SLOHM Game Theory#
The SLOHM protocol's mechanics create a game-theoretic environment where the optimal strategy for individual participants also produces the best collective outcome. This dynamic, known as (₿,₿), describes the cooperative equilibrium where participants bond and stake to maximize returns while strengthening the protocol for everyone.
The (₿,₿) Framework#
(₿,₿) is SLOHM's adaptation of OlympusDAO's (3,3) game theory for Bitcoin L1. It describes a situation where every participant chooses to stake their SLOHM. When this cooperative equilibrium holds:
- The treasury grows consistently through bonding inflows.
- Staking rewards remain robust because the treasury generates real yield.
- The reserve floor rises for all token holders.
- Market price remains stable around fundamental value.
The (₿,₿) outcome is not enforced by the protocol. It emerges naturally because the protocol's mechanics make cooperation the most profitable individual choice.
Participant Actions#
Every SLOHM holder faces three primary choices:
Stake#
The participant holds and stakes SLOHM to earn rebase rewards. This is a neutral action that still supports protocol stability by reducing circulating supply.
Bond#
The participant bonds assets into the treasury. It strengthens the treasury and increases the reserve floor.
Sell#
The participant sells SLOHM on the open market. This creates sell pressure and reduces the staking base. However, selling below the reserve floor creates a buying opportunity for others, and selling above it accelerates bonding demand. The protocol's arbitrage dynamics naturally absorb selling pressure.
Payoff Dynamics#
The returns for each strategy depend on what other participants choose:
| Stake | Bond | Sell | |
|---|---|---|---|
| Stake | (₿,₿) | (1,₿) | (-1,1) |
| Bond | (₿,1) | (1,1) | (-1,1) |
| Sell | (1,-1) | (1,-1) | (-₿,-₿) |
The key insight: the whole idea behind (₿,₿) is that staying for the long term is a choice that results in the highest benefit for everyone. If others cooperate, you benefit from a growing treasury. If others sell, you acquire SLOHM at a discount while the protocol's self-correcting mechanics restore equilibrium.
Why Cooperation Dominates#
Several protocol features make the cooperative (₿,₿) strategy self-reinforcing:
- Compounding rewards. Staking rewards compound every epoch (approximately every 8 hours). The longer you stay staked, the more you earn. Exiting means losing future compounding.
- Bond premiums. Bonding provides SLOHM at above-market rates. This discount is only available to participants who contribute assets to the treasury.
- Rising reserve floor. Every bond increases the minimum backing per token. Stakers benefit from a floor that can only go up.
- Arbitrage correction. When participants sell and push the price below the reserve floor, the protocol's mechanics create natural buying pressure that restores the price. Sellers miss the recovery; stakers benefit from it.
Self-Correcting Dynamics#
The protocol does not require all participants to cooperate at all times. When some participants defect (sell), the system self-corrects:
- Selling pushes the market price down.
- Lower prices make bonding more attractive (better premiums).
- New bonders deposit assets, growing the treasury.
- The reserve floor rises, and staking yields improve.
- The protocol returns to equilibrium at a higher fundamental value.
This cycle means that short-term selling by some participants actually creates opportunity for others and can accelerate treasury growth. The protocol turns defection into a net positive over time.
What's Next?#
See how these dynamics play out in market conditions through Arbitrage, or learn the mechanics of Bonding and Staking that make this game theory possible.