How Does it Work: Stablecoin Economics
MAI is a stablecoin backed by locked collateral tokens. MAI borrowing is decentralized and non-custodial, meaning that only users have control over their funds.
MAI can only be made through locking collateral to back its value. Collateral can be static tokens like LINK, CRV, and others. It can also be alternative assets like Beefy and Yearn strategies. Interest-bearing collateral like Beefy, Yearn, and Aave receipt tokens allow users to accumulate yield from their collateral while it's deposited in MAI vaults.
The peg is maintained via the following mechanisms:
Interest Bearing Stable Collateral Vaults:
When the MAI peg is over $1, we will increase the debt ceilings for our ib stable vaults. Due to the low risk and high LTV ratio of stable collaterals, stable vaults are very attractive for high leveraging and their vaults are quickly depleted. This leveraging applies a lot of sell pressure on MAI helping bring the peg back down to $1.
The liquidation ratio (minimum collateral to debt ratio) ensures that every MAI is always backed by the collateral value in our vaults. When our vaults fall below the liquidation ratio, they can be partially liquidated. This means that some of the vault's debt is repaid by a liquidator, and in return the liquidator will receive some of the vault's collateral. The initial liquidation ratio will be set at 150%, which is subject to change by community proposals/voting. to read more about the liquidation process
Our vaults are overcollateralized (by 130-150%, depending on the asset) to ensure that there is always collateral value to back the stablecoins minted. As the value of the collateral rises, more stablecoins can be issued as a rise in collateral price will increase your collateral to debt ratio. Conversely, as the value of the collateral falls, fewer stablecoins can be issued. This is implemented to maintain the minimum collateral to debt ratio of each vault type.
The effect of collateral price changes on the QiDao protocol are summarized below:
- If collateral market price falls, the collateral to debt ratio will decrease, prompting users to either deposit more collateral or repay their MAI debt
- If collateral market price increases, the collateral to debt ratio will increase, allowing users to either borrow more MAI or withdraw some of their collateral
Vaults: You can always mint MAI through your vault, by adding collateral and minting MAI up to the liquidation ratio against your collateral.
DEX aggregators: Paraswap and 1inch help users find the best price for any given token trade.
Other Options: All major decentralized exchanges.