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.
How are these stablecoins created?
MAI can only be made through locking collateral to back its value - either through approved collateral in vaults or through Anchor. Collateral can be static tokens like LINK, CRV, and others. It can also be exotic 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.
To make MAI through vaults, users can deposit collateral in their vaults and mint MAI against it. You will not be charged interest for minting MAI through vaults. This means you can hold MAI debt long term without accruing costs.
How is the peg maintained?
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.
When the price of MAI falls below $0.99 or rises above $1.01, users can engage in risk-free arbitrage through Anchor. Read more about the Anchor in the section below.
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
Collateral Token Fluctuations:
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
What is the Anchor?
Anchor allows users to mint MAI with stablecoins and redeem stablecoins from MAI. The 1% minting fee to create MAI sets a price ceiling of $1.01 and the 1% fee to redeem stablecoins from MAI sets a price floor of $0.99. The price of MAI should trend close to $1, given that MAI can only repay $1 worth of debt. The ceiling and floor on its price keeps it from diverging from its peg too much.
How does it work?
If the price of MAI diverges from the peg, users can buy MAI or sell MAI at the Swap’s exchange rates. They can then make a profit in the market based on the difference from the peg. There is very low slippage on these transactions so engaging in this arbitration carries low risk.
Price over the peg: The price of MAI increases to $1.05. A user can buy MAI with 1.01 USDC and then sell it on the market for $1.05, making a ~4% gain relatively risk-free.
Price under the peg: The price of MAI decreases to $0.95. A user can buy MAI in the market for 0.95 USDC and sell it to the Swap for $0.99, making a ~4% gain relatively risk-free.
What’s the purpose of the Anchor?
Anchor ensures that there is always MAI-Stable liquidity at a price that is close to the peg. This allows users to be able to repay their loans at close to $1 even if the price of MAI deviates from the peg on other exchanges.
During Black Swan-type events where vault collateral values dip rapidly, vault owners may want to buy back MAI to repay their vault debt and avoid liquidation. The increased demand for MAI drives prices up, making it harder to pay back your loan at its true value.
The Swap also allows users to participate in arbitrage transactions to correct any divergence from the 1 USD peg.
Where else can I get MAI?
Vaults: You can always mint MAI through your vault, by adding collateral and minting MAI up to the liquidation ratio against your collateral. See instructions here.
Dex aggregators: Paraswap, 1inch, Slingshot help users find the best price for any given token trade.
Other Options: QuickSwap and SushiSwap exchanges will offer MAI.