How to ensure the stability of TiUSD
How does TiTi Protocol deal with unpeg situation?
TiTi Protocols are explicitly designed to deter speculative attacks on the peg in several manners. By default, it aims to be slightly over 100% reserved in a robust array of assets (the first line of defense of the all-around reserve). It maintains additional mechanisms, however, in case significant shocks affect the reserve. Rainy Day Fund can replenish reserve to restore price,etc.
In the stability mechanism of TiTi Protocol, there is a very important concept, Reserve Ratio (RR). Reserve Ratio is the ratio of Collateral assets in TiTi’s Multi-Asset Reserve against TiUSD in circulation. It must be clear that with different RR, comes different price offer for TiUSD.
- When RR > 100%, the TiTi-AMMs will make a price offer of $1 for TiUSD. At this point the protocol has sufficient reserve funds to pay the user's redeem request.
- When RR < 100%, the TiTi-AMMs will make a price offer of the $ RR for TiUSD. The purpose of such design is to prevent bank-run. So, we have to define whether the RR is less than 100% when eth plummets or the market is in a horrible situation.
How does TiUSD keep pegging to $1
Even with multiple assets, there is still the possibility that the collateral asset is not enough for uses’ redeem. In this case, RR will be less than 100%. Just take eth as an example: If eth plummets while the RR is more than 100%, that means the protocol is safe and stability will not be affected at all. In case the RR is less than 100% in an extreme situation.
Then we have two solutions to this problem. The first one is that we will actively change the user’s mint and redeem prices in TiTi-AMMs to RR. Because reserve or in this case we call it the collateral assets is to meet users’ redeem demand. As the value support of the circulating TiUSD, RR quotation can guarantee that there will be no bank run.
For example, in times of crisis, it makes it in users’ interest to wait to redeem rather than sell at below par-value because the redeem price now is RR instead of $1. By waiting, users will get a more favorable redemption rate. In turn, this makes any speculative attack less profitable. This will effectively prevent bank-run.
Honestly, we have to take irrational users or speculative attackers into consideration, because that’s the reasonable assumptions. In case any of these situation occurs, TiTi still have the trident to tackle the problem. That is the slippage of redeem users will cover the RR through rainy day fund to reduce the loss of others. After the game, everyone tends to wait for others to redeem, so this will give the protocol more time to address the problem. The purpose of such design is to prevent bank-run. The reason is that in such circumstances, all the participants undertake the same loss, whoever runs earlier is not the wise choice. Because their slippage will be used to supplement the Rainy Day Fund, Subsequently, the Rainy Day Fund will be used to restore RR to reduce the loss of the others who choose to wait and sell later. As a result, the protocol is able to have more time to react. TiTi Protocol also incorporates several complementary stability mechanisms, which work together with the core TiTi’s mechanisms to strengthen stability.
It is worth noting that the above principle design is realized through the mechanism of ReOrders. The introduction of ReOrders is as follows:
In general, in order to deal with the unpeg problem of TiUSD, TiTi Protocol has made the following design:
- Refrain single-point risk: The multi-asset collaterals restrain the negative risks brought by volatile assets, reducing the single-point risk.
- No bank-run design: The reason is that in such circumstances, the Bank run's slippage will be used to supplement the Rainy Day Fund, Subsequently, the Rainy Day Fund will be used to restore RR.
- Self-recovery Capability: The Rainy Day Fund will replenish RR to go back to 100%.
- Value Capture: The protocol will leverage idle assets to capture external value to enhance stability and robustness.
- Collateral Management Strategy: The multiple assets collateral will be introduced gradually to reduce the underlying risks. The protocol also has a position controller to control the ratio of different crypto assets.
- DAO Reserve: TiTi Protocol allocates 20% of TiTi Governance token for DAO Reserve. Part of this allocation can be used to backup RR in extreme situations by DAO Governance