Reserve Ratio

The Reserve Ratio plays a pivotal role in the Floor Protocol, ensuring the stability of the value of µ-Tokens. To understand its significance, it's vital to see how it's derived. Drawing parallels to a fractional reserve banking system, the Reserve Ratio is given by:

$$\textrm{Reserve Ratio}=\frac{V}{V+S}$$

Where:

$V=\textrm{Number of NFTs in the Vault}$

$S=\textrm{Number of NFTs in Safeboxes}$

This ratio provides insight into the proportion of total NFTs readily available for redemption. When the Reserve Ratio falls below a predetermined threshold, both the demands on $FLR staking for utilizing the safebox feature and the fees linked with redeeming NFTs from the vault experience an uptick.

Arbitrage & µ-Token Stability

To stabilize the value of µ-Tokens, the Flooring Protocol harnesses the power of arbitrage opportunities. These opportunities manifest under two conditions:

1. When the value of 1,000,000 µ-Tokens overshadows that of the cheapest NFT on an external marketplace by a certain margin. In this scenario, individuals can buy the NFT, introduce it to the Flooring Protocol, and subsequently sell the equivalent µ-Tokens.

2. If the highest NFT bid on an external marketplace eclipses the aggregate value of 1,000,000 µ-Tokens and related fees, individuals can purchase µ-Tokens, extract an NFT from the Flooring Protocol, and vend the NFT to the highest bidder.

These arbitrage actions ensure that the price of µ-Tokens remains within a range defined by the highest bids and the lowest asks across all NFT marketplaces. Yet, the efficacy of this mechanism hinges on maintaining a substantial cache of redeemable NFTs in the vault.

Dynamic Safebox Renting Requirement

The amount of $FLC you need to stake to extend the rental period of your Safebox by an extra day varies depending on the current Reserve Ratio of the Floor Protocol. The staking requirement is set at 2,000 $FLC per extra day when the Reserve Ratio is above 60%. When the ratio drops below this threshold, the staking requirement starts to increase progressively.

Dynamic Redemption Fee

The cost in $FLC for redeeming an NFT from the vault also fluctuates based on the Reserve Ratio. Redemption is free when the Reserve Ratio is above 40%. However, once the Reserve Ratio falls below this threshold, redemption fees are applied, and these fees scale aggressively as the ratio decreases.