Users can swap stable coins for KASH and swap KASH to stable coins by using Stabilizer. The 1% fixed fee to swap KASH sets a price ceiling of $1.01 and the 1% fee to redeem stablecoins from KASH sets a price floor of $0.99. The price of KASH should trend close to $1, given that KASH can only repay $1 worth of debt. The ceiling and floor on its price keeps it from diverging from its peg too much.
If the price of KASH diverges from the peg, users can buy KASH or sell KASH at the Stabilizer’s exchange rates. They can then make a profit in the market based on the difference from the peg.Example:
- Price over the peg: The price of KASH increases to $1.05. A user can buy KASH with 1.01 KDAI and then sell it on the market for $1.05, making a ~4% gain relatively risk-free.
- Price under the peg: The price of KASH decreases to $0.95. A user can buy KASH in the market for 0.95 KDAI and sell it to the Stabilizer for $0.99, making a ~4% gain relatively risk-free.
Stabilizer ensures that there is always KASH-Stable liquidity at a price that is close to the peg. This allows users to be able to repay their loans at close to $1 even if the price of KDAI deviates from the peg on other exchanges.Example:If the borrower's collateral value drops sharply, the borrower may try to buy KASH and repay the debt to avoid liquidation. Increasing demand for KASH increases prices, making it difficult to repay loans in real value. However, we use Stabilizer to buy KASH for nearly $1 to preserve the real value of the collateral.