Peg Protection

OUSD Peg Protection

The DEX AMO maintains its peg within a one percent range (0.99-1.01) by buying OUSD with stablecoin reserves, or minting OUSD and selling it. As users buy or sell OUSD into the pool, the price will fluctuate and the system will respond to any depegs accordingly.

Depegged below Target Price

If OUSD is trading below the peg, the system can swap 1 stablecoin from reserves for slightly more than 1 OUSD due to price discrepancy, thereafter burning the excess OUSD. This transaction results in balancing of the peg higher and OUSD exiting the system, increasing the ratio of assets to liabilities and thereby increasing yield for sOUSD holders.

Depegged above Target Price

Conversely, when OUSD trades above the peg, the system can mint new OUSD to sell into the pool and balance the peg lower. This is possible as long as the amount of stablecoins coming in is greater than the amount of OUSD minted. The difference between those two is the system profit. This can be thought of as a round-about way to mint OUSD. Periodically, the system will also rebalance the pool ratio to maintain peg by adding and removing liquidity. The system adds liquidity by freely minting new OUSD to pair with stablecoin reserves, resulting in a ~2x leveraged liquidity position at no cost to the system. Eventually the system will remove this liquidity, burn the excess OUSD, and tally profits from the pool before deploying liquidity again.