Yield Modules

The DEX AMO is one of the core components of the OUSD system. It's utility is threefold in that it maintains a strong peg, provides users with the mechanism to exit their OUSD positions, and generates yield for sOUSD holders.

DEX AMO Yield

This peg-defense mechanism relies on a specialized arbitrage engine that tracks OUSD’s market price relative to a target (usually $1) and reacts automatically whenever the price deviates. When OUSD trades below its target, the system purchases OUSD on the open market with stablecoin reserves. Because the token is undervalued, it can acquire slightly more than 1 OUSD for each stablecoin, then immediately burns the surplus OUSD it received. This withdrawal from circulation not only drives the price back up but also boosts the backing ratio by shrinking overall liabilities relative to assets, thereby increasing potential yield for sOUSD holders.

Conversely, if OUSD trades above the target price, the protocol mints new OUSD and sells it into the pool. Since each newly minted token is effectively created at par value ($1) but sold at a premium, the net difference between the stablecoins gained and the cost of minting is captured as profit. Over time, these incremental gains accumulate and can be distributed to the system’s token holders.

Beyond direct purchases and sales, the protocol periodically manages liquidity positions to maintain the pool’s composition and further strengthen the peg. It does so by minting additional OUSD to pair with stablecoin reserves, effectively leveraging its position at minimal cost. Eventually, this liquidity is withdrawn, any unneeded OUSD is burned, and the system realizes the profits generated during that period. These combined strategies—buying below peg, selling above peg, and leveraging liquidity positions—help stabilize OUSD’s price around $1 and create a stream of yield for sOUSD holders.

Exiting the OUSD System

Users exit their OUSD position by swapping back to stablecoin reserves on the OUSD Stableswap.

A simpler redemption mechanism would merely unwrap OUSD back into the underlying stablecoin component while charging a flat fee for the service. While this approach might suffice, it requires manual governance updates and makes it difficult to find a consensus on a fee structure that is fair and equitable to positions of all sizes.

Accordingly, the DEX AMO can be conceptualized as a price discovery mechanism for the cost of exiting the system. The price impact of performing a swap represents the market value for exchanging the two assets and can be thought of as the fair price for exiting the system at any given size. This means that the "fee" to exit the system is minimal for small positions and greater for larger ones.

By leveraging the DEX AMO, the system benefits from a market driven approach to managing exits, which is both efficient and fair. This mechanism ensures that small transactions remain low cost while larger transactions bear higher costs, proportionate to their impact on the liquidity pool. This structure not only maintains the peg but also contributes to the profitability and stability of the OUSD ecosystem.