Peg Stability
How we make USDi sustainable
USDi Backing
As described in the previous section, USDi can only be minted with blue-chip stablecoins . Every USDi in circulation is fully collateralized by an equivalent amount of blue-chip stablecoins (USDC for example).
USDi Peg Arbitrage
Although USDi is fully collateralized, strong buying or selling pressure in the secondary market may cause the price of USDi to temporarily deviate from $1. Users can capitalize on such price dislocations through a straightforward arbitrage strategy:
If USDi trades above $1, users can mint USDi using USDC and sell it in the secondary market for a profit.
If USDi trades below $1, whitelisted users can buy it at a discount in the secondary market and redeem it for USDC.
Examples
Scenario 1: USDi trades below $1 on DEX
If USDi is priced at $0.995 on DEX, an arbitrageur could:
Buy 1 USDi for $0.995 USDC on DEX.
Redeem 1 USDi for $1.00 USDC via the protocol.
Profit $0.005 per USDi.
Scenario 2: USDi trades above $1 on DEX
If USDi is priced at $1.005 on DEX, an arbitrageur could:
Mint USDi with USDC via the protocol at $1.00.
Sell USDi in the DEX pool for $1.005 USDC.
Profit $0.005 per USDi.
Users can profit from discrepancies between USDi protocol mint/redeem price and its secondary market price, creating a natural incentive for USDi peg to be maintained
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