How does USDaf maintain peg?

USDaf is a fully decentralized stablecoin built using Liquity v2 tech. USDaf is backed by wBTC, tBTC, ysyBOLD, sUSDS, sfrxUSD, and scrvUSD. It remains over-collateralized at all times, in other words, there is always more reserves (valued) than the USDaf in circulation.

In contrast to most of its competitors, USDaf is a resilient stablecoin by design:

• Not subject to collateral changes and protocol upgrades (immutable)

• Directly redeemable (always convertible in a fast and liquid way)

All Liquity v2 forks, including BOLD by Liquity have a 0.5% fee by design, hence the true peg of $0.995

Liquity V2's market-driven monetary policy through user-set interest rates enables USDaf’s peg to dynamically respond to situations where the token is above or below $0.995.

When USDaf trades above $0.995, borrowers often reduce their rates due to lower redemption risk, making borrowing more and holding USDaf less attractive. This corrects the price downwards (shown below).

In contrast, when USDaf trades below $0.995, arbitrageurs will initiate redemptions to restore the peg. USDaf's friends at Yearn have created state-of-the-art Keeper bots to do so. Moreover, borrowers' exposure to redemption risk prompts them to increase interest rates, boosting demand for USDaf (and Earn deposits) and pushing its price upward.

How long does it take for USDaf to return to $0.995 peg?

USDaf is designed to always restore peg over time of $0.995 ($1 minus the 0.5% Liquity fee).

Yearn's state-of-the-art 'Keeper bots' checks every single block on the Ethereum blockchain — Automatically conducting redemptions when it is deemed profitable to do so.

Users can track redemptions on Asymmetry's Dune Dashboard here. By Day 15, Yearn's Keeper Bots have already processed over $660k in redemptions and counting. In other words, these bots automatically partially/fully close loans and returning collaterals to the user when redemptions are profitable. Learn more on Redemptions.

Users can also track USDaf's peg historically too — The black line show the redemption rate, USDaf price can be calculated at any time as 1 - 'Rate %' (the 0.5% Liquity fee is included in this figure). Using the example above, the current USDaf price is $1 - 0.675% = $0.99325

In other words, the lower the black line, the closer to true peg (0.995) USDaf is. Historically, this spikes during periods of excessive pressure from looping, and as redemptions take place it gravitates back towards 0.5%, i.e., a restored USDaf peg.