this is a study related to how the European Central Bank (ECB) used different mechanisms with banks to keep the interest rate pegged steady. They use a posted price mechanism with full allotment (PP-FA). Our scenario is the price here yet i think the way to do it is pretty similar. Would love any input
“In the posted price mechanism, the ECB sets the policy target rate p0 at which the banks may purchase as much liquidity as they wish. In this mechanism, the price does not reveal the signals of the other banks. After receiving signals, banks condition their reserve requirements only on their own signal and demand”
So, if I understand it correctly, perhaps the expected rate p0 could be our discount factor, it would be the minimum & folks could agree to sell at that price for funds from the reserve while not knowing the price of other participants?
There could be a time period of several hours in which FEI holders can make their quotes & sign & agree on individual rates lower than current burnt rates. I think this would allow retail to sell their FEI without going through higher burn rates & still accommodates the FEI/PCV ratio while addressing the unknown buy pressures & prevents smaller folks from having failed transactions.
To add give some extra functionality, the discount factor would be lowered proportional to the amount of $tribe that participants hold up till some p0-0.7*p0 or smth? this is direct incentives for holding $tribe;
So back to my previous reply yeah I think that amounts quote for sale should be hidden, signed with balances of individuals & discounted proportional to position discount factor for $tribe holders & $tribe-fei LP’ers.
Introduction of paper
"We have presented a model of strategic bidding in multi-unit auctions that incorporates the main feature of the ECB liquidity auctions: The presence of secondary market. The novelty of our model is that the secondary market equilibrium generates the marginal valuation functions upon which bidders base their equilibrium bidding strategies in these multi-unit auctions. We have also used the auction allocations to model the outcomes in the interbank market and the need for the banks to turn to standing facilities of the ECB.
Conclusion of paper
We have compared four different mechanism to sell liquidity: The discriminatory price, the uniform price and the Vickrey auction, and the posted price mechanism with full allotment. All except the Vickrey auction have been used by the ECB in practice at one point or the other. Our main objective was to compare which of these mechanisms is the best at achieving the stated goal of the ECB: The implementation of the target interest rate (reservation price) to the interbank market. We find that the current mechanism of posted price with full allotment is by far the most superior mechanism in this respect. Moreover, mechanism selection involves only limited trade-offs, since the posted price with full allotment is more effcient than even the Vickrey auction in our model. The only trade-off that emerges from our simulations is that the discriminatory price auction is optimal and thus generates more revenue than the posted price mechanism.
Nonetheless, optimality is probably of second order considering the role of ECB and the role of liquidity auctions. However, if the central bank values the information about the market that the bids provide, they should adapt an auction mechanism over a posted price mechanism, because in auctions, the central bank learns the entire demand function, whereas in posted prices the bid is only a single point in the price-quantity plane. Despite these consideration, the auction
mechanisms seem inferior to the posted with full allotment in the relevant policy dimensions.
At the end of the day, we think that the mechanism design in the ECB liquidity auctions should be decided by the main purpose of the ECB: The implementation of monetary policy. Thus, we conclude that the ECB should continue using posted prices with full allotment, even after the current crisis. This conclusion is very intuitive. If the goal of the regulator is to regulate price, it is best achieved by regulating the price directly and letting the quantity adjust, instead of regulating the quantity and hoping that the price will adjust to the desired level."