Incentives

Having LGOLD sounds like a great incentive for someone who's holding it, but why would anyone want to issue LGOLD? That's where interest comes in. For every unit of LGOLD issued, the holder of the asset needs to pay the issuer of the asset an interest rate. Think of it as a fee paid to someone who's providing this big pool of collateral as a cushion against market volatilities. Since LX is a free-market type of decentralized exchange, it isn't guaranteed that 1 LGOLD will always translate into exactly 1 USD worth of GOLD. When this happens, LX adjusts interest rates to make sure that issuers are properly incentivized to issue more or less of LGOLD in order to balance out supply and demand. For example, if demand for LGOLD is rising, that means 1 LGOLD will trade for more than 1 USD worth of GOLD. When this happens, it is desirable to increase the supply of LGOLD to bring that ratio back to a 1 to 1 trading ratio by increasing the interest rate. When the reverse happens, it's desirable to lower the interest rate to reduce the supply.