The Basics CoUSD Stability
One of these mechanisms to achieve price stability is the ability to mint and redeem CoUSD tokens for approximately one $1.00 (USD).
This allows arbitrage to balance the supply and demand for CoUSD in the open market.
If the market price of the CoUSD token is higher than $1.00 (USD), there is an arbitrage opportunity to mint CoUSD tokens by placing approximately one $1.00 (USD) of value into the system per CoUSD and sell the minted CoUSD for over $1.00 (USD) in the open market.
In order to create new CoUSD tokens, users need to place COFFIN and FTM in the mint. Coffin Finance uses FTM/wFTM as collateral. On V2, Coffin Finance uses DAI and some token also as collateral. The COFFIN token will be burned through this minting process.
If the market price of CoUSD is less than $1.00 (USD), there is another opportunity for arbitrage to redeem CoUSD tokens. Buying them cheaper on the open market and redeeming the CoUSD for $1 (USD) worth from the system.
A user can redeem CoUSD to get the equivalent of $1 from the system.
The equivalent of $1.00 (USD), or CoUSD, consists of a collateralized token and COFFIN. The collateral we use now is FTM and DAI, though we plan to diversify a number of decentralized tokens for us as collateral.
As previously discussed, if the CoUSD price is above peg, CoUSD is minted, and COFFIN is burned.
If the CoUSD price falls below peg, then CoUSD may be redeemed, and COFFIN may be sold.
Therefore, the value of the COFFIN token is determined by the demand for CoUSD.
The value accrued on the COFFIN market cap is the sum of the non-collateralized value of the CoUSD market cap.
Once CoUSD price falls below the peg, there is a potential of "death spiral".
To avoid such death spiral, on V2, we are going to prepare redeem inflation protection.
And please look at following pages.
We highly recommend you to Do Your Own Research and never use funds within the Coffin Finance that you cannot afford to lose. You won’t be compensated for any losses. All interactions with the associated smart contracts on the Fantom Opera and software on Coffin Finance are at your own risk.