Bancor Dynamic Reserve Ratio (DRR) Liquid Tokens
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 will receive the emitted $20 as allowance. Basically, as you gradually reduce the reserve requirement for a token, assuming no other changes, you can release some of its reserve for other purposes without changing its price.
And other events can also increase the DRR, such as token burning (for community visibility perhaps) or new USDB deposits to the reserve (from revenue, for example).
The DRR Liquid Token has several key advantages:
- There is no need to deposit an initial reserve when creating a new token. A 100% initial DRR means that the first buyer deposits the initial reserve and gets the first issued tokens. This reduces the barrier for Liquid Token creation, making it free of charge. It also means that even token issuers need to purchase their tokens.
- Tokens can be created with a predefined 3rd party beneficiary which would automatically receive the allowance payments. For example, a fan can create a token for her favorite YouTube star by simply providing the star’s Bitcoin donation address.
- New tokens are safer from pumps and dumps. Due to the slowly reducing DRR, the token’s price gradually becomes more responsive to the market dynamics over prolonged periods of time — but not right off the bat, as has proven so problematic for both users and issuers.
Anyone can create a new DRR Liquid Token with their own parameters just like EOS Nation. And the new service is built on a framework called deWeb, which allows anyone to operate and/or market their own online services for creating and using Bancor DRR Liquid Tokens, while earning royalties from allowances generated to token creators who use it. If you’d like to learn more about deWeb, check out deWeb.io.
The Bancor Protocol was built to be an essential building block for an autonomous network of user-generated Liquid Tokens. We are humbled that automated liquidity pools are now an industry standard in the growing world of DeFi. We could not be more excited to see how much innovation is sparked in this next generation of customizable tokens, using a Dynamic Reserve Ratio. We can’t wait to see what you’ll build, and are here to help with any question.
Wishing a happy, healthy and safe Spring holiday to all, wherever it may find you.
