This article was first published on Bancor - Medium
Yesterday, the hot-from-the-oven Bancor Dynamic Reserve Liquid Tokens were launched on EOS mainnet by EOS Nation.
As a reminder, Bancor Liquid Tokens maintain a reserve in BNT (or the stablecoin USDB), and can be purchased directly from their smart contracts by end-users, meaning no need to rely on exchanges or third-parties for their liquidity. The Bancor Formula used in liquidity pools continuously adjusts the token price based on these real-time market dynamics. Until now, Bancor Liquid Tokens have maintained a constant ratio between their reserve and their market-cap, and price the token accordingly to keep this ratio constant.
Today, we are introducing the next generation of Bancor Protocol’s capabilities: a Dynamic Reserve Ratio, or DRR. Simply put, this means that the reserve ratio can be altered algorithmically, rather than only held constant.
In the first implementation used by EOS Nation, users can create Bancor DRR Liquid Tokens with a 100% reserve ratio, in USDB. This means that all new tokens are initially USD pegged — or stable.
But there’s more, thanks to the new Dynamic Reserve Ratio capability: The token issuer can also set an “allowance”, which is currently set at 2% (/week) by default. The allowance defines the rate at which the DRR decreases (in this case meaning it decreases by 2% per week) — and that process causes the token to steadily emit USDB from the token’s reserve, in order to match its decreasing reserve ratio. These USDB allowance tokens are continuously transferred to the token issuer’s designated wallet, as their “revenue”, minus any fees (currently EOS Nation has set these at 10% for using their service). So if, for example, a token that was purchased with $1,000 when it was created, would see — assuming no other activity — the reserve ratio being reduced to 98% the following week, the reserve balance to $980 and the issuer ...
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Bancor - Medium