Reserve Ratio
Last updated
Last updated
The Reserve Ratio represents the proportion of NFTs readily available for redemption relative to the total number deposited into the protocol. It provides insight into the protocol's capacity to redeem outstanding μ-Tokens.
A higher ratio indicates the vault holds sufficient reserve NFTs to cover μ-Token redemptions.
To maintain a healthy Reserve Ratio, redemption fees and Safebox rental rates are dynamically adjusted based on the current ratio. This deters excessive redemptions and encourages restoring the ratio when it declines. This ratio is the key to stability.
Arbitrage opportunities are harnessed by market participants to stabilize μ-Token value. For example, if the Price of an NFT becomes cheaper than 1 million μ-Tokens, buyers can profit by depositing that NFT and selling the μ-Tokens and vice versa. This brings the μ-Token price back in line.
Arbitrage ensures μ-Token prices remain aligned with the broader NFT market.
Safebox rental rates and redemption fees fluctuate based on the current Reserve Ratio. Lower ratios increase rental rates and fees, discouraging redemptions while the protocol restores reserves. This maintains system stability.
