Protection of backing
What holds the lower boundary up, and the one thing that can still push it down.
Two quantities in the protocol move in one direction only: the cost of entry, always; and the backing per token, so long as the reserve consists of stablecoins. The market price is not one of them — it is bounded by them. What follows is the list of mechanisms by which the floor is raised and defended. Each is implemented in the contract; none depends on anyone’s goodwill.
Redemption is neutral
A holder who redeems takes exactly his proportional share of the reserve. The pool shrinks; the backing of those who remain does not. A collapse of backing through exit is impossible by construction.
The protection level
Backing per token is not permitted to fall by more than a set share of its historical maximum. The admissible drawdown is 61.8 per cent by default — the most lenient rung, catastrophe protection only — and the holders can tighten it by vote down to 50, 38.2 and 23.6 per cent. A closing that would dilute the pool may use at most 38.2 per cent of the headroom above the threshold, so the remainder shrinks geometrically and the threshold is approached but never breached. No sequence of operations, no number of addresses and no splitting of positions changes this.
Closings that raise the floor
When a position created at a high mint price is closed, its collateral joins the pool at a price above the current backing, and backing per token rises for everyone. This is the principal channel of growth. Such a closing is never charged a fee — the rule is outside the reach of any vote.
Fees that flow to the holders
The dilution fee on a closing that would lower backing is withheld in tokens that never enter circulation. The transfer fee and every token burned to cast a vote leave the supply while their collateral stays in the pool. The redemption fee stays in the reserve. These channels are strongest precisely when participants are leaving.
The redemption multiplier
The redemption fee is multiplied by a factor that grows with the drawdown of backing from its historical maximum — 1 at no drawdown, 1.618 at 38.2 per cent, 2.618 at 61.8. The factor is continuous, so there is never a moment before which it pays to hurry out, and it returns to one by itself as backing recovers.
Surcharges on volatile collateral
A deposit in a volatile currency pays a spread, and a further surcharge when that currency’s share of the reserve is high. Both enter the pool without creating new tokens, so they raise backing for everyone.
Rounding
Every rounding in every operation goes the way that is safe for the reserve.
How it behaves
Schematic. The line is a market path; the dashed level is the floor below which the contract will not let backing go. Move it: at stricter settings the room for dilution is smaller, and every dilution that does occur is smaller in proportion.
The redemption multiplier
The redemption fee is multiplied by 1 ÷ (1 − drawdown): 1 at no drawdown, 1.618 at 38.2 per cent, 2.618 at 61.8. Continuous, so there is never a moment before which it pays to hurry out.
What none of this protects against
A fall in the price of the collateral itself. Where participants deposit volatile currencies, the floor holds backing relative to the reserve, and the reserve is measured in what sits in it: the asset falls, and the level below which the protocol will not let backing go falls with it. With stablecoin collateral the protection level holds literally, as written. With volatile collateral it weakens with the collateral’s own price. The spread, the concentration surcharge and live valuation at prevailing quotes soften this; they do not remove it.