Stability Mechanism

How does USDs keep the peg?

1. USDs is always valued at $1 by the protocol

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. 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. 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

2. Redemption Fee

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. 1.
    Mint Fee = 0
  2. 2.
    Redemption Fee = 0.2% of the amount of USDs redeemed

3. Auto-yield for USDs holders

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