How $HEX1 peg works
$HEX1 peg is maintain by the collateral deposited at the vault.
TLDR: unlike other stablecoins, $HEX1 is backed by T-Shares or future HEX payouts. These stakes cannot be stopped, therefore the collateral cannot be redeemed before maturity.
What is a Peg?
In decentralized Automated Market Makers Protocols, such as PulseX V2, the peg between two stablecoins is represented by the ratio of coins on each side of the pool.
Looking at the example above, we notice the reason why USCC/DAI is 1:1, is because there are the same number of Pooled USDC and Pooled DAI (~ 366k).
This means the best way to guarantee a strong peg is by having a thick liquidity pool with a lot of coins on both sides, in order to accommodate large volume orders (and reduce slippage).
Keeping the Peg
Hex One protocol utilizes a system that guarantees collateral stability: T-SHARES are locked up until maturity for 5,555 days (15 years) maxing out the time-base rewards. This gives borrowers the maximum delta between the starting price and the liquidation price.
Additionally, there are plenty of incentive systems in place, including the distribution of Hex One Incentive Tokens ($HEXIT) to depositors who participate in liquidity providing and farming.
Upon bootstrapping the Hex One Protocol, 25% of all sacrificed funds will be locked in PulseX Liquidity (v2).
What if de-peg?
If the peg breaks worry not. It means whoever buys $HEX1 at a discount is directly buying Hex at a discount. The greater the discount on each $HEX1, the greater the discount on the underlying (Hex) since 1 HEX1 is always worth $1 of Hex.
Additionally, if there is a de-peg it probably means HEX dropped a lot. This event triggers liquidations that clear HEX1 tokens from the market.
Liquidations
If a certain borrowers position health ratio drops below 200%, it can be liquidated, which means the liquidator repays the borrowed HEX1 tokens (burn) and claims ownership of the underlying stake.
$HEX1 farming
The goal of the farm is to provide an extra incentive for depositors to lock up coins, making the remaining HEX1 more scarce and valuable. This is the first layer of incentives to keeping the peg.
By delaying gratification to the furthest, depositors earn $HEXIT. The longer the locking period, the larger the reward.
HEX1 buyback and burn
For every borrow event, 1% of the total HEX deposited is used to buy back and burn HEX1 tokens from the available LP. This will help to increase the pressure on the peg.
Peg protection cheat sheet
Collateral keeps increasing: tshares generate hex every day. Hence, the vault is always overcollateralized in HEX terms.
Peg may drop due to more sellers than buyers (HEX1 -> DAI), but there is a buffer in terms of collateral in vault. This means the vault keeps generating more HEX, which helps over-collateralize $HEX1 in circulation
The first table below shows for a 1M deposit, the total HEX generated in a period of 5,555 days and 3652 days. The number of tshares and the rate are flat, and the payout increases slightly. We assume the HEX/USD price stays the same (table 1).
The second table shows the total collateralization for the HEX deposited and HEX1 in circulation. Each row shows the final result for a price drop of HEX1 or a price increase of HEX1. Rows represent the maximum staking period, minimum, and average.
| Day | Total HEX Vault | TSHARES | TSHARE rate | TSHARE Payout | Hex USD |
|---|---|---|---|---|---|
1 | 1,000,000.00 | 91 | 33,000 | 6.7 | 0.015 |
10 | 5,563.64 | 91 | 33,000 | 6.8 | 0.015 |
100 | 57,272.73 | 91 | 33,000 | 7 | 0.015 |
1000 | 695,454.55 | 91 | 33,000 | 8.5 | 0.015 |
3652 | 2,410,909.09 | 91 | 33,000 | 10 | 0.015 |
5555 | 1,816,500.00 | 91 | 33,000 | 10.5 | 0.015 |
TOTAL | 4,985,700.00 | 3652 DAYS | 3,169,200.00 | ||
5555 days | 3652 days | Average | |||
Collateralization | 499% | 317% | 408% | ||
HEX/DAI < 10% | 449% | 285% | 367% | ||
HEX/DAI < 40% | 299% | 190% | 245% | ||
HEX/DAI < 80% | 100% | 63% | 82% | ||
HEX/DAI > 100% | 997% | 634% | 815% | ||
HEX/DAI > 200% | 1496% | 951% | 1223% | ||
HEX/DAI > 500% | 2991% | 1902% | 2446% |
Last updated
