A stablecoin protocol has only one task to complete. It is to maintain the peg of the stablecoin. As Stable Jack, our priority is to maintain the peg of aUSD at $1 at every market condition and we have taken significant measures to accomplish this task.
In this article, we will detail the Stability Mode behind the aUSD and answer some of the frequently asked questions from our community.
Collateralization ratio (CR) plays a major role in Stable Jack to maintain the peg of aUSD. Unlike other CDP-based stablecoin, we calculate the Collateralization Ratio (CR) differently;
In this formula, the total market cap of aUSD + the total market cap of xAVAX can also be considered as the TVL of the protocol. To give an example, if the total MC of aUSD and xAVAX is equal to $400 and aUSD MC is $150 the CR stands at %266,6.
The main goal for Stable Jack is to maintain the CR above %100 so that aUSD will always maintain its peg to $1.
A stablecoin should maintain its peg under any market conditions. Market conditions are never to be predicted and AVAX price can always drop significantly, be it a black-swan event or significant downside pressure for the price.
It should be noted that downside AVAX price action doesn’t mean that CR will drop significantly. AVAX price drop will certainly put pressure on CR but if there is a demand for xAVAX (meaning there are users who want to go long AVAX and mint xAVAX), CR can increase higher even if the price of xAVAX drops because the CR is calculated not just according to the price but also the relation between aUSD and xAVAX.
Unlike other CDP-based protocols, the collateral is managed by the protocol not by the user. In that regard, Stable Jack will take the necessary steps to increase the collateral ratio.
Level 1 - Stability Mode Mint/Redeem Controls
When the collateralization ratio drops to 160%, Stability Mode will be activated. The first action taken by the protocol is to change the mint and redemption rules. The changes are as follows;
aUSD minting is disabled
aUSD redemption fees are waived. The normal fee is 0.25%.
xAVAX minting fees are waived
xAVAX redemption fees are increased to 8.00%. The normal fee is 1.00%.
The main reason for this change is to increase the xAVAX supply. Waiving fees to mint xAVAX will make traders more comfortable minting an additional xAVAX while increasing the fees to redeem will make users more hesitant to redeem their xAVAX holdings.
On the other hand, since the protocol will disable the minting of aUSD, it is not possible to reduce CR through an additional supply of aUSD, and since the fees to redeem aUSD are waived, there is not going to be an additional cost to redeem it. These measures will incentivize to reduce of the supply of aUSD.
Mint/Redeem controls aim to increase xAVAX supply while reducing the aUSD and thus increase the CR of the protocol.
Level 2 - Rebalance Pool
During the launch of the Stable Jack, we will set up a Rebalance Pool for users to deposit aUSD. LST (Liquid Staking Tokens) yield from the collateral (sAVAX value deposited to mint aUSD or xAVAX) will be directed to this pool, offering significant yield opportunities.
When the collateralization drops to 147%, the Rebalance Pool will be activated and a necessary amount of aUSD in the Rebalance Pool will be converted to the sAVAX to push the CR above 160%. This means that depositors are converted but they protect their principle.
The goal of this measure is to increase the CR of the protocol by actively reducing the supply of aUSD. This is accomplished by redeeming aUSD tokens from Rebalance Pool.
Rebalance Pool can be considered similar to Liquity’s forced redemptions, where redemptions are aimed at increasing the collateralization ratio of the protocol and ensuring the safety of the peg.
Here's a calculation that shows the yield for aUSD staking in the rebalancing pool:
Level 3 - xAVAX Incentivization
In the majority of circumstances where the CR falls below 160%, the continuous and smooth upward pressure of the Rebalancing Pool will quickly restore it, thereby maintaining system stability. The mechanism only runs into problems if the downward pressure on the CR is persistent or extreme enough to exhaust the Rebalancing Pool’s supply of aUSD.
To provide even more support to the stability system, any time the CR falls below 140% a special reserve of accrued treasury revenue is made available to pay bonuses to users that mint xAVAX. The combination of a minting bonus and a naturally high xAVAX leverage in this condition will make xAVAX minting highly attractive. Since minting xAVAX has an even bigger positive effect on system stability than the rebalancing pool, the combination of both will provide a powerful backstop in the case of challenging market conditions.
The main reason behind this measure is to actively increase the collateralization ratio by increasing the supply of xAVAX.
Level 4 - Recapitalization
In the most extreme case where the collateralization ratio drops to %100, and where insufficient aUSD is available to stabilize the protocol and the probability of destabilization is unacceptably high, the protocol has the ability to issue governance tokens to raise AVAX to recapitalize, either by minting xAVAX or by buying and redeeming aUSD.
This is the last step to be taken by the protocol to increase the collateralization ratio and maintain it above 100% to ensure the peg is stable. It can be considered similar to what Maker DAO did before.
Conclusion
Maintaining the peg of a stablecoin is the only aim of the protocols and all measures and incentive mechanisms should be designed according to this consideration. At Stable Jack, we designed our protocol to tackle even the black swan events that can’t be predicted beforehand.
We believe that the aforementioned measures won’t be used often and will be active only in certain situations in which the ecosystem is under stress. However, if such situations happen, we are ready to maintain the peg of aUSD whatever the difficulties are.
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A stablecoin protocol has only one task to complete. It is to maintain the peg of the stablecoin. As Stable Jack, our priority is to maintain the peg of aUSD at $1 at every market condition and we have taken significant measures to accomplish this task.
In this article, we will detail the Stability Mode behind the aUSD and answer some of the frequently asked questions from our community.
Collateralization ratio (CR) plays a major role in Stable Jack to maintain the peg of aUSD. Unlike other CDP-based stablecoin, we calculate the Collateralization Ratio (CR) differently;
In this formula, the total market cap of aUSD + the total market cap of xAVAX can also be considered as the TVL of the protocol. To give an example, if the total MC of aUSD and xAVAX is equal to $400 and aUSD MC is $150 the CR stands at %266,6.
The main goal for Stable Jack is to maintain the CR above %100 so that aUSD will always maintain its peg to $1.
A stablecoin should maintain its peg under any market conditions. Market conditions are never to be predicted and AVAX price can always drop significantly, be it a black-swan event or significant downside pressure for the price.
It should be noted that downside AVAX price action doesn’t mean that CR will drop significantly. AVAX price drop will certainly put pressure on CR but if there is a demand for xAVAX (meaning there are users who want to go long AVAX and mint xAVAX), CR can increase higher even if the price of xAVAX drops because the CR is calculated not just according to the price but also the relation between aUSD and xAVAX.
Unlike other CDP-based protocols, the collateral is managed by the protocol not by the user. In that regard, Stable Jack will take the necessary steps to increase the collateral ratio.
Level 1 - Stability Mode Mint/Redeem Controls
When the collateralization ratio drops to 160%, Stability Mode will be activated. The first action taken by the protocol is to change the mint and redemption rules. The changes are as follows;
aUSD minting is disabled
aUSD redemption fees are waived. The normal fee is 0.25%.
xAVAX minting fees are waived
xAVAX redemption fees are increased to 8.00%. The normal fee is 1.00%.
The main reason for this change is to increase the xAVAX supply. Waiving fees to mint xAVAX will make traders more comfortable minting an additional xAVAX while increasing the fees to redeem will make users more hesitant to redeem their xAVAX holdings.
On the other hand, since the protocol will disable the minting of aUSD, it is not possible to reduce CR through an additional supply of aUSD, and since the fees to redeem aUSD are waived, there is not going to be an additional cost to redeem it. These measures will incentivize to reduce of the supply of aUSD.
Mint/Redeem controls aim to increase xAVAX supply while reducing the aUSD and thus increase the CR of the protocol.
Level 2 - Rebalance Pool
During the launch of the Stable Jack, we will set up a Rebalance Pool for users to deposit aUSD. LST (Liquid Staking Tokens) yield from the collateral (sAVAX value deposited to mint aUSD or xAVAX) will be directed to this pool, offering significant yield opportunities.
When the collateralization drops to 147%, the Rebalance Pool will be activated and a necessary amount of aUSD in the Rebalance Pool will be converted to the sAVAX to push the CR above 160%. This means that depositors are converted but they protect their principle.
The goal of this measure is to increase the CR of the protocol by actively reducing the supply of aUSD. This is accomplished by redeeming aUSD tokens from Rebalance Pool.
Rebalance Pool can be considered similar to Liquity’s forced redemptions, where redemptions are aimed at increasing the collateralization ratio of the protocol and ensuring the safety of the peg.
Here's a calculation that shows the yield for aUSD staking in the rebalancing pool:
Level 3 - xAVAX Incentivization
In the majority of circumstances where the CR falls below 160%, the continuous and smooth upward pressure of the Rebalancing Pool will quickly restore it, thereby maintaining system stability. The mechanism only runs into problems if the downward pressure on the CR is persistent or extreme enough to exhaust the Rebalancing Pool’s supply of aUSD.
To provide even more support to the stability system, any time the CR falls below 140% a special reserve of accrued treasury revenue is made available to pay bonuses to users that mint xAVAX. The combination of a minting bonus and a naturally high xAVAX leverage in this condition will make xAVAX minting highly attractive. Since minting xAVAX has an even bigger positive effect on system stability than the rebalancing pool, the combination of both will provide a powerful backstop in the case of challenging market conditions.
The main reason behind this measure is to actively increase the collateralization ratio by increasing the supply of xAVAX.
Level 4 - Recapitalization
In the most extreme case where the collateralization ratio drops to %100, and where insufficient aUSD is available to stabilize the protocol and the probability of destabilization is unacceptably high, the protocol has the ability to issue governance tokens to raise AVAX to recapitalize, either by minting xAVAX or by buying and redeeming aUSD.
This is the last step to be taken by the protocol to increase the collateralization ratio and maintain it above 100% to ensure the peg is stable. It can be considered similar to what Maker DAO did before.
Conclusion
Maintaining the peg of a stablecoin is the only aim of the protocols and all measures and incentive mechanisms should be designed according to this consideration. At Stable Jack, we designed our protocol to tackle even the black swan events that can’t be predicted beforehand.
We believe that the aforementioned measures won’t be used often and will be active only in certain situations in which the ecosystem is under stress. However, if such situations happen, we are ready to maintain the peg of aUSD whatever the difficulties are.
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The DeFi is meant to break the chains of TradFi. This requires innovative and daring products to be launched, and tested. We have seen many groundbreaking protocols such as Ethereum, Avalanche, Maker DAO, Uniswap, and Curve that share the same mindset and goals. Platypus was among these groundbreaking protocols that had the potential to break the chains of TradFi. It reached over 1b$ in TVL at its peak. However, some setbacks have prevented Platypus from becoming mainstream. At Stable Jack, w...
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We are developing a new yield-bearing stablecoin which has not been explored by many yet. As a result, explaining the mechanism behind our model is crucial. Stable Jack partitions AVAX volatility into two products to have a new yield-bearing stablecoin, called aUSD, while also creating a volatile AVAX token, called xAVAX. To make things simpler, we should consider the entire system as one big CDP in which:the total AVAX reserve represents the total CDP collateralthe total aUSD supply represen...
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