#1: Floors - A Design for Floor-Backed Tokens

Traditional tokens lose value through spreads, slippage, and extraction by centralized entities. Floors Finance creates tokens with rising floor prices by transforming market activity into permanent onchain backing. A dual-pool architecture with a bonding curve is designed to ensure minimum prices that only increase, providing downside protection designed to improve with activity while enabling unlimited upside potential.

The Problem: Value Leakage in Traditional Tokens

Most tokens leak value.

Spreads, slippage, and market-maker incentives siphon capital directly out of the community, and very little of that activity turns into lasting support for the token itself. After witnessing this pattern for over a decade, where many tokens suffer from drawdowns of more than 90% from all-time highs, it is time to address this fundamental problem from first principles with some DeFi engineering.

Why do token prices fall?

• Thinning liquidity when it matters most. Liquidity providers (LPs) and market makers (MMs) widen spreads or pull inventory in drawdowns, causing sell orders to hit air pockets and price gaps to lower.

• Reflexive deleveraging. Collateral is marked to market, funding costs bite, and cascading liquidations push prices further down.

• External rent extraction. A large share of trading economics accrues to exchanges and MMs, rather than to the token's own balance sheet or community.

• Supply overhangs. Emissions and unlocked cliffs create predictable sell pressure that the market must absorb.

These persistent frictions create an environment where sharp drawdowns erase months of gains, borrowing against spot prices often ends in liquidation, and fee revenue leaks to market makers rather than accruing onchain. Meanwhile, liquidity breaks down under stress, leaving treasuries and funds exposed to discounts and slippage when they most need stability.

A Different Design

What if tokens had a minimum price that rose with market activity?

What if tokens had built-in leverage designed without protocol-triggered liquidations?

What if fees and time spent by the community accrued to permanent onchain backing rather than leaking out?

These principles converge in a mechanism that fundamentally restructures how value accrues to token holders—a mechanism we have been refining through years of work on bonding curves and market microstructure.

The Thesis

• Primary-market redemptions are designed not to execute below the published floor price; secondary markets may deviate temporarily.

• Move away from spreadsheet tokenomics toward dynamic issuance that responds to real usage.

• Move away from time-based vesting toward supply- and KPI-based vesting that rewards outcomes.

• Move away from fixed team/insider allocations toward community- and governance-decided allocations over time.

• And give holders confidence that time spent in an active market translates into better conditions and reduced downside risk.

Enter Floors: Tokens with Rising Floor Prices

Chart showing Floor Price rising steadily while Market Price fluctuates above it

Floors implements a tiered bonding curve with a dual-pool architecture where every trade contributes to a permanent reserve pool that acts as an onchain price floor. When tokens are purchased, a percentage of the purchase amount is allocated to this backing reserve. When tokens are sold, they cannot be traded below the published floor price, which is computed from this reserve. As trading volume increases, so does the floor.

Floor-token markets (fTokens), by design, are solvent for all redemptions at or above the floor price. Temporary shortfalls can occur if reserves are in yield instruments and must be unwrapped. Smart-contract and network risks can still result in loss. It creates a one-way ratchet that captures value from speculation and converts it into permanent price support.

Unlike thinning liquidity issues with traditional AMMs or inefficient buyback-and-burn mechanisms that merely reduce supply while leaving price discovery entirely to market forces, Floors creates a programmatic price floor backed by locked collateral, creating a monotonically increasing minimum value that benefits all holders.

This is not just theory. Early explorations, such as Baseline (YES) and Nirvana (ANA), demonstrated market appetite for floor-style designs; however, each faced unique challenges that informed our approach.

Floors reframes this floor token model as a platform. By standardizing the rising floor as a primitive, it enables the creation of entirely new financial products. Imagine options that can never expire worthless because the floor price provides minimum value, or lending protocols where fTokens serve as self-appreciating collateral that reduces liquidation risk over time, or new token sales mechanisms where the public can buy tokens at the absolute minimum price designed to limit downside below the floor level.

Technical Preview: Core Notation and Invariant

To prepare you for the detailed mechanics in subsequent articles, here is the fundamental mathematical framework that governs the Floors protocol:

Core Coverage Requirement

$L_f - D \geq P_f \times S_0$

where

$A_f = L_f - D$

Where

Key distinction: The floor represents Tier-0 of the bonding curve—a live trading tier where ALL tokens at this tier must be fully backed by reserves, regardless of whether they are locked or unlocked. This ensures complete solvency for the floor tier at all times.

This invariant is designed to ensure that the floor price can only increase, never decrease, creating the monotonic floor elevation that defines the protocol.

Key Terminology

Throughout this series, we will use consistent terminology:

• Floor reserves ($L_f$): The actual assets backing the floor price, denominated in reserve asset(s);

• Tier-0 supply ($S_0$): All tokens allocated to the floor tier (Tier-0), regardless of lock state, denominated in Floor Token (fToken);

• Floor elevation: The process of the floor price increasing;

• Primary market: The Floors bonding curve where the floor guardrail is enforced;

• Secondary markets: External DEXs/CEXs that function autonomously from the primary market.

Technical Assumptions

The floor guardrail depends on:

• Smart contract correctness (no bugs or exploits);

• Protocol solvency (fToken is always redeemable);

• Primary market operations (secondary markets may deviate temporarily);

• Network liveness and redemption execution capacity.

Article Series Overview

This is the first article in a blog series exploring the Floors architecture. Soon, we will launch the following blog posts:

• #2: Anatomy of Floors - How permanent price support actually works [Link]

• #3: Presale & Leverage Reimagined - Spot leverage and credit without liquidations [Link]

• #4: The Stakers - Patient capital and its rewards

• #5: Self-Collateralizing Debt Financing - Leverage Without Liquidations

Follow the series to begin your journey with Floors. Together, we will move from vision to implementation and from philosophy to practice. Each article will include opportunities to engage, question, and shape what we are building together through governance discussions and community feedback channels.

We look forward to welcoming you onchain soon.

Disclaimer

Floors Finance is experimental DeFi. Not investment advice. Participation involves significant risk, including possible total loss.

Full disclaimer: https://www.floors.finance/risk-disclosure

Published: October 1, 2025
Author: Floors Finance Team
Twitter: @FloorsFinance