Derify Protocol Documents
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On extreme market conditions, it is possible that the insurance pool is unable to fully cover all cash-out applications, the so-called "risk spill".
Since the insurance pool experiences net inflow in the long-term, Derify protocol will securitize the spilled risk and turn it into bonds.
Rules are as follows:
1. 1.
If the redemption rate of the insurance pool is less than 100%, the system will issue bond token bToken to make up the redemption rate to 100%.
2. 2.
When the insurance pool overflows (insurance pool balance > system net loss), bToken holders can swap bToken (for e.g. bBUSD) for stablecoin at a fixed exchange rate of 1:1
3. 3.
The swapped bToken will be automatically burned
4. 4.
When there is no excess overflow of the insurance pool, the exchange of stablecoins will be suspended (first come first served)
5. 5.
Stake bonds can receive annual interest of
$i$
%.
6. 6.
Interest are distributed periodically, in the form of more bToken tokens.
7. 7.
bToken can be freely traded on the market.
Because of the existence of annual interest, bToken fair price shall worth a little more than 1 USD per stable coin. As long as the interest rate
$i$
% is reasonable, the bond mechanism is safe and stable.
The interest rate
$i$
is also a changeable constant and can be adjusted via DAO community voting.
Bond is the final risk compensation mechanism for Derify protocol.
[1] First-come-first-served basis.