Reference System for DeFi (RSD) is an algorithmic and multi-chain token with elastic supply, controlled by an autonomous agent guided by reinforcement learning. Its supply expands and contracts dynamically based on average transaction volumes. Therefore, it attempts to use its own level of usage as a proxy for market health rather than external factors such as Bitcoin's price, for example.
The token adjusts supply by analysing average transaction volume over a given period for a random number of transactions. It then constricts or expands supply accordingly, then rewards validators and occasionally users for transactions. Here's the kicker about the way total supply is controlled: when average transaction volume (a proxy for demand) is higher, a portion of senders' tokens are burned from the total supply. When it's lower than the average, a portion of their sent tokens are minted. What this means is that as long as the average transaction volume in the system continues to increase, supply is constricted. If that average volume is represented by buying demand, it means more and more supply is burned as demand reaches a peak. It also means that when demand and average transaction volumes are lower, users are incentivised to use the network as they are reimbursed for doing so.
In theory, this would lead to the token increasing in price exponentially as more network participants began transacting the coin. At a certain point, however, average transaction volume will drop, supply will be minted, and users will be incentivised to sell. As the network expands, this could lead to cycles of higher and higher lows as the network grows and the average level of demand continues to increase over time. All the while, validators are rewarded for supporting the network via layer 1 maintenance.
RSD also has another mechanic. During preliminary simulations, the creators found that with this cycle alone, supply eventually never expanded or contracted beyond a standard deviation of an average level. Therefore, to ensure expansion of the network, new participants are awarded a prize randomly when they perform simple transactions. This system is known as Proof of Bet (or PoBet). Users are betting that, on average, the network will expand. By "betting" on the network's expansion via their own usage of it, network participants can win a lottery of RSD tokens that expands total supply and increases the size of the network.