⚖️Stability Mechanisms
To maintain a resilient synthetic asset ecosystem, Solidus Synth leverages multiple, complementary stability mechanisms. These systems work together to keep synthetic assets closely pegged to their target values, regardless of market volatility or liquidity shocks.
Natural Arbitrage Opportunities
Mechanism Overview: Arbitrageurs play a key role in stabilizing prices for redeemable synths. When a synthetic asset trades above or below its intended peg, profit-seeking traders can exploit the price gap and restore asset balance.
Example Scenarios:
If xsAvax is trading above the price of Avax, arbitrageurs can mint the synth for 1 Avax and sell on the open market for a profit, increasing supply and pushing the price down.
If xsAvax drops below peg, arbitrageurs can buy it cheaply on the open market and redeem it for its true value, burning supply and driving the price back up.
Benefits:
Immediate market response to peg deviations
Decentralized and permissionless—anyone can participate
Profit potential creates organic incentive for price stability without protocol intervention
Protocol-Owned Liquidity (POL)
Mechanism Overview: Solidus Synth maintains and builds its own liquidity in DEX pools, rather than relying solely on external liquidity providers. This ensures constant availability of liquidity, even during high-volatility periods or LP withdrawals.
Key Features:
Deep Native Liquidity – The protocol provides depth to its trading pairs, reducing slippage and guarding against flash crashes.
Automated Price Anchoring – Sufficient liquidity enables tight price ranges for synthetic assets, improving peg efficiency.
Resilience to LP Flight – Since POL is owned by the protocol, it cannot be withdrawn by third parties, preserving market stability.
Flexible Liquidity Ranges - Liquidity is placed in appropriate tick ranges to create price floors and ceilings aiding stability.
Revenue Utility:
POL-generated trading fees are recycled back into the protocol to fund mint incentives, buybacks, and ecosystem growth.
Collateral Ratio Adjustments
Mechanism Overview: The collateral ratio is fluid and automatically adjusted utilizing AI monitoring to forecast demand, token TWAPs and volatility.
Adjustment Triggers:
High Volatility → Increase MCR to protect the system from depegging.
Strong Liquidity & Demand → Reduce MCR to improve capital efficiency.
Automated-AI Tuned CR Adjustments → The CR is automatically adjusted regularly based on market demand and token TWAPs to ensure maximal stability and capital efficiency balance.
Benefits:
Dynamic risk control without needing to halt the protocol
Automated SMART AI risk management
Improves trust in long-term peg maintenance
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