Peg Stability Design
Why Peg Stability Matters
Maintaining a stable 1:1 peg to the U.S. Dollar is crucial to USDm’s utility as a reliable medium of exchange, unit of account, and store of value. While overcollateralization and liquidations help preserve solvency, specific mechanisms are needed to ensure USDm consistently trades close to $1 on both centralized and decentralized markets.
Peg Stability Tools
Mynt uses a multi-layered peg stabilization system inspired by protocols like GHO and Beraborrow:
6.1 Overcollateralization and Liquidation
• Primary Stability Layer
• Every USDm is backed by crypto assets worth more than $1.
• Liquidations ensure bad debt is cleared before it threatens system solvency.
6.2 Arbitrage Incentives
When USDm deviates from $1, arbitrageurs are incentivized to correct the price:
• USDm > $1: Users are incentivized to mint USDm (cheap) and sell on market (expensive), increasing supply and lowering price.
• USDm < $1: Users buy cheap USDm and repay vault debt, reducing supply and pushing price up.
This mechanism aligns with mint/redeem arbitrage seen in GHO, DAI, and USDC systems.
6.3 Peg-Aware Stability Fees (Future)
The protocol may support dynamic stability fees that change based on USDm’s market price:
• Peg drifting > $1 → increase stability fees to disincentivize excessive minting.
• Peg drifting < $1 → reduce or waive fees to encourage redemptions and burn USDm.
This feature can be embedded in vault logic or governed by an autonomous controller contract in the future.
6.4 Liquidity Anchoring via PoL
Proof of Liquidity (PoL) is a central mechanism for peg reinforcement:
• The protocol owns and seeds USDm trading pairs (e.g., USDm/MON, USDm/aprMON) on Monad-native DEXs.
• Deep liquidity reduces slippage, facilitates arbitrage, and provides price anchoring.
• LP tokens from PoL positions may also serve as collateral or yield-bearing instruments in future integrations.
This mirrors the Cap and Beraborrow approach to liquidity incentives and peg robustness.
6.5 USDm Integration Across DeFi
• USDm will be promoted as a base stablecoin across the Monad ecosystem:
• DEXs and AMMs
• Lending markets
• Perpetuals and leverage protocols
• This ubiquity increases natural demand and peg pressure.
6.6 Reserve Pool (Future Feature)
A non-custodial Reserve Pool could be implemented to:
• Absorb supply shocks
• Facilitate redemptions during extreme volatility
• Buy or burn USDm in crisis scenarios
This would act as a circuit breaker and capital buffer, triggered only under exceptional circumstances.
Stability Monitoring
The protocol may expose public dashboards and APIs showing:
• USDm price on major markets
• Vault utilization rate
• System-wide collateral ratio
• Pending liquidations
This increases transparency and allows both users and governance participants (in the future) to track peg health in real time.
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