Alright, so let's assume Bill's token system is working and attracting lots of new business for him. Other businesses start taking notice and decide they want to offer their customers the same benefits. Now, they could each start their own currencies--and some of them might. But Bill's tokens have already earned the trust of many customers, some of whom are even starting to use the tokens to settle debts among themselves. So the other businesses start accepting Bill's tokens at their stores as well. Because Bill only has so much collateral in escrow, they add bitcoins of their own via the cvToken protocol and expand the issuance. It's at this point that Stacy the speculator gets interested.
Stacy the speculator is a big Bitcoin fan. She thinks the currency is going places, and she's made a substantial investment into them. But Stacy's always looking for opportunities to increase her profits. She's been observing Bill's tokens with interest, and she's noticed something. The tokens are getting very popular, and a lot of people are transferring money into them. But because the businesses backing the tokens only have so many bitcoins to put into collateral, they can't keep up with the demand. Remember, the businesses are operating in "gift-card mode" and sell the incoming BTC from their customers so that they can hold Aussie Dollars instead. This means that they have to come up with collateral themselves every time they want to issue more tokens--and despite the massive demand for the tokens, their only income comes from purchases the token holders make at their stores. They're tapped out.
But Stacy has lots of bitcoins. She realises that if she uses them to create more cvTokens for the eager customers, she could just hold on to the BTC the customers trade for them (instead of selling the BTC immediately, like Bill and the other businesses do). Then, as bitcoins appreciate the way she hopes they will, she'll be earning gains from those BTC in addition to her existing ones (which will still be in escrow, under her control). Essentially, she'd be buying the risk of the people who want to use Bill's tokens, and profitting from it if her prediction of bitcoin value is accurate. In addition, allowing more customers to move their money into cvTokens via BTC will increase demand for bitcoins, and their price along with it. The size of this effect, of course, depends on how popular cvTokens are, and how many bitcoins she has to put up as collateral. But at the very least it works in the right direction for her.
So Stacy takes 5000 BTC, puts them in the escrow, and uses them to issue about 4000 BTC worth of BillBucks, because that's the rate of collateralisation the businesses are currently using.
It's currently 100 Aussie dollars to the Bitcoin, so she successfully issues 400,000 BillBucks. She sells them to the eager customers, and now she has control of 9000 BTC instead of her original 5000. A couple months later, the BTC price goes up by 20%, and she sells some of the 4000 BTC that aren't in escrow. The next year, it shoots up by 200% and she sells the rest, leaving her with a substantial profit and the 5000 BTC still in escrow. BTC price starts dropping back down, and she decides that the profit opportunity is over. She uses part of her profits to buy 400,000 BillBucks, cashes them out against her escrowed Bitcoins, and then sells those at market as well. She has made substantially more money than she would have had she merely held the original 5000 BTC, and during that time her profiteering allowed 400,000 more BillBucks to circulate, increasing profits for Bill and the other businesses and generally growing the cryptoeconomy.
In fact, Stacy's approach works out so well that 6 months later she decides to do the same thing again. She buys 1000 BTC and collateralises them into 100,000 BillBucks (Bitcoins are currently worth 200 Aussie dollars, but because of the recent rise in BTC value BillBucks are collateralised at a 2:1 ratio of Bitcoin value to BillBuck value). Then she sells the BillBucks for 500 BTC, leaving her in control of 1500 total. But this time, she was wrong about the Bitcoin market. BTC price starts dropping, and soon it's down to 150 Aussie dollars. Stacy is sure the price will rebound, so she holds on. But the price drops further to 120.
Bill and the other businesses are starting to think that Stacy's investment strategy is failing her, and they don't want to be stuck with the obligation of the extra 100,000 BillBucks when it does. They start buying BillBucks at the market and issuing cashouts against her collateral, which is still worth 120,000 Aussie dollars. Stacy honours the first few cashouts, handing over 8.3 millibits per BillBuck and receiving 10 millibits of her collateral back in return. Even though she doesn't like the "margin call", paying up is cheaper than losing the rest of her collateral.
But then disaster strikes! Stacy's hard drive crashes, and she loses the private keys to her remaining Bitcoins. She doesn't have any other available money to put into BTC so she can meet the cashouts, and she still has 500 BTC of collateral locked up in the escrow! It's a hard lesson in data security for Stacy, but Bill and his customers won't suffer for her mistake. When she fails to meet the next cashout, the cvToken protocol takes away her 500 BTC and gives it to one of the other businesses, along with the obligation to honour the remaining 50,000 BillBucks she issued.
The business that receives Stacy's collateral is taking a pretty conservative approach to risk, so it buys 50,000 BillBucks at market (for 416.667 BTC), cashes out the remaining 500 BTC of collateral, and sells them, resulting in a 10,000 Aussie dollar profit.
Between the hard drive crash and the loss of her collateral, Stacy is out 200,000 Aussie Dollars from her second investment. Fortunately, she's a level-headed businessperson and her profits from earlier more than cover the loss. You can be certain she'll be more careful with her bitcoins next time, but as a high-risk speculator the speculative loss was just the cost of doing business. Besides, Stacy just heard that a new cvToken worth 100 Yen is gaining popularity, and it bodes very well for Bitcoin prices. Sounds like a great opportunity!
The 10,000 Aussie dollar profit made by one of the other backing businesses is a classic example of how cvTokens maintain their valuation in the face of risk--by incentivising someone to eliminate that risk for everyone. Similarly, Stacy has an incentive to honour her obligations even when the BTC price is dropping, because by doing so she lowers her losses. In fact, if she had been able to fully meet her obligations, it would have eliminated the opportunity for the other backer to profit, because it would have proved that BillBucks holders were never in any real risk--the backer would have just been receiving the same BTC back in cashouts that they used to buy the BillBucks in the first place.
There are obviously many more complicated scenarios than can be explored, but these three stories should cover the basics because they encapsulate the three main roles that come together in a cvToken--user, gift-card backer, and speculative backer. All major cvToken happenings will involve at least one of these three entities. Has this made the cvToken system more clear?