How does a sinking fund account work in the context of cryptocurrency trading?

1 answers

• FatcatNov 06, 2021 · 4 years ago
  A sinking fund account in the context of cryptocurrency trading is a mechanism used by exchanges to maintain the value of their tokens or coins. It works by setting aside a portion of the trading fees collected by the exchange into a reserve fund. When the price of the tokens or coins drops below a certain threshold, the exchange can use the funds in the sinking fund account to buy back the tokens or coins from the market. This reduces the supply of tokens or coins in circulation and helps stabilize the price. Traders can benefit from a sinking fund account as it provides a safety net and reduces the risk of sudden price drops. However, it's important to note that the effectiveness of a sinking fund account depends on the financial stability and transparency of the exchange implementing it.
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