Collateral Ratios and How Do They Affect $aUSD Minting and Redeeming
How does the protocol define correct ratios
Hello, dear community!
In this article, we would like to reveal and double explain the Atmos Protocol CR logic, which is the key one before interaction with the autonomous fractional-algorithmic stablecoin — aUSD.
What is CR
CR — Collateral Ratio that defines how much collateral (USDC) and volcoin (ATM) will be used in the minting or redeeming action.
TCR (Target Collateral Ratio) stands for minting calculation formula, while ECR (Effective Collateral Ratio) stands for redeeming calculation formula.
Target CR: terms and behavior
TCR (Target CR) is the ratio for reaching the target aUSD price ($1). TCR calculates and establishes one time per hour, with the possible step of 0.25%
If aUSD price is less than $1 (according to the dynamic Time-Weighted Average Price) — then the protocol increases TCR, meaning that for every next mint, the user will use more collateral (USDC) as a backing reserve for aUSD.
and
If aUSD price is above $1 (by TWAP) — then the protocol lowers TCR, meaning that there is enough collateral in the protocol’s treasury and the user will use less collateral (USDC) for every next mint.
Example:
In case a user wishes to mint aUSD, the system requires a value based on TCR worth of USDC and (1 — TCR) worth of ATM.
When TCR = 95% (which will be predefined at the launch), 1 aUSD can be minted with $.95 worth of USDC and $.05 worth of ATM.
Effective CR: terms and behavior
ECR (Effective CR) represents the level of aUSD collateralization. After redeeming, the user obtains the needed quantity of USDC + ATM tokens for each aUSD to attain an equivalent value in dollar terms.
When TCR is less then ECR — the protocol is overcollateralized
and
When TCR is bigger then ECR — the protocol is undercollateralized
ECR = Total Collateral Value / Total aUSD Supply
Example:
In case a user wants to redeem aUSD, the system returns a value based on ECR worth of USDC and (1 — ECR) worth of ATM.
When ECR = 80% (which will be predefined by the market conditions), 1 aUSD can be redeemed and the system will return $.8 worth of USDC and $.2 worth of ATM.
Minting / Redeeming fees
Every action, be it Mint or Redeem, charges users with fee. Accumulated fees are used in AMOs (Automated Market Operations).
The minting fee is set up at 0.3%, while the redeeming fee is 0.4%. The fee percentage can be changed through governance voting.
For now, that’s all!
In the next few articles, we will reveal details concerning how AMOs work, aUSD price stability and how do we use idle USDC collateral! Stay tuned and join our socials 🦾
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