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Volatility Buffer Rate

Status: Not Started
Priority: Critical
Last Updated: 2026-05-29
Contributors Welcome: Yes

What We Don’t Know

Is the 7% volatility buffer rate sufficient to protect BCH sellers from price volatility during the covenant settlement window?

Why It Matters

If the buffer is too small, sellers lose money when BCH price drops. If it’s too large, capital efficiency decreases and the system becomes less competitive.

Current Hypothesis

7% buffer provides adequate protection for a 24-hour settlement window based on historical BCH volatility analysis.

Investigation Method

1. Analyze BCH/USD price volatility over 24-hour windows (last 2 years)
2. Calculate 95th percentile price movement
3. Model seller losses at various buffer rates
4. Compare 7% vs. 5%, 10%, 15% scenarios

Success Criterion

Statistical analysis showing 7% buffer covers 95%+ of 24-hour price movements with acceptable capital efficiency tradeoff.

Phase 0 Trial Integration

Track actual BCH price movements during trial covenants and measure buffer adequacy.

Dynamic Buffer (Design Note, August 2026)

The buffer is intended to be dynamic — sized from recent downward BCH price volatility, not a fixed 7% forever. The v2.6 covenant already supports this:

• The abort threshold and claim floor are computed from initialBchPriceInCents * minPricePercent at funding time
• A dynamic minPricePercent (e.g., derived from recent downward volatility) slots straight into the existing covenant without contract changes
• The v2.6 abort()/overlap design was deliberately built to be compatible with a variable buffer

Design intent (Suso, Aug 15): 7% is Phase 0’s fixed default. Dynamic sizing based on recent downward volatility is the target, and the covenant architecture accommodates it.

Note: A related but distinct idea (per-hour buffer pricing by sellers) is in variable-buffer-rate.

Contributor Guidance

Skills needed: Data analysis, statistical modeling
Estimated effort: 4-6 hours
How to start: Pull BCH/USD historical data from major exchanges

Related Documents

• Risk Allocation Principle

• Bounty Contracts with Volatility Buffer

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