> For the complete documentation index, see [llms.txt](https://taodao.gitbook.io/taodao/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://taodao.gitbook.io/taodao/market-operations-and-pcv.md).

# Market Operations & PCV

Market operations are how the protocol uses its **Protocol Controlled Value (PCV)**  to expand and contract the supply, generating profits in doing so. The protocol can earn profits through three venues:

* Direct Sales
* Bonding
* Yield farming with the Treasury.

## Direct Sales

Every $TAO is backed initially by $1 BUSD, this is the ***Intrinsic Value (IV)*** and the protocol will always value each TAO at its Intrinsic Value. In this case, this ensures a long-term floor at 1$. The assets backing TAO may change through community governance, our belief is a well-diversified treasury will help achieve our goal of stability.

$$
IV = reserves/supply
$$

Unlike other stablecoins, there is no process of creation or redemption, instead, every ***epoch*** *(6h)* the protocol will mint and sell TAO above its intrinsic value for a premium, and buy and burn TAO below its intrinsic value for a discount. The profit generated will be distributed in the proportion of **50/40/10** to LP stakers, TAO stakers, and the DAO respectively. Unlike previous stablecoin designs, this ensures a long-term floor as the protocol can indefinitely purchase below its Intrinsic Value forever.

$$
epochMint = (TWAP-IV) \* supply \* ICV
$$

If TWAP is greater than IV, the protocol will mint and offer the $TAO at a discount to pancake swap through the **Sales Contract**. The **Inflation Control Variable (ICV)** is a variable that lets the DAO scale up or down the rate of inflation. A lower ICV leads to less sell pressure thus lower profitability. The **Discount rate** incentivizes arbitrageurs to lift the protocol's offer. This parameter is also governed by the DAO.

$$
epochBurn = |TWAP = IV|*supply*DCV
$$

If TWAP is less than IV, the protocol will fund the sales contract with its underlying collateral to bid at a premium over pancake swap. Like the ICV, the **Deflation Control Variable (DCV)** scales the rate of deflation up or down. A higher DCV leads to more buy pressure and higher deflation. A lower DCV translates to less deflation but less buying pressure and a weaker floor. The **Premium rate** incentivizes arbitrageurs to hit the protocol's bid.

When the protocol profits from sales, it now has excess assets in the treasury (Initially BUSD). It uses these newly acquired assets to mint TAO backed by those profits and distributes this to protocol users.