$STAR Peg Stability
The Most Stable $STAR in the Galaxy
It’s official — Preon is here, and with it comes the $STAR stablecoin.
Preon is the latest protocol in the Sphere Ecosystem’s expansive suite of DeFi solutions, which gives you access to state-of-the-art CDP capabilities, allowing you to borrow $STAR against your blue-chip assets and LP receipt tokens. Preon also offers revolutionary yield-farming capabilities, making your collaterral yield bearing with its unique tokenomics and innovative synergies with partnered protocols both within and outside the Sphere Ecosystem.
Education and preparation is a top priority that we wish to provide our users with, so today, let’s delve into $STAR, specifically its Peg Stability Module (PSM), and how Preon’s systems ensure that it maintains its value.
Are you ready to explore the $STARs?
The Peg Stability Module: The Stellar Core
The Peg Stability Module (or PSM) is a smart contract which allows for the permission-less, autonomous swap of $STAR to Liquity’s $LUSD, or vice versa, at a 1-to-1 ratio, such that 1 $LUSD is exchanged for $1 worth of $STAR. This gives users the ability to seamlessly swap their $LUSD for $STAR.
Why $LUSD?
Liquity is a decentralized borrowing protocol that allows users to draw interest-free loans against $ETH used as collateral. Loans are paid out in $LUSD, a stablecoin pegged to USD value, and must maintain a minimum collateral ratio of 110%.
This means that, like $STAR, $LUSD is an over-collateralized stablecoin, which is completely backed by decentralized assets. Preon values both the relative security and peg strength aspect offered by over-collateralization, and decentralization, which falls in line with the purpose of DeFi as a whole, and is why $LUSD was chosen to begin with instead of a more centralized stablecoin.
Significance of the PSM
The deployment of the Peg Stability Module aims to accomplish two things:
- Increasing the available borrowing capacity for future borrowers,
- Further mitigating redemptions for current borrowers.
With the introduction of the PSM, users can trade 1 $LUSD for the equivalent value in $STAR at any time, resulting in the increase in the supply of $STAR, the closing of any price difference, and an increase in peg strength.
The PSM smart contract accumulates a store of $LUSD, which users swap for $STAR, giving future Preon borrowers a place to exchange $STAR for their $LUSD at a 1:1 value ratio. This enables greater borrowing capacity for $STAR and, subsequently, greater borrowing capacity for new users looking to borrow $STAR, as the PSM becomes the clear first option for swapping once it builds capacity.
Conclusion
The introduction of the Peg Stability Module creates a new line of defense against peg instability and downward peg movements. With this release, redemptions will be further mitigated and borrowers can worry less about being redeemed.
To start, there will be a 1% swap fee and a limit on the amount of $STAR available for swap. As the peg stability module builds capacity with $LUSD, much more information and data will be made available to Preonauts on how to best adjust these parameters. Stay tuned to our Medium for more updates, and join our Discord server to have all your questions answered!
Thank you for reading, Preonauts. Preon to the $STARs.
