How Liquid Tokens Work?

How Liquid Tokens Work?

Are you having interest to know about liquid tokens and how it works. It is the right chance for you to consume more about it. Generally, a Liquid Token is a smart contract that acts as an machine-driven market through controlling the token buying and selling with an individual collateral pool to back it up on a planned price curve

To point out, while buying the liquid token, it is essential to add the collateral as well to diminish the collateral while selling. Stick here for the distinct knowledge.

Liquid Token - A Token With Useful Function

Consider a Liquid Token as A. Token A can bought at any time accordant to a price set by its smart contract with deposition of collateral token in smart contract. New units of A are delivered to the buyer, when deposition of collateral occurs to the A’s smart contract, that enhances both the token A’s collateral and its supply. To spot out, the value of A enhances as per its supply growth. On the other hand, there is a token reserve pool where the requirements of the tokens can collected easily.

In the same way, liquid tokens endlessly compute their price in relation to their collateral token through keep off the fixed ratio between the gross value of liquid token and its reserve pool value. This ratio is known as the reserve ratio, that maintain liquid token’s price stability.

To point out, the greater the price stability, the higher a liquid token’s reserve ratio. For example, the price stability of liquid token with 100% RR is less than the liquid token with 50% reserve ratio where the liquid token with 100% RR is in essence to be pegged for its collateral value.

Benefits of Liquid Token

The following are the benefits that one can acquire from liquid tokens.

(i) Tokens have liquidity premium

(ii) Decentralize the funding technology process

(iii) Enable new business model

(iv) Involvement of ICO mechanism

(v) Instant custody without intermediaries

Why Liquid Token in Business?

In short, liquid token with it advantageous traits aid business to raise capital and make community engagement in new digital markets. As a matter of fact, asset tokenisation change illiquid assets to become liquid. Likewise, securities are a class of assets that generally covers assets, debt as well as asset backed investment contracts. This is the prime reason why many of the businesses are looking to create liquidity with smart tokenization.

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