Automatic LP is the secret sauce of COCOSWAP. Here we have a function that acts as a two-fold beneficial implementation for holders.
First, the contract sucks up tokens from sellers and buyers alike, and adds them to the LP creating a solid price floor.
Second, the penalty acts as an arbitrage resistant mechanism that secures the volume of COCOSWAP as a reward for the holders. In theory, the added LP creates a stability from the supplied LP by adding the tax to the overall liquidity of the token, thus increasing the tokens overall LP and supporting the price floor of the token. This is different from the burn function of other reflection tokens which is only beneficial in the short term from the granted reduction of supply.
As the COCOSWAP token LP increases, the price stability mirrors this function with the benefit of a solid price floor and cushion for holders. The goal here is to prevent the larger dips when whales decide to sell their tokens later in the game, which keeps the price from fluctuating as much as if there was no automatic LP function.
All of this is an effort to alleviate some of the troubles we have seen with the current DeFi reflection tokens. We are confident that this model and protocol will prevail over the outdated reflection tokens for these reasons