Treasury Backed Expansion
A critical innovation in SPAI Finance is treasury-backed emission — ensuring all new spBNB minted is supported by actual protocol revenue and assets.
The Problem with Unlimited Expansion
Early algorithmic synthetics, including the original Tomb Finance, allowed unlimited expansion:
When TWAP > 1.01 → Mint new tokens
No backing requirement → Pure supply increase
No revenue check → Expansion independent of protocol health
Death spiral risk → Oversupply eventually crashes peg
This created a fundamental asymmetry:
Expansion permanently added tokens to circulation
Contraction temporarily removed tokens (via bonds)
Eventually, supply grew beyond sustainable levels
Confidence loss → peg break → death spiral
How Treasury Backing Works
SPAI Finance only expands when the treasury can support it.
The Backing Ratio
Backing Ratio = Treasury Assets / Circulating spBNB
Above 100%: Every spBNB is backed by >1 BNB equivalent in treasury
Below 100%: More spBNB exists than treasury can support
Target: Maintain 100%+ at all times
Expansion Requirements
For the protocol to mint new spBNB, all the following must be satisfied:
Example scenario:
1,000,000 spBNB in circulation
1,050,000 BNB equivalent in treasury
Backing ratio = 105%
TWAP = 1.03 Result: Expansion authorized, rate adjusted based on backing and TWAP.
Conservative Expansion Rates
Unlike Tomb's 3–6% per epoch expansion, SPAI uses 0.05–0.10% rates:
Lower inflation reduces long-term supply pressure
Sustainable APRs rather than unsustainable promises
Backing preservation — expansion doesn't drain treasury
Longevity focus — designed for years, not months
Treasury Revenue Sources
The treasury accumulates assets through multiple mechanisms.
PSM Fees (Primary)
30% fee on all farm reward claims
Paid in spBNB equivalent
Immediate BNB purchase creates buy pressure
Directly strengthens backing ratio
Example: If users claim 10,000 SPAI in rewards, 3,000 SPAI worth of spBNB goes to treasury; the treasury must acquire spBNB (buying from market), creating buy pressure and increasing treasury assets.
Trading Fees (Secondary)
Protocol-owned liquidity earns trading fees
Fees from PSM operations
Accumulates over time and compounds with protocol growth
Expansion Efficiency
The protocol retains a small percentage of minted spBNB
Typical allocation: 80% to stakers, 20% to treasury/DAO
This 20% strengthens backing without requiring external revenue
Strategic Operations
Potential additional sources:
Yield farming with treasury assets
Strategic partnerships
Integration fees
Future protocol developments
Backing vs Price
Backing Ratio ≠ Peg
Backing ratio: Treasury assets / circulating supply
Peg: Market price of spBNB relative to BNB
You can have:
100%+ backing but 0.90 peg (fear-driven selling)
95% backing but 1.05 peg (demand-driven premium)
Backing provides a floor value and expansion capability, but doesn't guarantee the peg holds in the short term.
The Backing Floor
In theory, if backing ratio is 100%:
Protocol could buy back all spBNB at 1:1
Redemption mechanism could be implemented
Liquidation value equals 1 BNB per spBNB
In practice:
No forced redemption (would defeat protocol purpose)
Backing provides confidence, not guarantee
Market price can deviate from backing
Monitoring Treasury Health
Key metrics to track:
Backing Ratio (status guide)
Above 110%: Excellent health, expansion sustainable
105–110%: Strong health, normal operations
100–105%: Healthy but tight, expansion slows
95–100%: Caution zone, expansion halts
Below 95%: Critical, confidence at risk
Revenue Flow
Growing revenue: PSM generating consistent fees
Stable revenue: Sustainable equilibrium
Declining revenue: Fewer claims, less activity, concern
Treasury Growth Rate
Faster than supply growth: Backing ratio improving
Equal to supply growth: Backing ratio stable
Slower than supply growth: Backing ratio declining
Asset Composition
Stablecoins: Low risk but low yield
BNB: Medium risk, exposure to BSC success
LP positions: Higher yield but impermanent loss risk
Other DeFi: Diversification vs concentration
The Sustainability Advantage
Prevents Death Spirals
Traditional model:
Oversupply → peg breaks → panic → death spiral
SPAI model:
Can't oversupply beyond backing → confidence maintained → peg holds
Enables Recovery
If peg breaks temporarily:
Strong backing → protocol has resources to defend
Can deploy treasury to buy spBNB
Not dependent purely on external arbitrageurs
Builds Confidence
Users can verify:
Backing ratio is transparent
Expansion is limited by actual resources
Not a pure ponzi depending on infinite inflows
Supports Longevity
Conservative expansion = protocol can operate for years
Treasury growth compounds over time
Not designed to hyperinflate and collapse
Backing vs Collateral
SPAI is NOT collateralized
No individual redemption rights
Can't force 1:1 backing withdrawal
Backing is protocol-level, not user-level
SPAI IS treasury-backed
Expansion limited by treasury assets
Protocol has resources to support peg
Transparent backing ratios build confidence
Analogy:
Collateralized = bank with reserves matching deposits (can redeem)
Treasury-backed = company with assets matching shares (no forced redemption but value exists)
AI Management of Expansion
Dynamic Rate Adjustment
AI adjusts based on:
Current backing ratio (higher = more aggressive)
TWAP level (further above peg = higher expansion)
Market volatility (higher = more conservative)
Historical patterns (what worked before)
Predictive Modeling
Projects backing ratio after expansion
Ensures post-expansion backing stays above 100%
Models different scenarios (bull, bear, stable)
Prevents expansions that would weaken backing
Risk Management
Tightens expansion during market stress
Loosens expansion when conditions are favorable
Balances user rewards vs protocol sustainability
Optimizes for long-term health over short-term APRs
Comparing Models
Expansion Limit
Unlimited
Treasury-backed
Backing Requirement
None
>100% required
Expansion Rate
3–6% per epoch
0.05–0.10% per epoch
Death Spiral Risk
High
Significantly reduced
Sustainability
Months
Years
Management
Manual governance
AI-optimized
User Implications
Assess Risk
Check backing ratio before entering
Higher backing = lower protocol risk
Declining backing = warning sign
Time Entries
Strong backing + above peg = expansion likely
Weak backing + above peg = expansion may stop soon
Strong backing + at peg = waiting for demand
Evaluate Longevity
Conservative expansion = protocol built to last
High backing = resources to weather storms
Growing treasury = compounding sustainability
Set Expectations
Lower APRs than unsustainable protocols
But much higher probability of long-term success
Quality over quantity in reward distribution