USDy has a vital role within the ecosystem as the protocols reward token.
By serving as the protocol's reward token, USDy acts as an incentive for users to participate in various aspects of the ecosystem.
The best part is that our protocol has been specifically designed to generate protocol-owned liquidity for USDy at various points of interaction. In other words, unlike other protocols that purely rely on liquidity mining to grow liquidity for their reward tokens, USDy will be self-sustaining - as more new users utilise our protocol, more protocol-owned liquidity for USDy will be generated autonomously!
This self-perpetuating creation of USDy liquidity in combination with our protocols Liquidity Stability Model (LSM) will ensure there is always a continual growth of exit liquidity for USDy. This, in turn, will help ensure users are confident in their participation - creating a positive feedback loop that further incentivises new users to utilise the protocol. The end result is an ecosystem that is not only stable but also self-sustaining - something that's essential for long-term growth.
The UCM is designed to help stabilise the health of the ecosystem by providing counter-pressure to sell forces of USDy. The UCM features three components; a liquidity balancer, a minimum mint price for USDy, as well as a buy-back and burn function.
The buy-back and burn function will only be activated when the USDy-BUSD pool price is trading below the USDy mint price - currently set at $1.00. The USDy mint price is set at a predetermined level and can be adjusted by the development team if/when the need arises.
At the end of each 21-epoch interval, the protocol will check the current price of USDy;
If the USDy-BUSD pool price for USDy is above $1.00, the protocol will mint an amount of USDy that's required to bring the pool price back down to $1.00.
- Once the USDy has been minted, it will be immediately sold for BUSD via the liquidity pool (30% transaction tax will not apply). Next, the protocol will utilise the BUSD acquired from the sale to create USDy-BUSD liquidity at $1.00 by minting an equivalent amount of USDy. Each of the aforementioned actions will occur on the same block to avoid price manipulation.
If the USDy-BUSD pool price for USDy is below $1.00; the protocol will withdraw liquidity equivalent to an amount that's required to push the pool price back to $1.00.
- Once the liquidity has been withdrawn, the BUSD portion of the liquidity will be used to purchase USDy (30% transaction tax will not apply). Next, the USDy acquired from both the liquidity withdrawal and purchase will be burned by the protocol. Each of the aforementioned actions will occur on the same block to avoid price manipulation.
When USDy is trading below $1.00, the protocol will utilize the predetermined mint price to mint new USDy. If USDy is trading at a price greater than the mint price, the protocol will use the pool price to mint. This means that, no matter what, the protocol always uses the greater of the two prices to mint USDy.
- Pool price > mint price, the protocol will use the pool price to mint USDy.
- When USDy is trading greater than the mint price - the pool price is utilised by the protocol when minting USDy.
- Mint price > pool price, the protocol will use the mint price to mint USDy.
- When USDy is trading less than or equal to the mint price - the mint price is utilised by the protocol when minting USDy and the buy-back and burn function is triggered.
At the end of each 3-epoch interval, the protocol will check the current price of USDy, with the USDy buyback and burn function only being activated by the protocol when USDy is trading below the predetermined USDy mint price. It will remain active for a minimum of 3 epochs, and will only be deactivated when USDy is trading greater than or equal to the predetermined mint price at the end of the next 3-epoch interval. By implementing this buy and burn measure, the UCM will help counter the downward sell pressure on USDy.
When activated the following aspects of the protocol will be repurposed to reduce the supply of USDy:
- 1.USDy token tax -> One-third (10%) of the 30% USDy transaction tax will be burnt, and the remaining two-thirds will be split equally, with one-third (10%) being sent to the Treasury and one-third being used to purchase and burn xYSL.