Understanding Monetary Velocity

Monetary velocity is an important concept for understanding the Terra economy. It is an important output to measure because it captures how economic participants are using the Terra in circulation. This Terra blog post delves into how velocity, growth, seigniorage, discounts, and reserves are all related. It’s not easy to understand at first pass, so please feel free to ask any questions in this forum!

Hi Evan,
I read the blog and the design of Treasury is very interesting. Is it a single address on Terra?
Can you tell us which address is for the Treasury so we can monitor the transactions?
In addition, I still don’t understand that why creating stable mining incentives can help to maintain terra’s stability. Could you explain this in more detail?

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@Winter the Treasury is not an address, but just a set of functions that monitor macroeconomic inputs on the Terra blockchain (namely, seigniorage generated + periodic revenues from fees) and adjusts macroeconomic levers (fee rates + proportion of seigniorage that goes to reward Luna holders).

Motivation for creating stable mining rewards is simple; Luna is the collateral that absorbs price volatility in Terra. In order to make sure that Luna itself maintains value during a Terra recession (i.e. when its supply is increasing) we make sure to modulate macroeconomic levers to create stable mining rewards.

If Luna did not have stable mining rewards its value would be highly volatile. At steady state, assets with stable cash flows tend to exhibit low volatility (i.e. Visa stock). Assets with low or no cash flows exhibit high volatility (e.g. tech stocks)