STAB Protocol

STAB 'em to death!

The first protocol governed by the ILIS DAO, with the purpose of providing Radix DLT with a stable asset called STAB. So, uhm, how exactly does this work? Let's do a little STAB Protocol crash course!

IMPORTANT NOTE: STAB is NOT a fixed-peg stable asset such as DAI, USDC or LUSD! Instead, its peg is variable, meaning it should not always trade at the same price. Its purpose is to provide RELATIVE stability. Read more about the why in the Interest Rate section.

STAB Protocol for Dummies

Creating STAB

STAB is created through the STAB protocol in a similar fashion as stablecoins such as DAI or LUSD are created: it is borrowed.

Borrowing

To borrow STAB, the user provides the protocol with a collateral. The collateral value must be higher than 150% of the borrowed STAB's value (reffered to as the MCR from here on) and ensures the borrowed STAB is always backed by assets of at least their value. In return for this collateral, the protocol provides the borrower with the freshly-minted STAB tokens and a Loan Receipt. By showing the protocol their previously acquired receipt, one can prove to be the owner of a loan and exchange their STAB for their collateral again.

Liquidations

Of course, the protocol cannot allow STAB to not be fully backed. This leads to some dangers that come with borrowing STAB: when one's collateral value falls below the MCR, being liquidated is a possibility. This means a third party is able to pay off the STAB debt in return for part of the collateral. The collateral loss will be higher than 100% of the debt, so being liquidated is no bueno!

To prevent liquidation, it is possible to add some collateral to a loan. Similarly, one can also remove collateral from a loan, as long as the value of their collateral stays above the MCR (or even pay off the entirety of the debt to regain possession of the collateral).

Ensuring Stability

Uhh alright... very cool, but why exactly would STAB actually be stable? In other, more technical words - why does it keep peg?!

Interest Rate

A unique feature of STAB is that it is not hard-pegged to a single USD valuation; STAB tokens are subject to an interest rate. The interest rates can vary from -33.33% to +50% per year and are set by STAB supply and demand. The interest rates work on the internal price of STAB. For example, an interest rate of -10% would change STAB's internal price from $1.00 to $0.90 over a year's time. Negative interest is attractive for STAB borrowers, as their debt decreases over time, whereas positive interest is attractive for STAB holders, as their assets increase in value.

As previously mentioned, this interest rate is set by supply and demand. To do this, the protocol keeps track of an internal price (or peg), which it believes STAB should trade at on the open market. If the internal price is higher than the open market price, STAB is in low demand and interest rates increase. Conversely, if the open market price is higher than the internal price, STAB is in high demand and interest rates decrease! To keep track of the STAB price, an AMM is built into the protocol, where the user can swap their XRD for STAB.

Learn more about STAB's interest rate here.

Redemptions / Forced Minting

The way a variable interest rate is able to change supply and demand is awesome, but sometimes you need something quick and dirty. To this end, redemptions / forced minting can be used.

The Redemptions module allows any user to forcefully close the loan with the lowest collateralization ratio by paying off its debt. In return for closing the debt, the user receives its collateral with 100-n% of the paid off debt's value (with n a parameter, the lower it's chosen, the earlier it is attractive use the redemption module). Due to this redemption system, instant arbitrage opportunities appear when STAB is trading below 100-n% of its peg, essentially creating a hard lower peg at this level.

The Forced Minting module does the exact opposite, though it is disabled by default. If the Forced Minting module is enabled, users can force the STAB loan with the highest collateralization ratio to borrow more STAB by providing it with collateral worth 100+n% of the freshly borrowed STAB. Due to this system, an instant arbitrage opportunity appears when STAB is trading above 100+n% of its peg, essentially creating a hard upper peg at this level.