Price Stability

Price Stability: Three Lines of Defense

syUSD maintains its $1 peg through a layered defense system designed to ensure both economic efficiency and protocol integrity. These three core mechanisms work together to maintain stability in all market conditions.

1. Overcollateralized Backing (Hard Floor)

syUSD is always overcollateralized. Every unit of syUSD is backed by more than $1 worth of assets, with a minimum system-wide collateral ratio (e.g. 110%) enforced by the protocol. This overcollateralization guarantees that syUSD cannot become underbacked — even under stress.

While there is no open redemption mechanism available to everyone, users with open CDP positions can always repay their debt and withdraw collateral at protocol-defined rates. This internal redemption route acts as a credible hard floor for syUSD’s value.

If the market ever prices syUSD below $1, CDP holders can buy discounted syUSD, use it to pay down their debt, and unlock collateral — instantly creating arbitrage opportunities and reinforcing the peg.

This design keeps redemptions permissionless and trust-minimized, without exposing the system to external redemption abuse.

2. Arbitrage Mechanics (Soft Peg Pressure)

Arbitrage plays a central role in keeping syUSD near $1. Traders and bots actively exploit price differences between syUSD’s secondary market value and its mint/redeem logic — creating constant peg pressure from both sides.

Example 1: Buy Low, Repay Debt

• syUSD trades at $0.97.

• A CDP holder buys 10,000 syUSD for $9,700.

• They repay their CDP debt and unlock $10,000+ worth of collateral, netting a $300+ gain.

Example 2: Sell High After Minting

• syUSD trades at $1.03.

• A user mints 10,000 syUSD by locking collateral.

• They sell it for $10,300, locking in a $300 profit.

• This creates downward pressure on syUSD, pulling it back to $1.

Platforms like Carbon DeFI already support plug-and-play arbitrage tooling. Anyone can launch buy llow/sell high strategies to monitor DEX prices, execute trades, and harvest price spreads — no whitelists, no approvals.

3. Redemptions (Coming Soon)

Redemptions allow any user to exchange 1 syUSD for $1 of collateral directly from the protocol.

Users can choose from a selection of collateral assets, but redemptions always target the positions with the lowest collateral ratios (not liquidation thresholds) across the system. This means users redeem against the riskiest vaults first, improving protocol health over time.

Redemptions serve two core purposes:

• Price Stability: If syUSD trades below $1, the protocol sets the redemption fee to 0%. Users can buy discounted syUSD on the market, redeem it for $1 of collateral, and either hold or sell the collateral — incentivizing buying pressure and reducing syUSD supply.

• System Health: By redeeming against the weakest collateralized positions, redemptions clean up bad debt before liquidations are even triggered, making the protocol more resilient during volatility.