Navigating Stability: How Orby’s USC Maintains Its Dollar Peg
A Primer on Orby Network’s key features — Part 1
GM Orbies!
Captain Orby here🎙️
Welcome to our in-depth exploration series, as we dive into the heart of Orby — exploring key features, understanding their purpose, and breaking down what it all means for you as a user.
If you missed our intro article, no worries — catch up with the link right here.
We kick things off by unraveling the mechanisms that keep USC soft-pegged to the dollar.
Mechanisms to maintain USC’s dollar peg
USC is a decentralised, overcollateralised stablecoin that is native to Orby Network. In order to maintain USC’s peg to the dollar, Orby employs a combination of tools which work to manage and influence total USC supply, interest rates, and overall user activity. Let’s break it down!
Market operations
When any USC transaction occurs on Orby — be it minting, repayment, or redemption — it settles at the parity value of USD 1. This acts as a stabilizing force during market fluctuations, guiding USC back to the USD 1 benchmark. For instance, when USC exceeds USD 1, users are incentivized to mint and sell it on the open market, thereby injecting liquidity and increasing the USC supply. Conversely, if USC trades below USD 1, a reverse pattern is anticipated. Over time, these market operations naturally realign the peg to 1:1, reinforcing the credibility of the soft peg.
Floating Base rate
The base rate determines the amount of fees a user pays for minting and redemptions. This rate increases with more redemption demand, but gradually decreases with a decline in fee events (defined as new issuance of USC or collateral redemptions).
The variability of transaction fees on Orby acts as a soft peg mechanism by encouraging or discouraging the borrowing of USC. For example, a lower base rate generally encourages borrowing, stimulating USC supply, while a higher base rate can have a dampening effect, effectively curbing the supply of new loans.
Redemptions
The redemption mechanism plays a pivotal role in maintaining price stability. To recap, redemptions allow users to always redeem 1 USC for USD 1 worth of underlying collateral. When a user exercises this function, he effectively repays another user’s USC debt and receives their underlying collateral in return. The riskiest shuttles on Orby will always be redeemed against first.
When USC falls below USD 1, users are incentivised to take advantage of the arbitrage opportunity. This redemption process hence helps reinforce a hard peg for USC, especially when it’s worth less than USD 1.
What does it mean for users?
Orby’s appeal to borrowers stems from its unique loan structure. A one-time minting fee (capped at 5%) and refundable 20 USC deposit make USC borrowing cost-effective, particularly for long-term borrowers.
Additionally, users can borrow, repay, or redeem USC for USD 1 at any time, presenting arbitrage opportunities during downward deviations from the peg.
However, users should be cognizant of the risk of redemptions against their own debt positions. To mitigate this risk, we advise all users to maintain a higher and healthy collateral ratio.
As we continue this journey together, our next installment will delve into the robust liquidation strategies that set Orby apart. We’ll examine the Stability Pool’s innovative approach to liquidations and how it not only maintains the system’s health but also opens up new opportunities for users to participate in and benefit from the network’s growth.
Stay tuned and follow us to get the latest update🚀
Captain Orby out🎙️
