Build a Monte Carlo...
About this model
Build a Monte Carlo stress-testing simulation diagram for a UK-regulated stablecoin (called MNEe) modelling liquidity risk under redemption stress over a 30-day horizon.
CONTEXT This diagram represents a reserve-backed stablecoin where each issued token is backed 1:1 by GBP cash and UK gilts. The model simulates what happens to the reserve pool when holders redeem their stablecoins under stressed market conditions. Output is used for regulatory capital sizing (ILAR).
POOLS (stocks) - Cash Buffer: starts at 50, holds GBP, represents operational liquidity - Gilt Reserve: starts at 950, holds gilts (HQLA Level 1), the main backing reserve - MNEe Outstanding: starts at 1000, represents stablecoin liability in circulation - Cumulative Redemptions: starts at 0, tracks total outflow over the run - Time-to-Cure Counter: starts at 0, increments when liquidity is below floor - Tail Loss Register: starts at 0, records peak shortfall
SOURCES AND DRAINS - Holder Inflows source: feeds new MNEe issuance and matching cash into pools - Net Redemptions drain: pulls cash and burns MNEe when holders redeem - Forced Gilt Sales drain: only activates when Cash Buffer falls below 5% of MNEe Outstanding
RANDOM VARIABLES (use registers with formulas) - Inflow Rate: max(0, normal(2, 1)) per tick - Redemption Rate: max(0, normal(3, 2)) multiplied by stress overlay - Gilt Price Shock: 1 + normal(0, 0.015), applied to gilt-to-cash conversions - FX Behaviour Multiplier: 1 + uniform(-0.1, 0.3), applied to redemption rate - Correlation Trigger: bernoulli(0.05), occasionally activates correlated stress - Stress Multiplier: starts at 1, can be set to 4 in stress scenarios
GATES (logic) - ILAR Floor Gate: deterministic, fires when Cash Buffer / MNEe Outstanding 0.05, triggers Forced Gilt Sales - Net Flow Gate: probabilistic, 95% chance to route flow to Redemptions, 5% to Inflows - Correlation Gate: deterministic, when Correlation Trigger fires, increments Stress Multiplier
FLOWS - Holder Inflows → MNEe Outstanding at Inflow Rate - Holder Inflows → Cash Buffer at Inflow Rate (1:1 issuance) - Cash Buffer → Net Redemptions drain at Redemption Rate × FX Behaviour Multiplier - MNEe Outstanding → Net Redemptions drain at Redemption Rate × FX Behaviour Multiplier (burn on redeem) - Gilt Reserve → Cash Buffer when ILAR Floor Gate fires, rate equals shortfall × Gilt Price Shock - Track all redemption outflows into Cumulative Redemptions - When Cash Buffer is below floor, increment Time-to-Cure Counter each tick
TIME AND ITERATIONS - Turn-based, each tick equals 1 business day - Run length: 30 ticks - Configure for 10,000 iteration Monte Carlo runs - Seed should be variable for reproducibility
CHART OUTPUTS (add chart nodes) - Distribution of peak liquidity shortfall (final values of Tail Loss Register) - Distribution of time-to-cure (final values of Time-to-Cure Counter) - Distribution of gilt-sale velocity (Forced Gilt Sales flow rate) - Tail quantile readout at 95%, 99%, and 99.5% percentiles
VISUAL ORGANISATION Group nodes into three labelled regions on the canvas: - Treasury Zone: contains Cash Buffer, Gilt Reserve, and the Gilt-to-Cash flow - Risk Zone: contains all registers (random variables) and all gates - Validation Zone: contains all chart and output nodes
Use distinct colours for each resource type: - GBP cash: green - Gilts: blue - MNEe stablecoin: orange - Stress events: red
Layout: place pools horizontally across the centre, sources on the left, drains on the right, registers and gates above the pools, charts at the bottom.
"Build a Monte Carlo..." is a public Machinations diagram shared in the Community by Georges Alexandar, with 31 components.
It was created in April 2026 and last edited in April 2026.
Open the diagram in the Machinations app and press Play to watch the resources move, adjust its values to test how the system responds, or remix it to make an editable copy in My diagrams.
