Canister
Last updated
Last updated
Canisters are Smart Contracts with an LP pair autonomously staked to other DeFi protocols to maximize the collateral value in the longer term. A part of the collateral from the protocol's treasury is converted to Canister and deployed into other DeFi protocols to generate more yield and increase the treasury balance.
TAU can continuously be minted and redeemed from the system for $1 of value (1 TAU = $1 worth of ELEM). Such a pegging mechanism plays a crucial role in the protocol's price stability mechanics by allowing arbitragers to regulate the demand-supply chain in the open market.
Expansion: When the market price of TAU is above the price target of $1, there is an arbitrage opportunity to mint TAU tokens by placing $1 of value into the system per TAU and selling the minted TAU for over $1 in the open market.
Contraction: When the market price of TAU is below the price range of $1, there is an arbitrage opportunity by purchasing TAU cheaply on the open market and redeeming it for $1 of value from the system
The Balancer Ratio help maintain the longevity and liquidity of the protocol and is classified into two subtypes.
Target Balancer Ratio (TBR)
TBR controls the minting process and is closely associated with the percentage needed to bring the price to $1. If the market price of TAU is higher than $1 during the past few days, the TBR will decrease, meaning a lesser percentage of collateral than usual is needed to mint the fractional stablecoin. On the other hand, if the price of TAU is lower than $1 during the past few days, the balancer ratio will increase. The end-to-end equilibrium dynamics work with the simple idea of lowering the collateral required for minting during consecutive days of high prices. By reducing the collateral requirement, the blazing burn speed of the ELEM token increases, which in turn increases its price more effectively and vice versa.
2. Effective Balancer Ratio (EBR)
Effective Balancer Ratio (EBR) controls the redeeming mechanism of the fractional stablecoin to determine the ratio of the collateral and ELEM token distributed. EBR depends upon the current collateral reserve divided by the total fractional stablecoin supply.
If TBR < EBR, it indicates excess collateral in the protocol. Similarly, if EBR < TBR, then the protocol is undercollateralized.
