What is MAI?
MAI is a stablecoin backed by locked collateral tokens. MAI borrowing is decentralized and non-custodial, meaning that only users have control over their funds.
What sets MAI apart from other decentralized stablecoins is that it is native to every chain that it is on. This means that it is created by collateral deposited directly on the chain where it is used. This is in contrast to other decentralized stablecoins, which are first minted on one chain and then bridged over to different chains. Being native to each chain brings far more value to each ecosystem due to increase use case for native assets as well as no bridge risk associated with the minting and burning of the token.
How are these stablecoins created?
MAI can only be made through locking collateral to back its value. Collateral can be static tokens like LINK, CRV, and others. It can also be alternative assets like Beefy and Yearn strategies. Interest-bearing collateral like Beefy, Yearn, and Aave receipt tokens allow users to accumulate yield from their collateral while it's deposited in MAI vaults.
How is the peg maintained?
The peg is maintained via the following mechanisms:
Interest Rates
QiDao charges interest on loans. Increasing the interest rates on exisiting loans generally causes users to want to repay their loans. As MAI depegs downwards, the DAO can contract MAI supply by increasing fees. Simultaneously, the extra interest charged is used to increase rewards to MAI LPs and other MAI use cases. This increases MAI demand.
Peg stability module (PSM)
The PSM allows for users to mint and redeem MAI at a fixed rate with approved stablecoins. This regulates the peg for MAI, as it allows for an arbitrage of the price when the market deviates from the peg. Learn more about the PSM here.
Liquidation Ratio:
The liquidation ratio (minimum collateral to debt ratio) ensures that every MAI is always backed by the collateral value in our vaults. When our vaults fall below the liquidation ratio, they can be partially liquidated. This means that some of the vault's debt is repaid by a liquidator, and in return the liquidator will receive some of the vault's collateral.
Collateral Token Fluctuations
Our vaults are overcollateralized (by 130-150%, depending on the asset) to ensure that there is always collateral value to back the stablecoins minted. As the value of the collateral rises, more stablecoins can be issued as a rise in collateral price will increase your collateral to debt ratio. Conversely, as the value of the collateral falls, fewer stablecoins can be issued. This is implemented to maintain the minimum collateral to debt ratio of each vault type.
The effect of collateral price changes on the QiDao protocol are summarized below:
If collateral market price falls, the collateral to debt ratio will decrease, prompting users to either deposit more collateral or repay their MAI debt
If collateral market price increases, the collateral to debt ratio will increase, allowing users to either borrow more MAI or withdraw some of their collateral
Overview of MAI token flows
Note: staked MAI is often replaced with LPs as a form of incentivizing MAI holding. This is due to the high efficiency of liquidity mining partnerships.
Depegging Events
If MAI depegs, that is a result of there being more supply than demand. In order to solve this imbalance, MAI has two options. One option is to increase the percentage of revenue that is shared with sMAI or MAI use cases. This lowers the profit margin streamed to governance token holders. In the event that the profit margin from loans is zero, there is no more revenue to stream to MAI holders. As such, the DAO should increase fees on loans. This will give MAI holders increasing returns for holding MAI. Fees can be increased progressively until supply contracts from borrowers repaying.
In an extreme scenario where borrowers are charged very high fees to borrow and still don't repay, these borrowers will eventually be liquidated due to meeting liquidation thresholds. This would then bring the system back to equilibrium.
