During period of demand and supply imbalance, VST would depeg upward or downward. In case of a downward depeg, the protocol needs to take emergency action to ensure that the stablecoin comes back to peg, preventing a loss of confidence.
As of this writing, VST is currently trading at $0.977, roughly 2.3% off the dollar peg. The original defense against downward de-peg is redemption for underlying collateral. To learn more about redemption, please visit Vesta’s doc here: Redemption - Vesta.
- Some assets are not available to be redeemed upon, each with its own reason. ETH is not available to be redeemed upon due how it’s the most optimal collateral to back VST and so we want to minimize impact to ETH depositors. GLP and GMX are not available to be redeemed upon as they are revenue generator for Vesta.
- Redemption fee is set at 0.5% across the board. Due to how different collaterals have different liquidity profiles, some assets are being redeemed more frequently than the others. Therefore 0.5% across the board is rather not optimized.
- Redemption is enabled for all assets except for ETH, allowing any VST holders to redeem VST for collaterals. This minimizes impact to ETH within the system, which increases the quality of VST backing, and still allows arbitrageurs to come in and bid VST back to peg.
- Set minimum redemption fee for all assets to 2%. The higher redemption fee will decrease the arbitrage profit from redemption, dis-incentivizing arbitrageurs.
This is an immediate measure to alleviate the bad user experience brought about by redemption. In the medium term, we are going to add interest rate, which will help bring down supply in times like this and completely disable redemption.
Triggering of redemption mode will be done via the protocol multi-sig.
[Edited Oct 4th] This proposal will be live for another 24 hours before being moved into the voting stage, which will last 72 hours.
- I support redemption mode
- I do not support redemption mode