Growth Rate, Buyback, Re-Collateralization — The Three Musketeers of the KUSD Stablecoin
In the last episode of “KUSD the Series”, we explained the most asked question “How is KUSD different from IRON?” This week, we will further walk you through the success factors of the KUSD stablecoin.
As mentioned in the last article, KUSD uses a dynamic collateral ratio that automatically adjusts to find the best ratio between USDC and DOPX in order to keep it pegged to $1.
Growth Rate, Buyback & Re-Collateralization
KUSD automatically finds a Target Collateral Ratio every few seconds by taking a “Growth Rate” into account and adjust the target collateral ratio mechanism to keep it pegged to $1. Once the target collateral ratio is adjusted, we use a buyback or re-collateralization mechanism to drive the most effective collateral ratio (current collateral ratio) to the target collateral ratio.
The Growth Rate is calculated by the ratio of the total worth of the DOPX token across all liquidity pools that have DOPX, compared to the total worth of circulating KUSD in the ecosystem.
A higher growth rate implies that DOPX is healthy and less volatile and vice versa.
As the target collateral ratio changes, we’ll have to rebalance the supply of USDC and DOPX to correspond to the adjustment. There are two mechanisms.
A buyback mechanism takes place when the target collateral ratio decreased which implies that;
- KUSD is above $1
- The growth rate is increasing or DOPX is healthy
Meaning that DOPX will be used more to back KUSD. Therefore, we have to burn a surplus of USDC and supply more DOPX to the system, this process is called a buyback.
The re-collateralization mechanism takes place when the target collateral ratio has increased which implies that;
- KUSD is below $1
- The growth rate is decreasing or DOPX is unhealthy
As a result, more USDC will be used to keep the KUSD value at $1. Therefore, we have to burn a surplus of DOPX and supply more USDC to the system, this process is called re-collateralization.
$KUSD in A Nutshell
The core strength of $KUSD lies in its unique mechanisms: the dynamic collateral ratio and the buyback/re-collateralization mechanism. The mechanisms ensure high scalability while staying pegged to $1.
We hope this introduction to KUSD was helpful and highlighted its unique value proposition. In our next articles, we will dive into Twindex 2.0, which introduces the world’s first fractional algorithmic synthetic assets that partially use KUSD as collateral.
Are you ready?
Dopple Finance Team