Reserve Ratio
The fraction of the token marketcap that is backed by reserves.
Reserve Ratio = Reserve / (Price * Supply)
For example, if the supply of tokens is 100 at a price of $10 with reserves of $200, then the reserve ratio is 200 / (100*10) = 1/5, or 20%. The reserve ratio typically takes a value between 0 and 1, with deployment case studies typically taking values between 0.2 and 0.8. The reserve ratio determines the price volatility of the system. As the reserve ratio approaches 1, the system becomes more stable, but incurs a faster reserve burn rate on available assets.
Bifurcation Ranges
Particular ranges of reserve ratio produce particular function types of price relative to supply. In ranges [0,0.5) the function takes on a convex shape, as in price grows exponentially relative to supply. At value [0.5], the price grows linearly with supply, with the slope of the function depending on initial_supply and initial_price. In ranges (0.5,1) the function is concave and price will grow logarithmically with supply. At value [1], the token will be fully collateralized and maintain a constant peg to the reserve. At values greater that 1, the bonding curve will be over collateralized and the price of the tokens will decrease as supply increases.
High Reserve Ratio:
A higher reserve ratio is associated with lower price volatility, but higher reserve drawdown. Increasing the reserve ratio makes the token more value stable.
Low reserve ratio:
A lower reserve ratio is associated with higher price volatility, and relatively lower reserve drawdown.
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