Understanding the CUSD stability mechanism
Coin98 Dollar unveils the CUSD stability mechanism.
Stability is the majority concern about stablecoin over all other use cases. That's always one of our main thoughts while designing CUSD stablecoin.
CUSD is a stablecoin pegged to the US Dollar, which means it has a relative value equal to the value of USD. Then traders can exchange CUSD on the secondary market with other stablecoins like USDC, BUSD, or highly liquid crypto assets.
CUSD's goal is to be a stable and interoperable stablecoin in the DeFi Cross-chain Ecosystem. Since that CUSD holder can safely use, save and spend CUSD when using Coin98's services, CUSD is created for Coin98's users.
In May 2017, MakerDAO developed the first stablecoin SAI or Single-Collateral Dai, but the Stablecoin Era truly started in DeFi Summer of 2020. In the last two years, we witnessed the creation of numerous stablecoins with outstanding mechanism designs. Some stablecoins gained billion of USD in capitalization just months after launch, and some crashed within hours. Success teaches us lessons, and failure teaches us more than success.
We observe collateralization is an effective mechanism by which a stablecoin maintains its peg. That is the lesson we learned from the falls of UST and FEI. The price of stablecoin varies constantly and is determined by market supply and demand. However, if its value is equal to or more than one, it can soon return to the price, even if it is losing its peg severely.
With CUSD, the continuous active trading on AMM exchanges Saros, Baryon, and Kyber determine the price, and of course, it will not be able to stay at $1. However, the value of CUSD is consistently equal to $1 as it is fully backed by all supported stablecoin assets sent to CUSD Reserve smart contract, and users can mint/redeem CUSD for $1 at the CUSD Portal at any time. This technique considerably contributes to the CUSD stability.
For example, if the market price of CUSD drops to $0.9, users can buy 100 CUSD worth $90 on the market and redeem it for 100 USDC at the CUSD Portal. As a result, users will help increase the market price of CUSD and get a spread profit of $10.
On the other hand, assuming that the price of CUSD rises to $1.1, users can send USDC or BUSD at the CUSD Portal to get more CUSD and sell it on the secondary market. This arbitrage makes a profit of 10% and reduces the price of CUSD.
It is worth noting that the stablecoins supported in the CUSD Reserve are maintained in the contract to ensure that all users can redeem them at any time.
Finally, security is always Coin98 Dollar's top priority. CUSD was carefully audited by 3 Parties Inspex, SlowMist, and Peckshield, before the official launch.
This is CUSD Stability mechanism is all about. Stability is the foundation for all future use cases of CUSD. Once we pass through, we will focus on Liquidity and Strategies to expand CUSD adoption.
About Coin98 Dollar
Coin98 Dollar, aka CUSD, is a fully-backed stablecoin that aims to become a cross-chain unit of account that fulfills the demand for cross-chain liquidity in DeFi.
CUSD brings up an ambitious, long-term mission. To achieve that, our initiative is to build a strong foundation of use cases for CUSD within the Coin98 Ecosystem, first by centering CUSD as the default medium of exchange across all products built by Coin98 Finance. In the long run, CUSD will expand into other DeFi ecosystems in the multi-chain world.
