We will use a protocol reserve as our primary stability mechanism.
- DSU can always be minted from the reserve for 1 USDC
- DSU can always be burned in the reserve for
RRis the current reserve ratio capped at
The reserve ratio is the ratio of the
USDC-denominated value of the reserve over the currently issued DSU. During normal operation this ratio will equal or exceed
In extenuating circumstances like an exploit or a bug the ratio may drop below
100% . In this case the redemption price is pro-rated such that redeeming earlier does not guarantee an optimal exit result. This prevents bank runs in times of uncertainty to allow the protocol time to recover if possible.
In addition to acting as a seignorage share and governance token, ESS can backstop the reserve for the protocol.
At any time, governance may vote to mint and sell ESS to raise
RR if it drops below its expected operating value.
The initial launch of the protocol has no ancillary stability mechanisms which might reduce the reserve ratio below 1. However in the future mechanisms may be suggested, modelled and proposed to the DAO.
To enable a safe experimentation environment once we’ve bootstrapped, governance can artificially lower the redemption price using an
EXIT_TAX to create a non-zero hard price range. This enables safe efficacy testing for various ancillary stability mechanisms while the system is still over-collateralized and can easily rollback.