Minting & Redemption
SILK minting methods
Last updated
SILK minting methods
Last updated
Minting a stablecoin is the act of issuing a token that ultimately takes the form of a liability that the protocol must answer for at a later time via redemption or sale of the stablecoin for a corresponding amount of underlying promised value. The incentive for a protocol to issue a liability in the form of stablecoin to a user is on the basis of revenue received from the user for the service provided. With SILK, users repay Shade Protocol for the service provided primarily via interest payments as well as liquidation profit-sharing. SILK uses a hybrid model utilizing the following stability and minting mechanisms:
| Method | Description |
|---|---|
With many different stability mechanisms available for Shade Protocol, there becomes a need to address the collateralization philosophy of the protocol with respect to what stability and minting mechanism are most heavily relied on over the lifespan of the protocol.
The following are a set of stability principles for Shade Protocol:
Stability > Growth
SILK > SHD
Commerce creates stability
Build reserves for unforeseen future bad debt
Diversify where SILK is used in DeFi
Openly plan for the failure of SILK
Openly plan prevention steps in event of peg failure
Natural pessimism towards bridging solutions
Natural pessimism about quality of assets backing SILK
Recommended that collateralization ratio of SILK targets 90 - 150%
Overcollateralized Minting
A minting model that follows the tried and true collateralized lending of MakerDAO. An overcollateralized amount of volatile assets back a finite set of stable assets via a process of interest payment incentives and liquidations.
Collateral Redemptions
A redemption mechanism whereby SILK is redeemed against tranches of at risk lending positions.
Bonds
A mechanism whereby the protocol can repurchase or issue SILK at a discount or premium to help grow the treasury as well as maintain stability of the SILK peg.