USV PegMechanism

Over-collateralization

The value of collateral (JitoSOL) locked in the protocol always exceeds the value of issued USV tokens. New USV can only be minted when a higher amount of JitoSOL is converged, while all repaid USV will be burnt when a position is diverged or liquidated. As a result, the amount of locked JitoSOL will always exceed the amount of issued USV.

Redemption

If the price of USV falls below $1, an arbitrage opportunity will arise, incentivizing users to trigger a redemption.

Redemption refers to the process of converting USV into JitoSOL at face value, with 1 USV being equivalent to USD$1; for every x USV redeemed, you receive x Dollars worth of JitoSOL in return.

Any users can redeem USV for JitoSOL anytime. However, it is important to note that a redemption fee will apply.

Positions are redeemed in ascending order of their collateralization ratio, meaning that the first position in the system with a collateral ratio >= 110% will be redeemed first. Hence, it is advised that users monitor their collateral ratio relative to other positions to avoid having their JitoSOL redeemed against.

Dynamic borrowing fee

The borrowing fee adjusts dynamically based on the last redemption time. If there are more redemptions happening, indicating that USV is likely trading below 1 USD, the borrowing fee will increase, thusly discouraging borrowing.