Stablecoin Peg stability
The stablecoin supply in our protocol caters to different type of user demands, giving us multiple options to manoeuvre by changing the variable accordingly. Some of the demands are
Users looking for highly capital efficient stablecoin liquidity against their crypto assets
Users looking to hedge their collateral volatility at a lower cost
Users or businesses looking for stablecoin liquidity for their working capital needs without worrying about collateral getting liquidated
We will be using a combination of parameters to influence supply and demand of stablecoins.
Managing Stablecoin supply in the Primary market
Change in borrowing APY - Stablecoin supply can be managed through change of borrowing fees charged to users on stablecoin loan.
Change in Option fees - Stablecoin supply can be managed through change of option fees charged for volatility hedging and downside protection of collateral.
Change in %age Downside protection - Our downside protection %age depends on the collateral volatility, dCDS total deposits and peg deviation. We will be able to offer higher or lower downside protection to projects to influence supply to counter peg deviation.
Change in ABOND yield accrual - We can increase or decrease the ABOND assets minted by changing the ABOND value premium on top of face value. The yield accrued on ABOND assets can also be increased and decreased to manage the stablecoin supply.
Changing the proportion of token rewards for borrowers - Users having a stablecoin loan can have their downside protection covered in tokens from dCDS pool. The proportion of tokens sent can be changed to influence supply of stablecoins.
Managing Stablecoin supply in the secondary market
We will use the concentrated liquidity pools of Uniswap to range bound the stablecoin price to a small range.
Managing Stablecoin Demand
Change in Option Fees offered - Change the proportion and %age of option fees charged to users depositing funds in dCDS to influence demand
Change in %age of Downside protection offered - By changing amount of downside protection to be given to borrowers, we can influence user participation in dCDS.
Acceptance of token %age in dCDS - Users can also deposit tokens they hold in dCDS and earn yields on top of the same. By changing the proportion of token %age being accepted and risk premium applied on tokens, we can influence the demand from users.
ABOND offered - Protocol will initiate ABOND minting at particular periods of time when the USDa price falls below $1. Users can then redeem USDa for ABOND asset which can be sold for immediate profits or can be held to earn yields with flexible maturity.
Immediate re-deemability - Users can re-deem USDa to get USDT immediately in case the price falls below $1
Above are same of the ways through which stablecoin demand can be influenced.
Peg Stabilization Modules
Utilizing ABOND for Peg Management:
When the peg falls below $1, the ABOND asset is minted and allocated to users. These users purchase USDa from the market and then deposit it within our protocol. In return, they receive ABOND tokens based on the prevailing market rates.
For instance, assuming USDa price stands at $0.99 and ABOND is valued at $5 per unit (equivalent to 5.05 USDa), users can acquire 500 USDa from the market for $495. Subsequently, by depositing 500 USDa into our dCDS pool, they'll receive 100 ABOND tokens.
The deposited USDa tokens aren't immediately burned; instead, they are used to offer downside protection to borrowers. When required, to safeguard borrowers facing decreased collateral values and having returned the USDa loans, the protocol utilizes the deposited USDa stablecoins from the dCDS pool before burning them.
When the peg exceeds $1, users can purchase ABOND from the market and deposit it into our protocol. In exchange, they'll receive corresponding stablecoin values, which can be sold in the market to capture arbitrage gains. For example, if USDa is priced at $1.01 and ABOND is priced at $5 (yielding 495 USDa), users purchasing $500 worth of ABOND (equivalent to 100 ABOND) can deposit it within our protocol to obtain 500 USDa (valued at $5, redeemable for $1 each). Upon deposit, the ABOND assets will be burned, and users can sell the USDa in the market for $1.01, thus securing arbitrage gains.
This strategy applies a dual downward pressure on USDa prices for two reasons:
The liquidity pool pairing ABOND with USDa causes ABOND prices to increase while USDa prices decrease during ABOND acquisition.
Upon users acquiring USDa from deposited ABOND within our protocol, subsequent selling of USDa in the market amplifies the downward pressure on its price, further impacting the market.
An added incentive is the accrual of dCDS gains for earlier deposited USDa during downward pegging, providing users depositing ABOND with potential gains. This incentivizes users to purchase ABOND.
ABOND assets minted will be backed by user-deposited USDa stablecoins, secured by the ETH collateral deposited by users during the USDa minting process in our protocol.
Utilizing USDT deposited in dCDS for immediate re-deemability
The dCDS users can deposit a combination of USDa and USDT in the dCDS module. The USDT deposited is utilised as a backing to mint USDa at 1:1 ratio by the protocol and is utilised to offer downside protection to the borrower collateral. Users can re-deem their USDa against the USDT deposited. Three types of users will be interested in this module
Users looking for immediate re-deemability for USDa
Users looking to re-deem back to a another stable currency like USDT for conversion to cash immediately
Users looking for arbitrage gains in case the price of USDa deviates from the peg.
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