Max Supply - Determination Framework for Storm SLP Market

Introduction

This document outlines our methodology for determining the maximum supply of tokenized yield products in the Storm SLP (Staked Liquidity Provision) market. The framework is designed to ensure market stability by implementing appropriate risk buffers that account for potential decreases in underlying index values.

Background: Yield Tokenization for Variable Indices

Traditional yield tokenization operates under the assumption that underlying assets will generally appreciate. However, the Storm SLP market works with indices that can experience downward price movements, creating unique challenges for token stability and protocol solvency.

To address these challenges, we've developed a comprehensive framework for calculating maximum token supply with built-in risk mitigation mechanisms.

Capital Buffer System Overview

Our approach relies on a two-tiered insurance system:

1. Protocol Capital Buffer: A reserve maintained by the protocol, calculated using advanced risk metrics

2. Storm Token Support Mechanism: An additional layer of protection through the Storm token ecosystem (more details in Storm's Article: Liquidity buffer on Storm Trade)

Maximum Supply Determination Methodology

Step 1: Risk Assessment Through Historical Analysis

We analyze historical price data for each asset (USDT, TON, and NOT SLPs) to calculate:

• Hourly return distributions

• 30-day rolling volatility

• Value at Risk (VAR) and Expected Shortfall (ES) at 99% confidence level over a 30-day horizon

Step 2: Required Capital Buffer Calculation

For each asset, we determine the required capital buffer using:

Required Capital = Position Size × (1 - e^(-ES))

This represents the expected monetary loss in the worst 1% of scenarios over a 30-day period.

Step 3: Maximum Supply Calculation

The maximum supply for each SLP market is determined as:

Maximum Supply = Available Capital Buffer ÷ Capital/Position Ratio

Where:

• Available Capital Buffer is the amount allocated to secure the specific market

• Capital/Position Ratio is the required capital as a percentage of the total position size

Step 4: Stress Testing and Adjustment

We apply additional stress factors based on:

• Historical maximum volatility periods

• Liquidity conditions

• Market correlation risks

The final maximum supply incorporates these stress tests to ensure robustness during extreme market conditions.

Current Maximum Supply Parameters

Based on our risk analysis, we've established the following parameters for the Storm SLP markets:

Asset	Position Size	Required Capital	Stressed Capital	Capital/Position Ratio
USDT	$1,000,000	$32,272	$72,682	3.23%
TON	$1,040,000	$17,725	$50,905	1.70%
NOT	$534,900	$18,084	$54,837	3.38%

These figures are derived from our historical analysis, which shows that:

• USDT has maintained relatively stable growth from 1,000,000,000 to 1,232,228,714 over the analyzed period

• TON and NOT display different volatility profiles, resulting in varying capital/position ratios

• Stressed capital requirements are significantly higher than base requirements, providing an additional safety margin

Conclusion

This maximum supply determination framework ensures that the Storm SLP market maintains appropriate risk buffers while maximizing capital efficiency. By incorporating advanced risk metrics and stress testing, we provide users with confidence in the stability and security of our tokenized yield products, even during adverse market conditions.

The combination of rigorous quantitative analysis and the Storm token support mechanism creates a resilient foundation for sustainable growth in decentralized yield markets.