If nothing is backing the coin, what enforces its price?
A highly adaptive supply liquidity enforces the price of Liquid BAY.
As it’s known, the law of supply and demand always remains true. When the supply changes based on consensus, so does the price. With this system, there are three balances: Liquid (BAY), Reserve (BAYR), and Frozen .
Liquid (BAY) and Reserve (BAY) hold independent market values and can create trade markets:
- Liquid (BAY) traded against other crypto or fiat pairings
- Reserve (BAYR) traded against other crypto or fiat pairings
- Liquid (BAY) / Reserve (BAYR) direct trade pairing
Imagine that you’re very thirsty, with a group of people in a hot desert. What would you (as a buyer) pay more for: Pure Liquid water you can drink immediately? Or a Reserve block of ice that takes months to melt before becoming usable?
The Dynamic Peg effectively adjusts the supply of Liquid BAY according to how many people want to buy it, and the rest is Reserved for future use.
This directly connects the price of Liquid BAY to volume of people buying it.
So if the demand for Liquid BAY drops, the amount of Reserve BAY increases. If the demand for Liquid BAY increases, Reserve BAY is “unfrozen” to make more Liquid BAY again. The perfect amount of liquidity will always be available to match demand, which stabilizes the price of Liquid BAY.
Meanwhile, Reserve BAY can still be traded, but with a time-delay. This makes the Reserve BAY price speculative. This price is based on market sentiment towards future demand for these coins when they unfreeze, at a rate which is determined by voting.
Questions, comments, concerns? Please post them in the comments below!