# Peg Stability Design

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Why Peg Stability Matters

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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.

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Peg Stability Tools

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Mynt uses a multi-layered peg stabilization system inspired by protocols like GHO and Beraborrow:

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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.

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6.2 Arbitrage Incentives

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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.

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This mechanism aligns with mint/redeem arbitrage seen in GHO, DAI, and USDC systems.

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6.3 Peg-Aware Stability Fees (Future)

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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.

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This feature can be embedded in vault logic or governed by an autonomous controller contract in the future.

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6.4 Liquidity Anchoring via PoL

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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.

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This mirrors the Cap and Beraborrow approach to liquidity incentives and peg robustness.

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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.

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6.6 Reserve Pool (Future Feature)

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A non-custodial Reserve Pool could be implemented to:

• Absorb supply shocks

• Facilitate redemptions during extreme volatility

• Buy or burn USDm in crisis scenarios

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This would act as a circuit breaker and capital buffer, triggered only under exceptional circumstances.

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Stability Monitoring

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The protocol may expose public dashboards and APIs showing:

• USDm price on major markets

• Vault utilization rate

• System-wide collateral ratio

• Pending liquidations

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This increases transparency and allows both users and governance participants (in the future) to track peg health in real time.

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