Contraction Example

As an example, let's say the FLOAT target price was $2.00 and the market price was $1.50

• • In this instance, the protocol would offer to buy FLOAT from the market at increasing price increments (starting at $1.50 and moving up to $2.00).

  • Logically, arbitrageurs will buy FLOAT from the market and sell it to the protocol until the point that the market price is closer to target (assuming a profit can be made by buying FLOAT from the market and selling it to the protocol).

  • When buying FLOAT, the protocol pays a blend of ETH and BANK. In general, it pays $1.50's worth in ETH and the rest (target price - market price) in BANK. The ETH/BANK blend depends on whether there is a surplus/deficit of ETH in the basket.

  • The ETH used to buy FLOAT is from the Basket.

  • The BANK used is minted ex-nihilo.

  • The FLOAT bought from the arbitragers is immediately burned, providing positive price pressure.