The purpose of Element Zero’s liquidity system is to support the liquidity of the stable coin at any time, even when the crypto market is booming or crashing and independent of any secondary market exchanges. This has been achieved by using a Hybrid collateralized /non-collateralized method, the same method used by modern banks to create liquidity. For example, everyone knows that if all of the bank’s customers rush to withdraw money at the same time there will not be enough funds in the bank to satisfy everyone, but at the same time, everyone feels comfortable that if they rush into the bank there will be enough funds for them. The banks use what they call the Fractional Reserve Multiplier Effect, or in other words, a Hybrid collateralized / non collateralized method. **How Does This Work** Element Zero’s liquidity system has two reserves, a Liquidity Reserve and a Holding Reserve – these two reserves borrow and lend funds to each other using an AI system to manage them both. The Liquidity Reserve holds enough cryptocurrency to support 30 days of on-going redemption requests. ![4 Algorithmic Stability Protocol.jpg](https://cdn.steemitimages.com/DQmTGipg4c5bdF8QA8ZACLgd47tqW8g2Cx7v3FC3hVB9oik/4%20Algorithmic%20Stability%20Protocol.jpg) While the Holding Reserve holds the rest of the funds in the form of a strong asset class such as commercial real estate tokens, so even if the crypto market completely crashes, this fund is protected and stays safe. These asset tokens represent a return based on an index of the performance of multifamily apartment markets, which many concede to be one of the strongest investment vehicles in the world and one that can overcome inflation. Many other aspects, like circuit breakers, fairness for all users, measuring inflation or ensuring execution time using bond tokens, have also been taken into consideration and are supported on the system. The liquidity system starts at day one as a Hybrid collateralized /non-collateralized system but in just a matter of a few years the system will gain significant profits from transaction fees and asset tokens that have appreciated. When that occurs, the reserves will have enough funds to support 100% redemption and so cover all requests even if everyone rushed in to withdraw at the same time. And when the position completely flips and the system has more funds in the reserves over the market cap, then all those profits that are above the zero line will be given back to the public by donations to non-profits organizations. The Element Zero [testnet is live](https://www.elementzero.network/stablecoin/) is live and we are welcoming all feedback.