Price Stability Mechanisms

The primary objective of the StaikaFi Protocol is to uphold the soft peg of the native stablecoin, SUSD, to the US Dollar. In instances where deviations from the peg occur, the protocol employs a range of price stability mechanisms to restore equilibrium and bring the peg back to parity. The following instruments have been implemented to address price stability:

Monetary Policy Adjustment

The protocol employs monetary policy adjustments to regulate the supply and demand of the stablecoin, primarily by modulating the borrowing rate. StaikaFi Protocol has implemented a robust and adaptive borrowing rate mechanism that draws inspiration from pivotal financial benchmarks, namely the Consumer Price Index (CPI) and Central Bank reference rates. By actively monitoring annual variations in the CPI and Central Bank rates, the protocol aligns its borrowing rates with those prevalent in traditional finance (TradFi). This approach ensures clarity and consistency in the borrowing process, enabling borrowers to strategize with confidence. Marrying rates from the TradFi sphere with the decentralized finance (DeFi) ecosystem bridges the two worlds, enhancing interoperability. Consequently, the returns on stablecoins can potentially surpass the risk-free rate in TradFi, adding to its allure.

Importantly, the protocol’s target borrowing rate isn’t designed to undercut the lower value among the CPI and the Central Bank rate. Nevertheless, it retains the agility to pivot towards the upper end of these benchmarks. For instance, to modulate the supply of the SUSD stablecoin, the protocol might opt to amplify the target borrowing rate. When borrowing becomes pricier, it can naturally rein in the issuance of SUSD, allowing the protocol to adeptly steer the system’s equilibrium by guiding borrowing patterns.

Arbitrage Mechanisms

In instances where SUSD’s valuation deviates from its intended peg, the StaikaFi Protocol facilitates arbitrage mechanisms that are instrumental in recalibrating these divergences. As an illustration, should SUSD be trading at $1.03, users can leverage reward-bearing tokens from trusted lending entities. By securing 100 SUSD at a cost of $103, they can subsequently convert it into 103 cUSDC, maintaining a 1:1 conversion rate. Through the protocol, this cUSDC can be employed to mint an equivalent amount of SUSD. Iterative execution of this mechanism enables users to capitalize on the prevailing price variance. It’s pertinent to note that liquidating SUSD for USDC exerts “selling pressure” on SUSD, expanding its market availability and thus, gravitating its price towards the $1 mark. In scenarios where SUSD is undervalued against its peg, a reverse procedure can be initiated, commencing with USDC.

StaikaFi Protocol accentuates these arbitrage opportunities for stakeholders intent on leveraging discrepancies in stablecoin valuations, particularly when integrating tokens from diverse lending platforms. With its architecture meticulously crafted to enhance yield potential, the protocol concurrently emphasizes the preservation of SUSD’s peg integrity. To this end, the protocol recognizes and integrates specific USD reward-bearing tokens from established lending systems as collateral. Such an arrangement sanctions the borrowing of SUSD at a commendable LTV ratio of 90-95%, thereby catalyzing avenues for robust yield generation.

By seamlessly orchestrating these arbitrage strategies coupled with attractive borrowing incentives, the StaikaFi Protocol seamlessly marries the dual objectives of yield optimization and maintaining the stability of SUSD’s peg. This methodology engenders a dynamic and responsive ecosystem that accentuates yield opportunities for its diverse user base.

Liquidation Mechanisms

To safeguard against the perils of liquidation, the StaikaFi Protocol integrates multiple layers of protective measures. This involves incorporating effective liquidation techniques, adhering to prudent liquidation ratios and penalties, delivering straightforward risk management directives, and deploying a comprehensive monitoring framework. This is all with the aim of proactively spotting and navigating potential liquidation scenarios.

A prime example of this ingenuity is the introduction of the Flash Mint functionality. Its foundational premise is straightforward yet robust: any amount that is minted using this function is mandated to be returned and eliminated within the same transaction. By doing so, it effectively circumvents potential malevolent exploits or undue advantage-taking of the SUSD token.

This functionality becomes particularly crucial during liquidation periods. Liquidators can harness the Flash Mint capability to instantly procure the requisite SUSD tokens needed to settle a borrower’s outstanding dues. Following this, the acquired collateral can be effortlessly converted back into SUSD, facilitating the seamless repayment of the flash mint. The entire procedure unfolds within a single transaction’s span. This design not only streamlines the liquidation process but also empowers liquidators to capitalize on market discrepancies, enabling them to realize risk-free gains.

Reserve Pool

The StaikaFi Protocol will look to introduce a Reserve Pool, a strategic measure designed to preemptively address the challenges associated with bad debt. This protective mechanism is sustained by a fraction of the interest fees levied on borrowers. In essence, whenever a loan is facilitated, a segment of the associated interest directly feeds the pool. As borrowing activity intensifies and interest accrues, the Reserve Pool expands, forging a robust financial bulwark.

Through the consistent augmentation of this fund, the StaikaFi Protocol underscores its commitment to mitigating potential fiscal disruptions or instances of bad debt. This initiative aims to fortify user trust, providing assurance that the platform houses inherent safeguards. These mechanisms are crafted to underscore the enduring stability and reliability of all lending and borrowing endeavors facilitated by the platform.