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CHRONOBANK - PHASE 1: A NON-VOLATILE DIGITAL TOKEN BACKED BY LABOUR-HOURS 5 labour type(s), location(s) of work, date/time of work, contact information, etc. The request will trigger the CBE to search and match relevant LOCs to the redemption request. If found, the CBE will return the most suitable LOCs that fit the request. To discourage recurrent requests and to remunerate the CBE for its service, the CBE will take a small fee, fr ∈ [0, 0.01] from the deposited tokens. The amount of labour-hours matched will be less than or equal to the LHT tokens deposited, less the CBE’s fee. Any unmatched requests or unfulfilled hours can be withdrawn from the redemption contract by the depositor. As a redundancy, the redemption contract will have a built-in holding period, after which depositors may withdraw their deposited LHT. This protects depositors from inactive or stagnant CBEs. Once the CBE has returned a list of compatible LOCs, a depositor may accept or reject the offered LOC(s). If rejected, the depositor can withdraw their deposited LHT less the CBE’s service fee. If accepted, the CBE will advise the chosen LOC of all relevant details. The redemption contract will hold the LHT until the work has been completed and the depositor is satisfied. A dispute resolution system may be used to ensure work is completed as requested. Once the labour has been satisfactorily completed, the deposited LHT will be destroyed, again ensuring the 1 to 1 relationship of LHT to backed labour-hours. 2.2.3. Intrinsic Value We have thus far ensured a 1 to 1 correspondence between LHT and labour-hours but have not yet defined the value of either. The intrinsic value of one LHT and thus one labour-hour is region-dependant. Although any arbitrary value can be chosen, we peg the value of one LHT to be roughly the average hourly wage of a region for practical reasons. The average hourly wage of a region will be defined via the official statistics bureau of that specific region. If one were to trivially adjust the LHT to the most recent statistics released for a given region, the price of LHT would stepwise shift on the release date of the statistics. Typically these statistics are released yearly and in such scenarios a predictive stepwise jump each year would occur. To implement a smooth transition from one statistics point to another, we propose that the pegged price of LHT be a linear interpolation between the two points. This would require the LHT price to lag behind the most recent statistics by the duration of at least one extra statistics release. Let us illustrate this with a clear example, as depicted in Figure 6. Let us determine the price of LHT during April, 2010 in a region where the statistics bureau publishes a data point in January each year. This data point indicates the average wage in that region for the previous year. The price will be calculated by retrieving two data points: A2008 and A2009, the average wage in 2008 (released in January, 2009) and the average wage in 2009 (released in January, 2010) respectively. We take a linear interpolation between these two points to find the price of LHT in April, 2010. In this example, this will over-approximate4 the average wage in April, 2008. This example shows that the LHT price in April 2010 will be the over-approximated average wage in April 2008, demonstrating how the pegged price of LHT will lag behind the current actual average wage. It should be noted that this doesn’t affect any aspects of offering or redeeming labour. The value of labour offered or redeemed is independent of the price of a single LHT. However, the value will be measured with respect to the fixed price of a single LHT token. Figure 6. The base price of one LHT in April 2010, X, can be calculated as the linear interpolation between the average wage in 2008 and 2009 (A2008 and A2009). For any given region, typically there are sub-regions which have varying costs associated with providing labour work. We wish to integrate these costs within our definition of a single LHT. To do so, we take the maximum of each cost within a sub-region and add it to the average wage of the region to provide the fundamental price of LHT. Specifically we have: L = (1 + max(Y))X , (3) where X is the linearly interpolated function of average wages described above and Y is the individual cost in a sub-region as a percentage of work done. L as defined in equation (3) is the pegged price of LHT for any given region. This value will vary linearly throughout each year in a transparent and predictable manner. 2.3. Funds The uniqueness of backing a digital token with contractual debt requires various safeguards to ensure contracts are always upheld and potential defaulting is accounted for. There are a number of adverse scenarios that can occur with a debt-backed system. Our proposed solutions involve the careful maintenance of two extra funds, the Liquidity Reserve and the Security Guarantee Fund (SGF). In this section we detail the operation of these funds and how they address some of the issues that can arise in this system. 2.3.1. Liquidity Reserve The liquidity reserve is an offline LHT storage fund controlled by the CBE. It receives a percentage, LT, of newly minted LHT during the minting process (Section 2.2.1). There are two services that this function provides the ChronoBank system: 4This is a poor approximation that assumes a linear growth, where the start of the year is the average wage of that year and the end of the year the is average wage of the following year.

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