# How Do Limits Work?

This section explores the operational framework of the Range-Limited Bounded Token (RLBT), focusing on the mechanisms that enforce the upper and lower price limits. It details how these limits are maintained through strategic minting and burning of tokens, ensuring that the price remains within a predetermined range.

<figure><img src="https://3415838669-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FGLNIdOeyzwZtRTYASEha%2Fuploads%2FiBcFkmN231GXVCjkMqv0%2Fimage.png?alt=media&#x26;token=8b424079-5e5d-4489-bdc7-c4144dc69c6f" alt="" width="375"><figcaption><p>A RLBT with fixed limits</p></figcaption></figure>

**Minting at the Upper Limit**

When the token's market price approaches the [upper limit](https://rlbt.gitbook.io/rlbt/how-do-limits-work/upper-limit-minting), new tokens can be minted. This is facilitated by the bonding curve, which is designed to allow token generation as the price hits this upper ceiling. This process serves as a preventive measure against the price exceeding the upper limit.

For instance, if the upper limit is set at $2.00, and the market price reaches this point, new tokens can be minted at $2.00. Traders might see an arbitrage opportunity here—if the market price on secondary markets slightly exceeds $2.00, they can profit by minting tokens at $2.00 and selling them at the higher market price, effectively capping the price at around $2.00.

**Burning at the Lower Limit**

Conversely, if the token's price starts to dip towards the [lower limit](https://rlbt.gitbook.io/rlbt/how-do-limits-work/lower-limit-burning), tokens can be burned. This burning mechanism is crucial for maintaining a floor price.&#x20;

For example, if the lower limit is set at $0.50 and the market price drops to this level, holders can choose to burn their tokens. They would receive a predetermined amount of a reserve currency or another form of value in return, which is stored within the RLBT system.&#x20;

<table data-view="cards"><thead><tr><th align="center"></th><th align="center"></th><th data-hidden data-card-target data-type="content-ref"></th></tr></thead><tbody><tr><td align="center">Upper Limit (Minting)</td><td align="center"><img src="https://3415838669-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FGLNIdOeyzwZtRTYASEha%2Fuploads%2FEAmrppQiCHEHSughLJYz%2FDALL%C2%B7E%202024-05-14%2014.06.23%20-%20Create%20a%20512x512%20pixel%20image%20depicting%20a%20graph%20with%20two%20lines_%20one%20green%20line%20representing%20the%20price%20of%20a%20token%20and%20a%20second%20red%20line%20representing%20the.webp?alt=media&#x26;token=4f9fac18-5544-4d4b-9be2-bd532f9305d0" alt="" data-size="original"></td><td><a href="how-do-limits-work/upper-limit-minting">upper-limit-minting</a></td></tr><tr><td align="center">Lower Limit (Burning)</td><td align="center"><img src="https://3415838669-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FGLNIdOeyzwZtRTYASEha%2Fuploads%2Fl97wU22Juar3nOK3w2lt%2Fwebpeditor_DALL%C2%B7E_2024-05-14_14.08.48_-_Create_a_512x512_pixel_image_depicting_a_graph_with_two_lines__one_green_line_representing_the_price_of_a_token_and_a_second_red_line_representing_the.webp?alt=media&#x26;token=73970355-e325-4b45-b847-6c985e7c20be" alt=""></td><td><a href="how-do-limits-work/lower-limit-burning">lower-limit-burning</a></td></tr></tbody></table>

**Dynamic Adjustments**

The limits can be dynamically adjusted based on several factors, such as changes in the [token's treasury](https://rlbt.gitbook.io/rlbt/treasury), the total monetary supply, the number of token holders, market conditions, and protocol revenues. These adjustments are crucial for the token economics, as they allow the system to adapt to new economic realities and maintain price stability.

This flexibility in setting the limits means that the system can be calibrated to accommodate different levels of market volatility and investor behavior. More conservative settings can be applied to maintain tight control over the price fluctuations, while more liberal settings can allow for greater price movement within a controlled range. The specific parameters of these settings are determined through[ limit functions](https://rlbt.gitbook.io/rlbt/limit-functions).
