Pricing function
The Kalyan instrument uses a predetermined pricing function that maps outstanding share supply to per-share value. The function is piecewise and monotonic: as supply expands through new issuance, the indicated share value rises along the schedule; as supply contracts through redemption, value moves back down the same schedule.
At lower supply levels, the schedule includes a flat minimum-redemption region. This region defines the instrument’s redemption floor: below that point, additional reductions in supply do not reduce the amount redeemable per share.
When reserves increase through retained fees or net subscriptions, the pricing schedule is reset upward. This reset is performed in a way that preserves the structure’s aggregate value constraint while increasing the minimum redemption value per share. As a result, the redemption floor can move upward over time, but it does not move downward.
Guide for this module
This module shows how the pricing function is reset upward as reserve support grows.
The chart shows the pricing schedule as a function of supply to market value. More subscription means more shares in supply, which moves the redemption value upward.
The market program itself holds the reserves, which back redemptions. Raising the floor price is simply a matter of re-configuring the parameters of the pricing function such that its area is preserved.
Notice that while the floor rises, the total reserve value stays constant.