Volatility Reducing Effect by Introducing a Price Stabilization Agent on Cryptocurrencies Trading

Abstract

Cases of introducing token economy in designs of ICT services are increasing. Users in the early stages of the service are expected to participate in and be active in the service by expecting future price increases in that cryptocurrency. However, the volatility of cryptocurrencies is always intense, and the large volatility may cause users to be more interested in price changes than service activities, which diminishes the incentives for the service activities. In this study, in order to dampen the volatility of cryptocurrencies at the initial stage of their service launch, we assume the case where the service providers make bids to suppress the price changes based on the funds obtained from ICO, and conduct analysis using simulations in artificial market. In order to reproduce the actual price movement in the artificial market, we built an agent model that has the same stylized facts as the price movement of newly listed cryptocurrencies. Then, we introduced a price stabilization agent, and obtained a parameter set that reduces price volatility while suppressing the change in the slope of a simple linear regression compared to the original state using an optimization method. As a result, by introducing the price stabilization agent, we found a parameter set that can reduce the standard division of percentage changes by about 14% from the original price movement, and keep the slope of the simple linear regression trend at a 3.5% change.