aUSD Price Stability and How Does Atmos Reaches It
Greetings folks! Folks and community members of Aurora and Near 🫂
The Atmos team wants to talk a bit concerning aUSD price stability, why it works, and how Atmos reaches it using automated tools and solutions that were developed for these purposes!
Let’s dive into the basic mechanic that is applicable to any Atmos user — arbitrage!
aUSD may be minted and redeemed from the system for $1, allowing arbitragers to balance the supply and demand for aUSD on the open market. A user must always deposit $1 worth of value into the system in order to mint fresh aUSD.
If the market price is higher than the price objective of $1
There is an arbitrage opportunity to mint tokens by placing $1 of value into the system per aUSD and sell the minted aUSD for above $1 in the open market.
If the market price is lower than the price objective of $1
There is an arbitrage opportunity to redeem aUSD tokens by purchasing cheaply on the open market and redeeming aUSD for $1 of value from the system.
When the aUSD is at the 100% collateral phase, all of the value utilized to mint the aUSD is collateral.
At all times, a user can redeem aUSD for $1 worth of system value. The distinction is just the percentage of collateral and ATM refunded to the redeemer. When aUSD is in the 100% collateral phase, the value received after redeeming aUSD is 100% collateral. As the protocol enters the fractional phase, a portion of the value that exits the system after redemption becomes ATM.
Arbitrager.sol — is a specific automated solution that operates as an individual market participant and does the same operations as a user, but instead of using its own funds, it uses flashswaps to buy/sell aUSD with a profit.
Since aUSD is partially backed by USDC (at least 80% of aUSD and not lower), that means that aUSD will always reach a $1 value, but generally, it depends on market demand and aUSD use-cases as a stablecoin.
