💱Mint and Burn
Minting and Burning with Transmuter
📈 Target Price and Deviation
Practically, this is done by tracking for each asset in the backing a target price denominated in the stablecoin's base currency. This target value for a collateral can be either absolute or updated relatively frequently.
🍀 Mint
As fees apply, the exact amount to bring is in fact:
This guarantees that if an asset in the backing depegs then it is not profitable to mint with this asset.
➫ Burn
The stablecoin can be burnt for any asset in the backing. Contrarily to the mint case, the price at which the stablecoin is burnt does not only depend on the price of the asset for which it is burnt, it also depends on the price of all the other stablecoins in the backing.
In its normal state, the stablecoin can be burnt for any of the assets in the system at their fair value which guarantees a small slippage for burning the asset. But in case of a depeg of one of the asset in the backing, this mechanism is meant to preserve the system's exposures to all assets.
As explained in this page, there can be some collateral assets for which only whitelisted addresses are eligible to burn their stablecoins for it.
The availability of these mint and burn functions allow any arbitrageur to take advantage of price deviations of the stablecoin on the secondary market to bring the stablecoin back to peg.
🏭 Exposures and Transaction Fees
While the values at which mints and burns are taking place are one way for the Transmuter system to control its relative exposures to the assets it has in reserves, Transmuter also relies on a variable fee mechanism to enable exposure to each asset to converge to a target area.
Contrarily to the redemption case, a mint or a burn for one asset affect the system's exposure to all its backing assets.
And so fees for a mint or burn operation depend on the exposure to the concerned asset after the operation, as a way to prevent the exposure from going beyond certain lower and upper limits.
For instance, mint fees can be set to a high value (100%) when the exposure is above a target exposure, while burn fees can be made low to incentivize reducing the exposure. Conversely, when exposure to an asset is below the target window, mint fees can be set low and burn fees high to incentivize users to increase the system's exposure to this asset.
With this, it is still possible that exposures go over the bounds where for instance mint fees reach 100%. Reason is that when you burn for an asset, you're mathematically increasing the exposures to all other assets in the system.
In the Transmuter system, there can be negative fees to incentivize people to come with a certain asset. The system however verifies that this does not open arbitrage loops. It is impossible to set negative mint fees if these are in absolute value bigger than the positive burn fees for all the other assets in the system.
Below is an example of how a rebalancing operation may look like in the case of USDA:
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