--- title: How SV3 Works description: >- SV3 rebalances one canonical market per token, raising the floor by reshaping the curve while buyers and sellers move along it and reserves stay backed. --- > **For AI agents:** the complete documentation index is at [llms.txt](/llms.txt). Append `.md` to any page URL for its markdown version. Each token has one canonical SV3 market. That market issues the token, holds its USDC reserve, quotes buys and sells, raises the floor, and records advances. The easiest way to understand it is to follow one token through its lifecycle. ## 1. The creator launches into the same market as everyone else A new market starts with no tokens and no reserve. The creator chooses metadata and a fixed creator/floor fee split. V1 supplies the curve settings. Every token the creator holds comes from a paid curve buy. A $10 creator buy pays the same 1.25% fee and follows the same curve as every later buy. ```text $10.000 gross input - $0.125 buy fee = $9.875 sent through the curve → about 35,552 new tokens ``` After that buy, the reserve contains the curve payment plus the floor-directed part of the fee. ## 2. Buyers move up the curve When a buyer pays USDC, the market calculates how far that payment travels along the curve. It mints exactly that token amount. The buyer receives an average execution price across the interval. The displayed spot is the price at the end of the trade—the price of the next small purchase. ```mermaid flowchart LR A[Buyer sends gross USDC] --> B[Action fee is split] B --> C[Curve budget enters reserve] B --> D[Floor fee becomes surplus] C --> E[Market mints tokens] E --> F[Curve supply and spot rise] ``` A $100 buy travels across higher prices as it moves the curve, so its average execution price is higher than the pre-trade spot. ## 3. The floor rises by reshaping the curve After buying has added reserve and moved spot upward, the protocol can rebalance the curve into a higher floor. It stays one market with one reserve. The contract installs new floor and ramp coordinates for that same curve. ### One curve, rebalanced The old and new curves meet at the current live spot and contain the same reserve area at the current supply. The new curve falls more steeply below spot, reaches a higher floor, and stays flat for longer. ```text Before: live spot → gradual decline → lower floor After: live spot → steeper ramp → higher floor → flat region ``` This creates more sell-side price movement over a shorter supply interval. Once spot reaches the new floor, the higher flat redemption region becomes the endpoint of the canonical selloff. For the area-preserving part of a raise: ```text new spot at current supply = old spot new curve area = old curve area token supply = unchanged ``` The raise reallocates existing backing. More of the reserve obligation becomes guaranteed floor value, while less remains in the above-floor portion of the selloff curve. ### Where the higher floor comes from | Source | Effect | | --------------------------------- | ------------------------------------------------------------------------- | | Existing curve area | Rebalances reserve already deposited by buyers into a larger floor region | | Floor-directed fees and donations | Adds surplus backing that can fund a further increase | Curve rebalancing usually explains most of a large floor increase. Fees provide a smaller top-up. At the 400-buyer peak in the launch simulation: ```text gross buy volume 34,000 USDC fee-exclusive curve payments 33,575 USDC floor backing added from fees ~54 USDC resulting total floor liability ~29,400 USDC ``` The existing curve area backs almost all of the roughly 29,400 USDC floor liability. Floor-directed fees contribute about 54 additional USDC. Elastic supply makes this accounting work. Buys mint tokens only as reserve enters. Curve sells burn tokens as reserve obligations leave. A floor raise can then increase `floor × outstanding supply` only when the reshaped curve and any committed surplus still cover the complete backing requirement. ## 4. Sellers move down the curve A curve seller returns tokens to the market. The contract burns them and pays the area retraced, less the 1.25% sell fee. The displayed spot quotes the next small unit; the complete sell receives the average price across the curve interval it traverses. A small sell executes near spot. A larger sell moves spot down the ramp toward floor. The floor stays fixed throughout the sale. If selling reaches the flat region, the next token is still worth the floor. SV3 also exposes a direct floor-redemption action at the constant gross floor value. Both settlement paths are actions inside the same market and use the same reserve. The premium above floor remains exposed to the market. A token can trade at 0.03 USDC, fall to a 0.01 USDC floor, and lose two-thirds of its spot value while the floor works exactly as designed. ## 5. The same floor can provide liquidity without a sale A holder can deposit tokens as collateral and draw a non-recourse advance up to their floor value. For example, 10,000 pledged tokens at a 0.01 USDC floor provide 100 USDC of gross capacity: ```text gross debt opened $100 3% origination fee $3 USDC received $97 tokens locked 10,000 interest and due date none ``` The 100 USDC debt replaces 100 USDC of liquid reserve in the backing calculation. Repayment returns USDC and unlocks tokens. Surrender burns the required collateral and cancels debt without moving USDC. ## The six balances worth knowing | Balance | Plain meaning | | ---------------- | ------------------------------------------------------- | | Actual supply | Tokens that currently exist | | Curve supply | The coordinate used to quote canonical trades | | Liquid reserve | Accounted USDC still held for backing | | Outstanding debt | Reserve already advanced against locked tokens | | Spot | Marginal price at the current curve supply | | Floor | Gross redemption value assigned to every existing token | Actual supply and curve supply are usually equal. Floor redemptions, collateral surrender, and a future floor-strike option can move actual supply without moving the curve coordinate. The [math page](/protocol/curve-and-floor) explains that offset. ## What each action changes | Action | Supply | Liquid reserve | Debt | Spot | Floor | | ----------- | --------- | -------------- | ----------------- | ------------------ | ---------------------------------- | | Buy | Increases | Increases | No change | Rises | Changes only through a later raise | | Curve sell | Decreases | Decreases | No change | Falls toward floor | No decrease | | Floor raise | No change | No cash leaves | No change | Preserved | Rises | | Advance | No change | Decreases | Increases equally | No change | No change | | Repay | No change | Increases | Decreases equally | No change | No change | | Surrender | Decreases | No change | Decreases | No change | No change | Next, follow the complete [$10 launch and 400-trader simulation](/simulations/ten-dollar-launch), or jump to [Borrowing & Loops](/protocol/borrowing-and-loops).