Price Stability and Safety
Whenever SLSD price is under or over $1, there are arbitrage opportunities for arbitrageures.
Safety mechanism on depegging events
PSY provides arbitrage opportunities whenever the price of SLSD over or under $1.
The arbitrage opportunities for SLSD over $1 case are as follows;
When SLSD is trading over $1, arbitrageurs are incentivized to make a leveraged position.
Arbitrageur borrow SLSD, which valued more than $1 in market.
Arbitrageur sells and the borrowed SLSD for the collateral.
Arbitrageur uses the acquired collateral to generate new SLSD through the PSY system.
Arbitrageur mints new SLSD using the locked collateral.
Repeat 1~4, and that will make a sell pressure on SLSD in DEXes.
The arbitrage opportunities for SLSD under $1 case are as follows;
When SLSD is trading below its $1 peg (e.g., $0.98), users can redeem their SLSD directly from the PSY protocol for the underlying collateral at the pegged value. Since the value of the collateral backing each SLSD is greater than $1, redeeming SLSD for collateral at the pegged value effectively allows users to purchase collateral at a discount. This process increases demand for the underpegged SLSD, pushing its price closer to the peg.
Arbitrage on depegging events
With the above mechanism works in depegging events, arbitrageurs can step into the market and take profit from it.
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