Synthetic assets platforms face the challenge of maintaining price parity between synthetic assets minted on the platform (oracle price) and their corresponding prices on AMMs.
Kresko is excited to launch a novel Stability Rate Module to address this issue.
This post summarizes the stability rate mechanism and invites users to participate in testing and enhancing this solution.
Overview
When a user borrows a krAsset against their collateral, an interest rate on the borrowed asset is applied. This rate is determined by the price difference between the AMM and the oracle.
Here’s a brief overview of how the mechanism works:
- If the AMM price is higher than the oracle price, the interest rate is lower. This incentivizes minters to mint assets and create LP pools to earn fees, ultimately balancing the price premium.
- If the AMM price is lower than the oracle price, the interest rate is higher. This encourages minters to repay their positions and burn minted assets, balancing the price premium.
- Accrued interest, paid in Kresko’s integrated stablecoin KISS, can be strategically deployed for various initiatives that support price stability. Additionally, paid interest could also be allocated as farming rewards or other incentives to promote healthy liquidity levels and offsetting fees paid by LPs.
The stability module uses a variable interest rate system, similar to the funding rates used in futures exchanges, to incentivize minters to either mint more assets or close positions based on market conditions.
Getting Started with Kresko’s Stability Rate Module
Access the Borrow page on the app here to view the interest rates on different krAssets.
View Interest Rate and Borrow
- When minting (borrowing) krAssets, navigate to the Borrow page to view the effective interest rates.
- Observe the Premium % in the row, which indicates how the AMM price, i.e., Time-Weighted Average Price (TWAP) compares with the oracle price.
- Note on TWAP: TWAP offers a stabilised representation of an asset’s value over a specific period. It mitigates short-term price fluctuations by averaging asset prices at regular intervals, providing reliable market data.
- It is recommended to refresh the TWAP if the refresh button is present to get the current numbers.
Interest Payment
Interest payments can be made in two ways — either by paying the entire amount of interest accrued on all minted positions, or by making payments on individual assets.
- To pay your entire accrued interest, select the “PAY INTEREST” option on the Home page or Borrow page.
- You can also pay interest on a per-asset basis via the “REPAY” button.
- In the pop-up window, navigate to the “Pay Interest” tab.
