AquaUSD aims to maintain its value equal to one United States Dollar (USD)
through several mechanisms:
- Over-Collateralization: Each issued AquaUSD is backed by collateral that is double its value. This means that if you want to obtain 100 AquaUSD, you need to provide collateral, such as TONCOIN, equivalent to at least 200 dollars.
- Hard Peg: Within the Aqua protocol, there is a special 'redemption pool' where you can always exchange AquaUSD for TONCOIN at a 1-to-1 rate, ensuring that AquaUSD always equals one dollar.
- Market Arbitrage: If the value of AquaUSD deviates from one dollar in the market, traders can take advantage of this to make a profit, ultimately returning the value back to one dollar.
- Interest Fees: The fees charged incentivize users to create (mint) or destroy (burn) AquaUSD to maintain its value at one dollar.
- Risk Management: The introduction of a debt ceiling limits the amount of AquaUSD that can be created, preventing excessive issuance and maintaining price stability.
In case of a TONCOIN price drop, an oracle system is used to average prices from different exchanges, preventing instant liquidations due to temporary fluctuations on a single exchange.
If liquidation is still necessary, the process is handled smoothly:
- Liquidation is typically partial, not affecting all of your assets.
- The liquidation fee is approximately 8%, serving as both an incentive to avoid this scenario and a necessary component to support the system.
- You retain control over the remaining AquaUSD even after liquidation.
These mechanisms together ensure the stability and reliability of AquaUSD as a stablecoin.