What is a recovery token?

A recovery token is a token created to track who may receive money after users suffer a loss.

Suppose a service verifies that someone lost 1,000 dollars and gives them 1,000 recovery tokens. That does not automatically make each token worth one dollar. If the recovery pool contains only 10 dollars for every 1,000 tokens, redeeming all 1,000 would return about 10 dollars. This is a hypothetical example. Every recovery plan sets its own rules.

Technically, a project can use the token as a transferable claim on a pool of recovered funds, revenue or new capital. The token may be redeemable, tradable or burnable. Its value depends on what legally and technically backs it, who can add money, whether the issuer can change the rules, and how much supply remains.

Common misunderstanding

Receiving one recovery token for every dollar lost does not mean the project has already recovered every dollar. The one-for-one number may describe the size of the claim, while the payout depends on the actual assets in the recovery pool.

No prerequisite reading is needed. This entry uses Drift’s DFX rules as a concrete implementation. Other recovery tokens can work differently.