Swap Recollateralization Fee (SRF) or Capital Protection Fee (CPF)
Create a new fee when swapping USDN to WAVES.
The fee is paid by the arbitrageur swapping USDN to WAVES and is “earned” by the USDN contract.
As quick example (details to follow). Say USDN price is 90c, the SRF might be 7c, such that the arbitrageur receives 93c worth of WAVES for a 3c arbitrage profit. The SRF equaling 7c simply stays as backing for USDN.
This mechanism massively reduces the draw of WAVES backing behind USDN at times of BR less than 1.00 due sell pressure on WAVES and still leads to $1.00 value for USDN, albeit with more flexibility and therefore potential larger deviations from $1.00 and longer times to recover.
The SRF shall be a function of two variables:
- The USDT/USDN price.
- The amount of swaps from USDN to WAVES.
The higher is the USDT/USDN price (lower USDN value), the higher is the SRF. This is the main recapitalization (or more accurately capital protection) mechanism.
E.g., If USDN is at 90c then SRF could be 7c such that 93c worth of WAVES is received by the arbitrageur and drained from the USDN backing. On the other hand, If USDN is at 97c then SRF could be 2c such that 98c worth of WAVES is received by the arbitrageur and drained from the USDN backing.
It will be also a function of how many swaps have occurred in the last 24,23,22, …, 1, 0.5, 0.25, … hours. If a lot of USDN swaps to WAVES have occurred (especially if in last hour) then the SRF is higher.
E.g., If USDN is at 90c and there are a lot of swaps occurring then SRF could be 9c such that 91c worth of WAVES is received by the arbitrageur and drained from the USDN backing. On the other hand, If USDN is at 90c and there are only a few swaps occurring, mainly because the SRF was high recently, then SRF could be 7c such that 93c worth of WAVES is received by the arbitrageur and drained from the USDN backing.
Right now it’s very problematic that arbitrageurs are making 5-10c profit. This is way too much and drains the USDN backing way too fast unnecessarily. Sufficient are 2-3c for arbitrage profit, and the rest can stay as backing for WAVES.
See the below reference to a similar mechanism that UST employs. UST depeg was massive and the decline in LUNA price was even more massive, such that UST supply (15bn) at some point dwarfed the value of LUNA backing it (1bn). It remains to be seen if this mechanism will work, but that UST is trading at 59c right now is already impressive.