counteract the irrational reflexivity in market forces. This convinces investors that staking RWA will continue to be a profitable financial strategy. It is precisely this third element that paradoxically breaks the vicious cycle, laying the groundwork for a positive, market-beneficial cycle and substantial reflection (rather than irrational reflection).

Through internal coordination, the RWA Ecosystem is empowered to self-regulate and autonomously control market conditions for itself and the broader ecosystem of interdependent, interoperable protocols.

In order to fully theorize economic productivity within the digital economy, we need a clear description and explanation of what internal coordination (3, 3) truly means, just as we need a solid understanding of economic productivity. And it must also effectively explain why it is more important than price coordination (1, 1).

The RWA Ecosystem protocol is created through internal coordination or entrepreneurial creation. It is an innovation of the algorithmic non-stablecoin model. The algorithmic non-stablecoin model essentially involves a basket of reserve assets that is over-collateralized, and by consistently correcting the market when the value is above or below its pegged price, it ensures that the stablecoin will maintain its peg to the dollar. The innovation of the RWA Ecosystem in this model lies in creating not a stable currency, but a reserve asset with a floating price, supported by the risk-free treasury asset value, rather than being pegged to the dollar. Therefore, the price of RWA can be higher than the risk-free value of its treasury-supported assets. This premium over the risk-free value can be considered as a way to measure economic productivity in the digital economy.