Calculate the Reserve Ratio

For readers who are interested in how to actually calculate the reserve ratio, this subsection provides a concise introduction with a simple hypothetical example. The formula for the reserve ratio is given by

$$\frac{C_{users}+C_{IPs}}{L},$$

where $C_{users}$ and $C_{IPs}$ represents the USDT reserve from minters and from IPs, respectively; $L$ indicates the Unitas total liability. The numerator is straightforward, but the denominator deserves more explanations: it is actually how much USDT that is redeemable on demand by burning all the Unitas stablecoins. We are now ready for an example.

How to calculate total liability in USD1

1. Total USD91 supply = Q_91 = 1000

2. Total USD971 supply = Q_971 = 1000

3. Total USD1 supply = Q_1 = 1000

4. USD91/USD1 rate = x = 0.012 (1 worth of INR in USD value)

5. USD971/USD1 = y = 0.27 (1 worth of AED in USD value)

Total liability = Q_91*x+Q_971*y+Q_1 = (1000*0.012 + 1000*0.27 + 1000) = 1282

So, when all the Unitas stablecoins are burned based on the current Unitas rates, there are 1282 USDTs redeemable on demand. This 1282 is interpreted as how much the protocol owes the users (i.e., Unitas stablecoins holders).

How to calculate total reserves in USDT

1. USDT in reserve = 1000

2. USDT in insurance pool = 500

= USDT in reserve + USDT in insurance pool = 1000+500 = 1500

Total Reserves = USDT in reserve + USDT in insurance pool = 1000 + 500 = 1500

Hence we are ready to conclude:

Reserve-Ratio

= total reserves/total liability

= (USDT in reserves + USDT in insurance pool)/(Q_91*x+Q_971*y+Q_1)

= 1500/(1282) = 1.17,

meaning that the reserve ratio of Unitas in this example is 117%.