⚙️How Does It Work?

Let's examine how USDV works and how the price is secured.

How to generate USDV?

USDV can be generated by depositing collateral tokens into a USDV vault and minting USDV against that collateral. The amount of USDV that can be minted depends on the collateral ratio, which is the ratio of the value of the deposited collateral to the value of the USDV being minted.

For example, if a user deposits $10,000 worth of collateral tokens and the collateralization ratio is set at 150%, they can mint up to $6,666 worth of USDV. The remaining $3,334 worth of collateral would act as a buffer to absorb any losses in case the value of the deposited collateral tokens decreases.

Once the user has generated USDV, they can use it in various possible ways. To redeem the collateral tokens, the user must repay the USDV they generated plus any accrued fees, and the collateral will be released back to them.

How is the price of USDV secured?

As already mentioned, minting USDV stablecoin requires cryptocurrency collateral at a specific overcollateralization ratio. The smart contract liquidates collateral if it falls below a liquidation limit to maintain the overcollateralization ratio and repay the USDV stablecoin's loan. To find out more about liquidations, please click here.

In order to keep the price of USDV stablecoin secure, it was designed to sustain its value to the US dollar through a stabilization mechanism. Such a mechanism is implemented through a series of smart contracts that manage the minting and burning of tokens based on the current price. This allows USDV to remain its price without the need for centralized control or intervention.

-> When the price of USDV stablecoin falls below $1, the algorithmic stabilization mechanism incentivizes users to buy USDV on the market and redeem them for underlying collateral, which reduces the supply of USDV and increases its price.

-> Conversely, when the price of USDV stablecoin rises above $1, the algorithmic stabilization mechanism incentivizes users to mint new USDV by depositing more collateral into the smart contract, which increases the supply of USDV and reduces its price.

How is peg maintained?

Let's suppose that USDV/USDT (or any other stablecoin) is worth 1.

If USDV starts to appreciate against USDT, it will become profitable for the minter/user to sell their USDV, which will put a pressure on the exchange rate since the sale process lowers the price.

On the other hand, when USDV falls against USDT, it becomes profitable for the minter/user to mint/purchase USDV, putting more upward pressure on the exchange rate.

Overall, the combination of collateralization and an algorithmic stabilization mechanism is designed to secure the price of USDV stablecoin and maintain its value at $1.