MONEY is the platform's issued ultra-sound USD pegged stablecoin. MONEY is backed by a basket of decentralised crypto assets including AVAX, sAVAX, ETH, and more.. MONEY is the first interest-bearing stablecoin on Avalanche. It otherwise has the same utility as tokens such asUSDC, USDT, and DAI. MONEY can be traded for other tokens, stables or used in DeFi: pairing for liquidity on AMMs, as collateral for borrowing, bonding for tokens, or held as a store of value.
The protocol’s stablecoin is backed by the value of the collateral that users deposit, as well as interest and farm reward earned by collateral. It can be traded for other stable and non-stable assets using decentralised exchanges.
MONEY is designed to maintain parity with USD. Market participants are incentivized to keep the peg in place via a naturally occurring arbitrage opportunity:
If MONEY begins to trade for less than 1 USD, it is advantageous for borrowers to closeout their loans at a discount
If MONEY begins to trade for more than 1 USD, it is advantageous for market participants to borrow/mint MONEY and trade it for other assets
In a perfect market, both scenarios will result in rebalancing the trading pools and bringing MONEY back to 1:1 peg.
In case market participants do not take action, we have erected a dual set of defences to ensure strong peg maintenance:
Variable interest-rate model - further encourages natural mechanism
Forced redemptions - Selected positions can automatically be closed
MONEY borrowers pay a variable interest-rate, which tracks the USD peg on-chain. This means that if 1 MONEY = 1 USD, the interest-rate will remain at the base, but If MONEY begins to trade for less than 1 USD, the interest-rate will go up, further encouraging borrowers to close-out their loans, thus moving MONEY back through the trading pool, and regaining peg.
In the case that the naturally occurring arbitrage and the interest-rate models do not provide sufficient incentives for market participants to take correct actions, the protocol can implement forced redemptions: closing-out loans. This will lead to the protocol buying MONEY and repaying debts within the system. This is an unpleasant process for borrowers as it can alter their plans, but is extremely robust, and will bring back peg.
The objective of the protocol design is to offer the best user experience possible, and thus use the naturally occurring arbitrage, as well as the interest-rate model whenever possible.
First Interest-Bearing Stablecoin on Avalanche
MONEY holders will be able to stake their tokens, and generate iMONEY. 90% of interest paid by MONEY borrowers will be streamed to iMONEY holders:
50% as base yield and
50% Boosted yield based on accumulated veMORE
The iMONEY use-case will also create demand for MONEY which will add more liquidity and further stabilise our already ultra-sound stablecoin.