The Auction¶

Energy Substantiation uses a daily auction to match supplier offers with investor demand.

Auction Schedule¶

The auction runs daily with these phases:

Offer Matching¶

When investors want to purchase tokens, their mint orders are matched against supplier offers.

How It Works¶

1. You create an offer with your maximum acceptable discount
2. The auction finds the clearing discount where supply meets demand
3. All matched suppliers receive the clearing discount (or better)

Discount Discovery¶

The reference price is fixed (from the commodity market). What the auction discovers is the clearing discount.

• Sorts offers by maximum acceptable discount (highest first)
• Takes offers from suppliers willing to accept the largest discounts
• The clearing discount is the lowest discount needed to fill all demand
• All matched suppliers receive the clearing discount

Optimization Factors¶

The matching algorithm optimizes for:

This means a supplier with better credit or more diversification value may be selected even if not offering the highest discount.

FIFO Within Price Level¶

When multiple offers exist at the same discount level the system will fill the orders:

• partially in first-in, first-out order based on creation time.
• partially in a pro-rata manner.

Clearing Discount Example¶

Three suppliers submit offers:

Investor demand: 300 tokens

Result:

• Clearing discount: 5%
• Supplier A: Not matched (5% exceeds their 3% maximum)
• Supplier B: Matched at 5% (150 tokens)
• Supplier C: Matched at 5% (150 tokens, partial fill)

Supplier C benefits: their maximum was 7%, but they receive the better 5% rate.

What You Receive¶

When matched:

Spread = Reference Price × Clearing Discount × Years × Quantity
You Receive = Reference Price × (1 - Clearing Discount × Years) × Quantity

Burn Allocation¶

When investors burn tokens, the system must select which supplier fills to burn against.

Selection Algorithm¶

Burns are allocated using a multi-step process:

Step 1: Select Supplier¶

The supplier with the lowest weighted average discount is selected first.

• Lower discount = burned first
• This protects suppliers who accepted higher discounts

Why lowest discount first?

If you accepted a lower discount (kept more spread), your fills are burned first. Suppliers who accepted higher discounts are protected.

Step 2: Tie-Breakers¶

When suppliers have the same weighted average discount:

1. Soonest financing expiration - Minimizes refund liability
2. Largest remaining quantity - Reduces concentration risk

Step 3: Select Fill Within Supplier¶

Once a supplier is selected, their fills are chosen by:

1. Nearest financing end date
2. Oldest creation date (FIFO)

Burn Allocation Example¶

Two suppliers have outstanding fills:

Supplier A: - Fill 1: 500 tokens, 4% discount, expires June 2026 - Fill 2: 300 tokens, 6% discount, expires March 2027

Supplier B: - Fill 1: 400 tokens, 5% discount, expires September 2026

Weighted average discounts: - Supplier A: (500×4% + 300×6%) ÷ 800 = 4.75% - Supplier B: 5%

Burn request: 200 tokens

Result: Supplier A is burned first (4.75% < 5% = lower discount)

Buy-Back Processing¶

Suppliers can voluntarily reduce their obligations through buy-backs.

Token Buy-Backs¶

• Processed before the mint phase
• Use tokens you own to retire obligations
• Financing is forfeited (unearned spread goes to platform fees)

When to use: You acquired tokens through trading and want to reduce obligations.

USD Buy-Backs¶

• Processed during the mint phase
• Pay cash at reference price to retire obligations
• Financing is forfeited

When to use: You want to retire obligations but don't hold tokens.

Buy-Back Fill Selection¶

Buy-backs are allocated to your fills by:

1. Discount (lower discount first)
2. Creation date (oldest first)

After the Auction¶

When your offer matches:

• A fill is created recording the terms
• Your reserve balance decreases (you now have obligations)
• Payment is credited to your internal balance
• Financing is held separately and accrues over time

Auction Results¶

After each auction, you can review:

Tips¶

• Ladder your offers - Place offers at different discounts to increase match probability
• Monitor clearing discounts - Track historical rates to calibrate offers
• Consider timing - Market conditions affect demand and clearing rates
• Review results - Check which offers matched and adjust strategy

Next Steps¶

• Settlement - What happens after matching
• Financing - How spread revenue accrues
• Buy-Backs - Retiring obligations early