Liquidity

When a customer purchases a stock token, we mint the token into their wallet and transfer the stablecoin from their wallet to our wallet. We must also purchase the stock. However we cannot wait to transfer the stablecoin to a crypto exchange, convert it to fiat, and wire the money to our brokerage account before buying the stock, because the stock price will likely change during that time, and if it were to move in the wrong direction we wouldn’t be able to purchase enough shares to fully back the tokens that were issued. We must have sufficient funds already in the brokerage account so that the stock purchase and token transfer can happen simultaneously. After the transactions occur, we can then convert the stablecoin received from the customer to cash and deposit it into the brokerage account to replenish the funds there at our leisure.

Even though Reflection is well funded, if there were a frenzy of buying activity, it is possible that the brokerage account could temporarily be depleted of funds. If that happens, buy orders would be halted until the brokerage account funds were replenished as described above.

Likewise, when a customer redeems a stock token, we burn the stock token out of their wallet, send them stablecoin (RUSD), and sell the stock in our brokerage account at the same time. If we were redeeming the stock tokens for a different stablecoin, it would be possible for our wallet to become depleted of stablecoin, in which case we would have to pause sell orders. But this is unacceptable. If the exchange is open, the customer must have the ability to redeem their stock token. This is why we redeem stock tokens for RUSD. We don’t need to worry about running out--we just mint the RUSD directly into the user’s wallet. If the user then wants to buy more stock, or they are happy to hold RUSD in their wallet, then they are good to go and we haven’t unnecessarily depleted our supply of other stablecoins.

If they do want to cash out, they can convert the RUSD to another stablecoin at no cost. Hopefully we have enough stablecoin in our wallet at that time and the conversion takes just a few seconds. But if we don’t, the conversion will take a little longer as we convert the cash proceeds from the stock sales into stablecoin and transfer them into our wallet. I would think this could take up to an hour as the funds being withdrawn from the brokerage account are sent by wire transfer. The important part, though, is that the stock sale happens before we mint the RUSD into the user’s wallet, so we always have the cash in our account to back up the RUSD that is being minted.

In an ideal scenario, there are roughly equal amounts of buying and selling going on, so the brokerage account is never depleted of cash and buying does not have to be halted, and the Reflection wallet is never depleted of stablecoin so all RUSD redemptions can made immediately, but invariably both of these things will happen from time to time, neither of which is a problem.