Gold as Collateral

The functionality of a price-stable asset is that when users trade it into another asset, the trading ratio is fixed. For example, ideally, it's desirable to make sure that every single LGOLD can be traded for exactly 1 US dollar. However, given the legal and regulatory ambiguity surrounding the use of fiat currencies in a cryptocurrency exchange such as LX, LGOLD is instead traded into another asset that's more stable and liquid, such as GOLD. Hence, every LGOLD needs to be able to be traded into exactly 1 USD worth of GOLD. At the time of this writing, 1 oz of GOLD is trading at $1,756 USD, which means 1 LGOLD needs to be traded for .00077 GOLD oz.

For someone to be able to consistently trade LGOLD into gold, there needs to be a set amount of gold ready to be traded. That is, whoever is issuing (selling) LGOLD must have a corresponding quantity of GOLD oz as collateral. To guard against the GOLD/USD kind of volatility, LX requires that the issuer of LGOLD set aside 1.25x the reserve of gold necessary to cover every single LGOLD issued. For example, to issue 1 single LGOLD, which is redeemed for 0.00077 unit of GOLD oz (equivalent to 1 USD), 0.001514 GOLD oz (equivalent to $1.25 USD) needs to be set aside to cover any volatility.