This document starts by introducing some important concepts underlying the notion of this robocoin and its implementation, such as the notion of target, quantity, and oracles. Then, we present the algorithmic component that ensures the stability of the target. However, all the robocoin system with its control mechanism needs kits to be created and destroyed. This is made possible by the notion of burrows. Therefore, we present in a subsequent part burrows and their lifecycle, including creation, auctions, and liquidation. Finally, we discuss how the automatic control mechanism can be complemented by on-chain governance, which completes the whole picture of the notion of robocoin.


The following sections define concepts which together work to form Checker.

The clock

Any computation on a blockchain happens in discrete time. We note the timestamps at which the Checker system is updated as a series of increasing timestamps, \(t_i\). Ideally, these updates happen every time a new block is added to the blockchain and thus, under the current economic protocol, those timestamps are separated by about a minute each.

That said, the system is designed to be resilient to changes in the interblock time and also to occasional missing updates upon added blocks.

Target and quantity

In Checker, robocoins, denominated in “kit” are algorithmically balanced to achieve a certain degree of steadiness with respect to a target, which is expressed in terms of a quantity and an index.

The word “kit” is chosen because it’s short, simple to pronounce, and means a baby fox (which seems appropriate for a smart currency).

The quantity, \(q_{t_i}\), expressed in \(\mathrm{kit}^{-1}\), is a time-dependent property of the system which can fluctuate upwards or downwards.

The index, expressed in \(\mathrm{kit}\), is an external time-dependent measure of value. Examples of an index include:

  • “the median hourly minimum wage across OCDE countries, expressed in kits”, and

  • “the value of one CHF (Swiss Franc), expressed in kits”.

This index is provided through a combination of off-chain and on-chain oracles.

The target \(p_{t_i}\) is the dimensionless product of the index and the quantity. Examples of target include:

  • “the median of \(q_{t_i}\) hours of minimum wage across all OCDE countries as a number of kits”,

  • “the minimal compensation, in kits, that an airline might owe a passenger, pursuant to the Vienna convention, should they lose \(q_{t_i}\) kg of luggage as a number of kits”, and

  • “how many kits for \(q_{t_i}\) Swiss Francs”.

Intuitively, if the target \(p_{t_i}\) is below \(1\), then kits are, in a sense “too expensive” and if the target is above \(1\) then kits are, in a sense, “too cheap”.

The instantaneous drift

The instantaneous drift \(d_{t}\), or just drift, is a dynamic parameter (which varies continuously over time) used for adjusting the quantity \(q\). It represents the growth or shrinking of \(q\) per unit of time, and is measured in Nepers (Np), or sub-units thereof, such as centinepers (cNp). The drift is implicitly continuous, piecewise-quadratic between two clock ticks with continuous derivatives.

The system applies algorithmic control mechanisms in order to produce a drift that is defined at all time \(t\).

Essentially, our control mechanism provides \(d'\) the derivative of \(d\) at clock ticks, and we interpolate quadratically between them.

We can set \(d_0=d'_0=0\); the system will adjust automatically so the initial values do not particularly matter (so long as they are not absurdly large).

\(d'_{t_{i+1}}\) is computed as defined in the algorithmic control section and \(d_{t_{i+1}}\) is then:

\[d_{t_{i+1}} = d_{t_i} + \frac{1}{2}(d'_{t_i} + d'_{t_{i+1}})(t_{i+1} - t_i)\]

The drift \(d(t)\) is applied to the quantity such that \(q'(t) = d(t) q(t)\), hence:

\[q_{t_{i+1}} = q_{t_i} \textrm{exp}\left(\left(d_{t_i} + \frac{1}{6}(2 d'_{t_i}+d'_{t_{i+1}})(t_{i+1}-t_{i})\right)(t_{i+1}-t_i)\right)\]

The term in the exponential is the product between

  • the time span \((t_{i+1}-t_i)\), and

  • a term \(\left(d_{t_i} + \frac{1}{6}(2 d'_{t_i}+d'_{t_{i+1}})(t_{i+1}-t_{i})\right)\) which is the average of the quadratic function over the period.

Note that given the practical constants involved (\(d\) is typically on the order of \(10^0\) to \(10^1\) cNp / year), the exponential can be approximated by \(exp(x) = 1+x\).


An oracle feed provides the tez-denominated value of the external index (e.g. 1 CHF), which we label \(tz_t\). The contract providing the oracle feed should be reliable: for some external measures it might be advisable for that contract to give Checker the median of three or more externally-observed values.

Filtered oracle feeds

Protected index

The feed of external oracle values is itself filtered.

We define the protected index, \(\widehat{tz}_t\), as:

\[\widehat{tz}_{t_i} = \widehat{tz}_{t_{i-1}} \times \mathrm{clamp}\!\left(\frac{tz_{t_i}}{\widehat{tz}_{t_{i-1}} }, e^{-\epsilon (t_{i}-t_{i-1})}, e^{\epsilon (t_{i}-t_{i-1})}\right)\]

where \(\mathrm{clamp}\!(x, \mathrm{min}, \mathrm{max})\) returns \(\mathrm{x}\) constrained to the inclusive range from \(\mathrm{min}\) to \(\mathrm{max}\).

We suggest a value of \(\epsilon = 0.05~\mathrm{cNp/min}\) – that’s about 72 cNp / day, so the filter can catch up to a 2x or 0.5x move in 24 hours, and a 3% move in an hour.

\(\widehat{tz}_t\) is like the suspension of a car, it lags behind large moves, but is insensitive to spikes (real or fabricated).

In addition, we define the following prices

Minting index

The feed \(tz^{minting}_t = \max (tz_t, \widehat{tz}_t)\) is the maximum of \(tz_t\) and \(\widehat{tz}_t\).

Liquidation index

The feed \(tz^{liquidation}_t = \min(tz_t, \widehat{tz}_t)\) is the miminum of \(tz_t\) and \(\widehat{tz_t}\).

Changing oracle feeds

The Oracle feed is initially fixed. We strongly recommend that the current Tezos protocol be upgraded to allow bakers to signal in each block support for adding or removing oracles.


The Checker system includes a uniswap-like CFMM (Constant Function Market Maker) exchange contract which gives an indication of the price of kit in tez, \(k_t\) with unit \(\mathrm{tez}~\mathrm{kit}^{-1}\). The target can be computed as

\[p_t = q_t tz_t / k_t\]

For example: suppose

\[\begin{split}\left\{\begin{array}{ccc} tz_t & = & 0.36~\textrm{xtz}\\ k_t & = & 0.3~\textrm{xtz/kit}\\ q_t & = & 0.9~\mathrm{kit}^{-1}\end{array}\right.\end{split}\]

Then \(p_t = 1.08\), and since \(p_t > 1\), we can stay that kit is too cheap.

We do not need to filter the target feed as it only affects the drift in a bounded way that is, even if \(tz_t\) experiences wild, short lived swing, it will not have a major effect on the system.

Algorithmic control

Consider the measure of imbalance

\[\log p_t = \log(q_t tz_t / k_t).\]

All logarithm values are expressed in cNp or centinepers (for small values, a centineper is almost the same as a percentage point so you can safely read 2 cNp and 2% as roughly equivalent).

We algorithmically define the drift \(d_t\) via its rate of change, noted \(d'_t\). \(d'_t\) is computed, at any clock tick t, based on the imbalance:

\[\begin{split}\left\{\begin{array}{ccc} |\log p_t| < 0.5~\textrm{cNp} & \Rightarrow & d'_t = 0\\ 0.5~\textrm{cNp} \le |\log p_t| < 5~\textrm{cNp} & \Rightarrow & d'_t = \mathrm{sign}(\log p_t) 0.01~\textrm{cNp}/\textrm{day}^2\\ 5~\textrm{cNp} \le |\log p_t| & \Rightarrow & d'_t = \mathrm{sign}(\log p_t) 0.05~\textrm{cNp}/\textrm{day}^2\\ \end{array} \right.\end{split}\]

It’s easy to imagine models where \(d'_t\) depends continuously on \(\log p_t\) but our intuition is that such models tend to be less robust than simple bang-bang models such as the one above.

Two remarks: 1. The unit of \(d_t\) is \(\textrm{cNp}/\textrm{day}\) because it represents the growth or shrinking of \(q_t\) per unit of time. Therefore, it is natural that the unit of \(d'_t\) is in \(\textrm{cNp}/\textrm{day}^2\). To get a better intuition of those quantities suppose drift starts at 0 cNp / day and imbalance stays below -0.5 cNp but above -5 cNp for a month, the drift would grow to 0.3 cNp / day, and \(q_t\) would increase by 4.65 cNp (about 4.76%). If imbalance stayed below 5 cNp for a month, the drift would go from 0 cNp / day to 1.5 cNp / day in a month, increasing \(q_t\) by 23.25 cNp (about 26.18%).

  1. When compared to MakerDAO this is essentially setting a rate of increase or decrease for a (potentially negative!) stability fee programmatically, based on prices, as opposed to votes.


Burrows are a form of “deposit account”, and each is an independent smart contract, originated by the Checker contract.

A burrow serves to hold tez collateral against which kits may be minted and subsequently burned, subject to certain restrictions. Collateral may generally be added and withdrawn over time, again subject to restrictions. Kits minted from a burrow (“outstanding kits”) become part of the burrow owner’s personal kit balance, and they may be spent or transferred freely. A corresponding portion of the collateral in the burrow will then be locked up, and it cannot be withdrawn unless enough kits are later returned to the burrow and burned. Burrows are similar to CDPs in MakerDAO.

Burrow creation deposit: When a burrow is created, its owner must pay a burrow creation deposit, which won’t count towards the collateral and is only there to reward people marking the burrow for liquidation. If the owner closes the burrow, the deposit is recovered with it. We propose to set the deposit at 1 tez.

Since the burrow holds tez on the owner’s behalf, the owner may optionally specify a delegate for that balance.

Burrowing and overburrowing

Burrowing is the act of minting kits out of a burrow, and the kits accrue to an outstanding kits balance. To avoid overpopulation of kits, the burrowing is limited depending on the number of tez in the burrow in relation to the outstanding kit balance. Generally, kits can be minted so long as the tez in the burrow is at least \(f^{minting}\) times the number of outstanding kits multiplied by \(q_t\) multiplied by \(tz^{minting}_t\). We propose \(f^{minting} = 2.1\).

Assume for instance \(tz^{minting}_t = 0.36 \textrm{xtz}\) and \(q_t = 1.015\). To mint 10 kits, one would require \(2.1 \times 10 \times 0.36 \times 1.015 = 7.673~\mathrm{xtz}\) in the burrow. When further kits can no longer be burrowed due to insufficient tez collateral, the burrow is said to be overburrowed.

Even once further minting is blocked due to overburrowing, market fluctuations in kit and tez values may lead to a situation in which the ratio of kits outstanding versus tez in the burrow exceeds a higher safety threshold of \(f^{liquidation} q_t tz^{liquidation}_t\), in which case the burrow is considered under-collateralized and can be marked for liquidation, as we’ll see later.

Burrow fee

While a burrow has outstanding kits, it continuously incurs a compounding burrow fee. This is an amount added to the outstanding kit balance, but this amount does not represent kits given to the burrow owner. The result of this is that over time slightly more kits are required to be burned in a burrow in order to release its collateral.

A 0.5 cNp fee per year is assessed and implicitly credited to a ctez / kit CFMM exchange contract which is described below in this document. It’s important that this is done implicitly, i.e. whenever the CFMM contract is called, it knows exactly what its balance is.

Note: it might seem at first like the fee is “paid” for, individually, by the burrow creators but, from an economic perspective, it is equally valid to view it as being paid for, collectively, by all the kit holders, as the fee can be offset by an adjustment of the drift.

Imbalance adjustment

The imbalance adjustment takes the form of either an adjustment fee or an adjustment bonus. The exact amount of the fee (or bonus) is set depending on the imbalance between the number of kits in circulation and the outstanding number of kits that would need to be burned to close all burrows.

In general those numbers should be equal but, imperfect liquidations could cause the numbers to become different. (Imperfect liquidations happen when a burrow is completely liquidated, but not all of the outstanding kits can be recovered: there is an outstanding balance of kits that were minted out of the burrow, but there are no more tez left in that burrow.) If the former (outstanding kits) is greater than the latter (kits in circulation), the adjustment fee is increased and the extra kits are burned. If some burrows are left unfilled, this restores the balance.

The adjustment fee / bonus is capped at \(\pm 5\) cNp per year, is proportional to the imbalance in cNp and saturates when the imbalance hits 20%.

This means that if the system were to end up being undercollateralized, the drift would become lower and dilute the value of the kit, whereas if the system were to end up being overcollateralized the drift would become higher concentrating the value of the kit.


In situations where a burrow is overburrowed and, furthermore, beyond the liquidation threshold, it can be marked for liquidation by anyone. Liquidation is the process of selling some or all of its tez collateral at auction for kit, which will be burned to reduce the burrow’s excessive outstanding kit balance.

There is a reward for marking a burrow for liquidation, equal to 0.1 cNp of the tez collateral plus the burrow creation deposit.

Note that we rely directly on the target and not any kit / tez price we might observe on-chain. The reason is that, kits being off target should not cause a hardening or loosening of burrowing rules.

Once a burrow is marked for liquidation, one can determine the amount of tez that needs to be sold for kit at the current \(tz^{minting}_t\) price in order to return the burrow in a state where any outstanding kits could have just been minted (including refilling the burrow creation deposit, in case another liquidation is later needed). If there would not be enough tez to refill the creation deposit, everything is liquidated and the burrow is simply closed.

That portion of the tez collateral is sent to a queue for auction and the burrow is assigned a corresponding lot number. As the queue receives tez to sell for kit, it chops them up in increments of \(tez\_batch\). We suggest \(tez\_batch = 10,000~\textrm{xtz}\). Each lot is given a lot number which is held by the burrows which contributed the tez to the lot.

Portions of a burrow’s tez collateral may be queued in multiple lots, due either to splitting of large amounts across lots, or to successive partial liquidations.

Liquidation auction

If there are any lots of tez collateral waiting to be sold for kit, Checker starts an open, ascending bid auction. There is a reserve price set using \(k_t\) which declines exponentially over time as long as no bid as been placed. Once a bid is placed, the auction continues. Every bid needs to improve over the previous bid by at least 0.33 cNp and adds the longer of 20 blocks or 20 minutes, to the time before the auction expires.

When liquidating, we liquidate 10% more than we are currently computing. We call a liquidation “warranted” when the burrow would have been targettable for liquidation had we used, retrospectively, the average price obtained in the liquidation auction. Once the liquidation price is known (after an auction) we look at whether that liquidation was “warranted” — that is, it was proven to be necessary. If it was, we destroy 10% of the kit proceeds of the auction. These 10% do not go towards reducing the outstanding kit balance of the burrow, they are just gone, for everyone. If it turned out that a liquidation was not warranted, all 100% of the liquidation proceeds are credited to the burrow.


There is a CFMM (Constant Function Market Maker) exchange facility attached to the checker contract. It is much like a standard CFMM contract (including the ability to mint and redeem tokens representing a contribution of liquidity to the contract) except that its balance in kit increases over time as kits are minted out of burrows to pay for part of the burrowing fee. This balance is adjusted any time the checker contract is called, looking back at the last time the contract was called and calculating the fee incurred in between.

The contract’s implied ctez/kit price is used as part of the parameter calculations.