Stability Mechanism
How does USDs keep the peg?
USDs protocol guarantees that USDs can be minted or redeemed for $1 at all times. Even when sufficient collateral is not available, USDs redeemers would get $1 worth of collateral in the form of SPA minted by the protocol. Whenever the price of USDs goes above or below $1, arbitrageurs can profit off the USDs price by utilizing the mint/redeem function and help in bringing the price back to the peg.
- 1.If USDs trades above $1, arbitrageurs can mint USDs for $1 of eligible collateral, then sell to profit on the peg difference (this inflates USDs supply, pushing price towards the peg).
- 2.If USDs trades below $1, arbitrageurs can burn USDs for $1 of eligible collateral, then sell to profit the peg difference (this deflates USDs supply, pushing the price towards peg).
In a nutshell, mint cheap and sell for profit, or buy cheap and redeem for profit. For more information on how mint and redeem functions work check outMinting and Redeeming
The protocol collects a redemption fee whenever USDs is redeemed. This fee is passed on to the SPA stakers. Redemption fee is levied so that protocol does not work like a free token swap instrument. The fee is static but can be upgraded through governance by the community. It is a percentage of the transaction value.
- 1.Mint Fee = 0
- 2.Redemption Fee = 0.2% of the amount of USDs redeemed
As more people use USDs, the yield rate will serve as a second-layer protection from a high selling pressure, further empowering a mass adoption in various use cases including payment, derivatives, and portfolio construction. For more information on how auto-yield works check outAuto Yield
Last modified 2mo ago