Peg Maintenance

The value of cUSD is closely tied to USD because of arbitrage mechanics.

• When cUSD < $1 (trading at a discount to USD):

  • User buys discounted cUSD and sells collateral

  • User uses cUSD and redeems collateral at face value, 1 cUSD for 1 USD

  • This buying pressure pushes cUSD back to parity against the USD

  • There should be sufficient collateral, relative to the amount of circulating cUSD, for redemption as the high MCR threshold as the high MCR threshold results in liquidation of cUSD debt in vaults before falling collateral values negatively affect the protocol

• When cUSD > $1 * MCR (trading at a premium to USD):

  • User buys collateral at face value

  • User deposits collateral to mint cUSD

  • User sells cUSD at a premium

  • If cUSD > $1 * MCR, this results in a free hedge, which will cause arbitrageurs to put selling pressure on cUSD

  • The MCR acts as an effective price ceiling for cUSD