# Price Action and Feedback Loop

### Internal Price Action

Internal price action comes from minting and burning — the CDP side of the system.

**Minting creates supply.** When you deposit ETH and receive tokens, new tokens enter circulation. If those tokens are sold on the open market, they push the price down. The stabilizer's job is to make this more expensive when the price is already low (via higher fees), reducing the incentive to mint-and-dump the weaker token.

**Burning removes supply.** When you repay a position, tokens are destroyed. This reduces circulating supply, which — all else equal — supports the price. Repayment is attractive when the market price is near or below your minting price, since you can buy tokens back cheaply and reclaim your ETH.

The interplay between minting and burning creates an internal supply cycle: mint when fees are low and prices are favorable, burn when you can buy back cheap. The stabilizer modulates the cost of entry but not the cost of exit.

### External Price Action

External price action comes from buying and selling on the liquidity pools — the DEX side.

Each token has its own pool against WETH on Cypher's Algebra-based DEX. External participants — traders, LPs, arbitrageurs, bots — drive price discovery through normal market activity. This is where the actual market price is set.

**Buy pressure** (ETH → token) pushes the token's price up, converts seed liquidity from the protocol's initial LP position into ETH, and attracts more LP depth.

**Sell pressure** (token → ETH) pushes the price down. If the sell pressure is asymmetric (more selling on one token than the other), the price delta between WARP and SPEED widens, fees adjust, and the game theory kicks in.

**LP depth matters.** Thinner pools mean bigger price impact per trade. Thicker pools absorb volume more gracefully. The protocol seeds initial token-side liquidity, but buy-side depth and overall pool balance depend on external LPs and organic trading.

### The Feedback Loop

Internal and external price action feed each other:

1. External sell pressure on WARP pushes WARP price down.
2. TWAP adjusts over 10 minutes, reflecting the lower price.
3. Stabilizer increases WARP's minting fee (price-based component).
4. New minting shifts toward SPEED (cheaper fee).
5. SPEED supply increases, SPEED gets sold, SPEED price drops.
6. Delta narrows. Fees rebalance.

This oscillation is the core dynamic of WarpSpeed. The stabilizer doesn't prevent volatility — it creates a rhythm to it.