Peg Stabilty

CHI's peg stability is achieved through the use of arbitrage, allowing for an extremely tight peg around $1. This is done through direct redeemability, meaning CHI can always be minted or redeemed for $1 of collateral. This mechanism ensures that CHI's price stays close to its target of $1, with any deviation from this price creating an opportunity for arbitrage.

For example, if CHI is trading on secondary markets above $1, then an arbitrageur can mint CHI for $1 and sell it on the secondary market for a profit. Conversely, if CHI is trading below $1, then an arbitrageur can buy the cheap CHI and redeem it for $1 of collateral, making a profit in the process. This arbitrage mechanism helps to keep CHI's price anchored to its target of $1.

Essence can also deploy PCV (Protocol Controlled Value) to secondary markets to provide liquidity for CHI, allowing extremely deep liquidity and reinforcing CHI's peg.

Peg Stability Module

Our Peg Stability Module (PSM) at launch will be using USDC to ensure a smooth launch. We will gradually transition over to use an ETH PSM which is currently unheard of in the stablecoin space and would be a revolutionary step for decentralized stablecoins.