Peg Stability Module

The Peg Stability Module generates redeemable MAI that can be minted and redeemed via the PSM at a fixed rate. This MAI is fungible with loan-backed MAI tokens.

What is a Peg Stability Module (PSM)?

A PSM is an element of QiDao that allows users to mint and redeem MAI at a fixed 1:1 rate with other approved stablecoins. The transfer between stablecoins at a determined rate allows the native stablecoin to maintain a stable peg in relation to 1 USD via the creation of price arbitrage. The module is permissionless and pooled among users, allowing any user to mint and/or redeem.collateral.

How is a PSM used?

The PSM functions through two main functions:minting and redeeming.

Minting Process

The minting process begins when a user deposits a pegged asset, such as USDC into the PSM. The user is then immediately able to mint MAI at a 1:1 ratio to the deposited asset value. The approved stablecoin tokens are then deposited in pre-approved yield strategies that earn the protocol fees. Because the deposited currency is a pegged asset, minting can occur at maximum capital efficiency. After minting, the minted MAI is immediately deposited into the user's connected wallet.

Redemption Process

The redemption process allows users to exchange their MAI for the collateral deposited. Similar to the minting process, the redemption process begins with a user sending their MAI into the PSM. The users will then join a public withdrawals queue for 3 days, where their redemption request remains public to other participants. Users can only have one pending withdrawal at a time.

Time delay within the queue allows for manageable outflows. It also helps to promote liquidity pool usage on partner AMMs. After reaching the top of the queue, users are able to redeem their MAI at a 1:1 ratio, though they must pay a redemption fee for the collateral asset. The redeemed asset is then immediately withdrawn from the PSM and transferred into the user’s connected wallet.

Why is the PSM beneficial for MAI

A large benefit of the Peg Stability Module is that it helps stabilize MAI’s peg to USD stablecoins, This supports MAIt on the chains that it is deployed on, and is crucial in maintaining the reliability of MAI as a stablecoin. Outside of the temporary withdrawal queue, the flow of the module is very fluid, as stablecoins may be minted and redeemed as users please, which furthers the stability of the module. Addtionally, it provides a high level of liquidity in MAI.

Additionally, it is important to note that a sufficient level of movement is required within DEX liquidity pools in order to better facilitate trading. Too much liquidity entering circulation via debt may impact the liquidity available for trading in DEXes, increasing slippage or decreasing efficiency. Because the PSM provides a mechanism for stabilizing the value of MAI and managing debt, it reduces the impact on DEX liquidity pools. This reduced impact allows for more flexibility in increasing the debt ceiling based on demand without negatively affecting DEX liquidity.

There are also potential returns generated by the assets held by the PSM, through two current, pre-approved, automated methods. First, Compound is a decentralized lending protocol that allows users to supply assets to earn interest or borrow assets against collateral. The assets held by the PSM will automatically enter the Compound system by supplying USDC stablecoins, and earning interest on the deposited assets. The second yield method is through MakerDAO's Dai Savings Rate (DSR). The PSM will enter held DAI into a smart contract, which will earn interest based on a variable interest rate determined by the MakerDAO ecosystem, and borrowers who generate DAI through MakerDAO’s collateralized debt positions. Both of these operations require no human interaction or trust manual processes.

Last updated