๐ฅHow Token and Liquid Token Works?
The original assets behind the potion (TKN) stay the same, which means that over time, each LTKN represents a larger share of the underlying TKN.
This setup allows holders of LTKN to convert their tokens back into a proportion of the TKN that matches their share of LTKN holdings at any moment. Essentially, by simply holding onto LTKN, a user can increase their stake in TKN without active management.
The system uses a metric known as the Backing Ratio (BR) to gauge the worth of LTKN in comparison to TKN. The BR is calculated by dividing the total value of the underlying TKN by the overall number of LTKN in circulation.
Since the amount of LTKN is always decreasing relative to the TKN collateral, the BR is designed to grow over time. To figure out how much TKN they're entitled to when they decide to convert their LTKN back, users can apply the following equation: For instance, when applying this formula to LYEL with 0.6% fee, it would be represented as: (LYEL*BR)*0.994 This structure ensures that the value of LTKN tokens directly reflects the backing of TKN assets, making it transparent and straightforward for users to understand their investment's worth.
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