Price Action Explanation
Last updated
Last updated
The price of $UP is simply $BUSD value of the backing treasury divided by circulating supply. An easy way to understand how the price can go up both on sells and buys (redemptions and mints) we can simply think of the treasury always having a net positive gain on each transaction. For a sell, more tokens are burnt than paid out for a net gain on treasury vs supply. For a buy, more $BUSD is allocated to the treasury than tokens minted to circulation for a net gain as well. The net gain comes from the fees adding more to the backing treasury compared to the amount minted/paid out. Here are two rudimentary examples, one a mint/buy and one a redemption/sell, with simple and approximate math to follow, and the conditions below:
Circulating Supply 1000 $UP
Treasury 1000 $BUSD
Treasury/Supply = 1000 $BUSD / 1000 $UP so 1 $UP = 1 $BUSD
User A buys 1000 $BUSD worth of $UP tokens at 4% minting fee
1000 $BUSD is exchange for (1000 - 1000 * .04) $UP
User receives 960 $UP
Treasury receives 1000 BUSD
New Circulating Supply is 1960 $UP
Treasury 2000 $BUSD
New Token Price from Transaction is now 2000 $BUSD / 1960 $UP so 1 $UP = 1.02 $BUSD
Total appreciation of 2% for all the holders
Circulating Supply 1000 $UP
Treasury 1000 $BUSD
Price as above 1 $UP = 1 $BUSD
User B sells 500 $UP at a redemption fee of 5%
500 $UP Redeemed and exchanged for $BUSD
Protocol Burns all 500 $UP and removes them from circulation
User B receives (500 - 500 * .05) $BUSD
User B receives a redemption amount of 475 $BUSD
Treasury now has 1000 - 475 $BUSD = 525 $BUSD
The circulating supply is now 500 $UP
New Price is 525 $BUSD / 500 $UP so 1 $UP = 1.05 $BUSD
*Note that these calculations are just examples to explain the principle that both buys and sells positively affect the $UP price, which is true but the math is a bit more complex and actual percentage increases will be different in practice. Price action follows a curve and is not linear as depicted above.
**Please see in the Mint and Redeem sections later in the Whitepaper to understand how UP allocates percentages of the fees to support the ecosystem and the actual breakdown. The above is an example only to explain the concept and does not account for fee allocations in play within the protocol.
$UP price appreciation is dependent on several factors most important of which is adoption and volume of mints and redemptions.
$UP will always be 100% backed and no token in circulation will be minted without the possibility of redemption for the price minus the fee. Since each interaction, whether minting or redeeming, increases the price early adopters and long term holders will benefit the most from a pure token mechanic point of view.
Now that the base concept of the protocol has been summarized, please continue on to find out why you would participate in UP and what the protocol offers in terms of real yield with a stable appreciating asset. The Up Protocol has a lot to offer users in its roadmap.
