> For the complete documentation index, see [llms.txt](https://docs.pots.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.pots.money/how-ibs-works/auto-signal.md).

# Auto Signal

#### The Oracle Problem

Most DeFi protocols rely on external price oracles — third-party services that feed off-chain data into smart contracts. These oracles are a systemic vulnerability: they can be manipulated, delayed, or compromised. A protocol that depends on an oracle is only as trustworthy as the oracle itself.

IBS eliminates this dependency entirely. Every signal that governs the protocol is derived directly from on-chain state — no external data sources, no privileged feeds, no trusted third parties.

<figure><img src="/files/ZDqvxFHurH1TahMNMNHz" alt=""><figcaption></figcaption></figure>

#### The Signal Set

The protocol continuously monitors a set of on-chain state variables $$\mathcal{S}$$:

$$\mathcal{S} = {P\_{market},\ V\_{LP},\ V\_{RBS},\ V\_{ST},\ S\_{circ},\ S\_{max}}$$

From these six variables, all governance signals are derived deterministically:

$$\Pi = \frac{P\_{market} \cdot S\_{max}}{V\_{LP} + V\_{RBS} + V\_{ST}} \qquad \text{(Premium Index)}R = \frac{V\_{LP} + V\_{RBS} + V\_{ST}}{S\_{circ}} \qquad \text{(Backing Ratio)}$$

$$\Lambda = \frac{V\_{LP}}{P\_{market} \cdot S\_{circ}} \qquad \text{(Liquidity Coverage Ratio)}$$

These three derived signals — $$\Pi$$, $$R$$, and $$\Lambda$$ — drive all automated protocol actions:

| Signal                         | Threshold Crossed               | Automated Action                    |
| ------------------------------ | ------------------------------- | ----------------------------------- |
| $$\Pi > \Pi\_{min}$$           | Premium above floor             | AEM authorizes new bond issuance    |
| $$R \to 1 + \epsilon$$         | Backing ratio near MCL          | AEM throttles and halts emission    |
| $$\Lambda < \Lambda\_{min}$$   | Liquidity coverage insufficient | Bond issuance paused; RBS activates |
| $$P\_{market} > P\_{RBS}^{+}$$ | Price above RBS upper band      | RBS mints IBS into pool             |
| $$P\_{market} < P\_{RBS}^{-}$$ | Price below RBS lower band      | RBS injects USDT to buy back IBS    |

#### Autonomous Execution

When any threshold condition is met, the corresponding smart contract function executes automatically — within the same block, without human input. The latency between signal and action is bounded by block time (approximately 3 seconds on BSC).

This creates a closed-loop control system analogous to a PID controller in engineering:

$$u(t) = K\_p \cdot e(t) + K\_i \int\_0^t e(\tau),d\tau + K\_d \frac{de(t)}{dt}$$

Where $$e(t) = \Pi(t) - \Pi\_{target}$$ is the error signal (deviation of Premium Index from target), and $$u(t)$$ is the protocol's corrective action (emission rate adjustment). The protocol continuously minimizes this error — driving the Premium Index back toward equilibrium.

#### Public Transparency

All state variables in $$\mathcal{S}$$ are readable by any address on BSC at any time. The protocol publishes the complete set of threshold parameters, enabling any participant to:

1. Independently verify the current protocol state
2. Model future behavior under different market scenarios
3. Anticipate protocol actions before they occurThis is a deliberate design choice. In a transparent system, information asymmetry cannot be exploited. All participants operate on the same data — creating a level playing field and reinforcing the credibility of the protocol.&#x20;

{% hint style="info" %}
📡 Schelling Point Dynamics

When all participants can observe the same on-chain signals and predict the same protocol responses, their expectations converge. This convergence is self-fulfilling: if everyone expects the protocol to defend the $1 floor, no rational actor will sell below it. The signal system creates a Schelling point around the backing value — a focal equilibrium that is stable precisely because it is publicly known.
{% endhint %}

#### Initial Parameters

| Parameter                    | Symbol             | Initial Value            | Governance     |
| ---------------------------- | ------------------ | ------------------------ | -------------- |
| Minimum Premium Index        | $$\Pi\_{min}$$     | 1.05 (105%)              | DAO-adjustable |
| Target Premium Index         | $$\Pi\_{target}$$  | 1.5 (150%)               | DAO-adjustable |
| Min liquidity coverage ratio | $$\Lambda\_{min}$$ | 0.3 (30%)                | DAO-adjustable |
| RBS upper band               | $$P\_{RBS}^{+}$$   | $$B\_{IBS} \times 1.1$$  | DAO-adjustable |
| RBS lower band               | $$P\_{RBS}^{-}$$   | $$B\_{IBS} \times 0.95$$ | DAO-adjustable |
| Block time (BSC)             | —                  | \~3 seconds              | Fixed          |

> All parameters are subject to DAO governance. See the Parameter Reference Table.