⚖️Redemption & Price Stability

The Satoshi Protocol employs a sophisticated approach to ensure the stability of its native stablecoin, SAT, closely aligning its value with the US dollar. This balance is achieved through a combination of mechanisms meticulously designed to maintain price equilibrium and facilitate seamless redemptions. These integrated processes work in harmony to uphold the value of SAT, ensuring it remains a reliable medium of exchange within the ecosystem.

Mechanisms for Price Stability

SAT maintains its peg to the USD through both "hard" and "soft" mechanisms:

• Hard Peg: The fundamental anchor comes from SAT's redeemability for collateral. This ensures that SAT always has a tangible price floor.

• Soft Peg: The soft peg mechanism for SAT's price stability is intricately linked to its Minimum Collateral Ratio (MCR) of 110%. This design ensures that when SAT's market value exceeds $1.10, participants are incentivized to deposit collateral, mint SAT with a collateral ratio set at 110%, and sell the minted SAT in the market. This arbitrage opportunity inherently stabilizes SAT's price by increasing its supply when its price climbs above the target, thereby aligning SAT's market price closely with the USD. By leveraging these market dynamics, the protocol effectively maintains SAT’s value within the desired range, ensuring its stability and reliability as a stablecoin.

SAT Token Redemption

SAT token holders have the ability to directly redeem their SAT for collateral at face value, providing a practical mechanism to adjust SAT's supply and support its price stability:

• Redemption Process: Holders can exchange SAT for collateral, impacting the overall debt and collateral within the system. Positions are selected for redemption based on their collateralization ratios, starting with the least collateralized.

• Conditions for Redemption: Redemptions are allowed only when the Total Collateral Ratio (TCR) is above 110% and not within the first 14 days post-protocol launch. This restriction ensures system stability during its initial stages.

Types of Redemption

• Partial Redemption: This is the standard form of redemption, where the amount of SAT redeemed doesn't equate to the total debt of a Position. This process adjusts the system's leverage without fully closing any positions.

• Full Redemption: This occurs when a Position's entire debt is settled through redemption, thereby eliminating its debt and reallocating any surplus collateral to a general pool.

Redemption vs. Debt Repayment

While both mechanisms reduce the system's overall debt, they operate differently. Redemptions can be initiated by any party, directly affecting the circulating supply of SAT, whereas debt repayments are specific actions taken by borrowers to manage their individual Positions.

Redemption Fees and Base Rate

• Fee Calculation: Redemption fees are determined by the formula (baseRate + 0.5%) , incorporating a variable base rate that adjusts according to system activity.

• Base Rate Dynamics: The base rate is a dynamic variable calculated based on the previous base rate and the quantity of SAT redeemed as a proportion of the total stablecoin supply. This mechanism is designed to modulate redemption costs in line with system liquidity demands.

• The detailed calculation of the redemption fee follows the same method as the minting fee, so please refer to Borrowing.

Borrower Impact and Avoidance Strategies

Being the target of a redemption improves a borrower's collateral ratio but reduces their exposure to collateral. Borrowers aiming to minimize redemption risk should maintain higher collateral ratios, as Position with lower ratios are prioritized for redemption.

In Summary

Through these mechanisms, the Satoshi Protocol aims to maintain the SAT stablecoin's price stability, ensuring it remains a reliable and functional token.