# 2. The Reserve

The ***GoodDollar Reserve*** is the smart contract that governs the vault holding the assets that back G$ tokens. The algorithm that guides the reserve is based on the Bancor formula, which has been altered to fit GoodDollar’s needs. There are two important characteristics unique to the GoodDollar Reserve:

1. The reserve supports the generation of G$. Users can always convert to and from G$ via the reserve.
2. The unique math of the GoodDollar Reserve lends G$ exceptional stability.

### **Key Terms**

**Reserve:** The pool of tokens backing G$ generation.

**Reserve Ratio (Rr):** The ratio between the total G$ market cap and the value of the reserve.

**Supply (S):** The current circulating supply of G$.

**Price (P):** The price of G$ relative to the tokens in reserve.

**Exit Contribution:** A contribution paid when selling G$ into the reserve in exchange for another currency.

**G$X:** A token earned as a reward for buying G$ from the reserve that can be used to reduce a user’s exit contribution in a subsequent sale of G$.

#### **The Reserve Ratio (Rr)**

*The ratio between the value of the reserve and the market capitalization of G$. The lower the ratio, the more G$ the protocol can generate.*

### **Reserve Functions:** <a href="#ifxdlmghjtme" id="ifxdlmghjtme"></a>

The GoodDollar Reserve performs three different functions important to the GoodDollar Economy: ***Expansion***; ***Conversion***; ***Interest Deposits***. These are outlined below (for more on the underlying math, please see the [appendix ](https://whitepaper.gooddollar.org/appendix)of the GoodDollar white paper).

* ***Expansion*** is the pre-set annual rate by which the token supply increases, thereby reducing the reserve ratio. For instance, if the expansion rate is set to 10% annually and the year begins with a reserve ratio of 1, then by the end of the first year the reserve ratio would be 0.9, by the end of year two, 0.81, and so on ([Equation 3](https://whitepaper.gooddollar.org/appendix#equation-3-expansion-rate-formula)).
* ***Conversion*** is the process that enables users to exchange G$ for CDAI and vice versa. Since the GoodDollar Reserve is essentially an automated market maker (AMM) that works on a bonding curve, the amount of G$ minted or burned depends upon how much collateral is added or removed from the reserve. Users who buy G$ receive a matching number of G$X tokens as a reward for their purchases, which can be used to reduce their exit contributions when they choose to sell G$ (see below).
* ***Interest deposits*** into the GoodDollar Reserve from a third-party protocol are converted to G$ in a different way than during the crypto exchange process outlined above. When a user buys G$ from the GoodDollar Reserve in exchange for a supported currency, new tokens are minted and the price of G$ rises. In contrast, when a user deposits interest, there are more tokens minted, but the price of G$ doesn’t change.

### **Exit Contributions** <a href="#mebn0hpwchkh" id="mebn0hpwchkh"></a>

#### **G$X Tokens** <a href="#id-511bw6p5w9as" id="id-511bw6p5w9as"></a>

In addition to the G$ coin and the GOOD governance token, the GoodDollar ecosystem includes a third type of crypto token: ***G$X***. Members who hold G$X tokens can use these to reduce their exit contributions when selling G$ to the reserve by an amount set by the DAO. Users acquire G$X tokens as a reward for buying G$ from the reserve (currently, a user who buys 100 G$ will also receive 100 G$X).

#### **Exit contribution calculation including G$X**

1. Discount = 1 - G$X/G$sold
   1. If Discount <= 0 Then Discount = 0
2. Exit contribution = Setcontribution\*Discount

#### **G$X Supply & Burn policies**

For every G$ token bought from the GoodDollar Reserve, the reserve will issue 1 G$X token. For every G$ token sold to the GoodDollar Reserve, the reserve will burn 1 G$X token.

### **Stability** <a href="#qz61jetq3map" id="qz61jetq3map"></a>

As described above, the impact of buying and selling currencies to and from the GoodDollar Reserve depends on three factors:

1. The size of the reserve ratio.
2. The size of each transaction.
3. The total reserve value.

### **Simulator**

A Price similator with dynamic reseerve rate function is available [here](https://docs.google.com/spreadsheets/d/1laUPAf-ZH1kjKaOkgwQizHT1wohfDj_b5Fq6Z7GGJDY/edit#gid=137486606) :&#x20;

{% embed url="<https://docs.google.com/spreadsheets/d/1laUPAf-ZH1kjKaOkgwQizHT1wohfDj_b5Fq6Z7GGJDY/edit#gid=137486606>" %}

### **Helper contracts** <a href="#p1dxu7aswyt0" id="p1dxu7aswyt0"></a>

***Helper contracts*** are smart contracts that connect the GoodDollar Reserve to other liquidity networks in order to allow liquidity to flow from G$ to any other token that has an automated market maker (AMM). For example, if a user wants to convert token X to G$, the helper contract will first convert token X to DAI using Uniswap, and then convert DAI to CDAI using Compound. Finally, it will convert the CDAI to G$ using the GoodDollar Reserve. Future versions of the protocol may extend this functionality to additional protocols, such as Bancor and Aave.