Protocol Mechanisms

Please review Disclaimer: Risk of Using Protocol and Terms of Service before using the Yeti Finance and/or interacting with YETI or YUSD. Yeti Finance & YETI/YUSD are not avaliable in the U.S.

Note: This is a simplified explanation of all the mechanisms and calculations that make up Yeti Finance. If you want to learn more, please visit our Technical Documentation.

How does YUSD keep its $1 USD Peg?

The ability to redeem YUSD for collateral at face value (i.e. 1 YUSD for $1 of collateral) and to mint YUSD against USDC at a minimum collateral ratio of 103% creates a price floor and price ceiling respectively through arbitrage opportunities. They create profit opportunities when YUSD moves off peg and those opportunities remain profitable until YUSD returns to peg. They help set bounds within which the YUSD price can deviate, at $1-redemption fee and $1.03.

Additionally, the debt issuance fee increases during times of significant redemptions volume (implying YUSD is below $1). This makes borrowing less attractive and keeps new YUSD from entering the market, which reduces downward price pressure.

Peg Stability Module

The Peg Stability Module is a smart contract which allows for the swap of YUSD to USDC or USDC to YUSD at a 1 to 1 ratio before fees provided there is available capacity. USDC that is stored in the PSM is deposited into Aave.

See more information about YUSD Price Stability here.

What are redemptions?

Redemptions are a process where a borrower's collateral is traded to the redeemer, and in return the redeemer pays down the borrower's debt. $X worth of collateral is traded for X YUSD.

Redemptions do not incur a loss for the borrowers. If your trove is redeemed against, your trove's collateral ratio will improve, and you will be less at risk for liquidations. However, you will lose some exposure to the assets in your Trove. To compensate for this, 20% of the redemption fee is given back to the borrower.

Troves in Yeti Finance are ordered based on risk, and redemptions can only occur on the most risky Trove and go up from there. If you want to avoid being redeemed against, an easy way is to maintain a high collateral ratio relative to other troves in the system. Having a higher amount of stablecoins in your Trove allows for shielding against redemptions as well. See more information about Redemptions here.

How do liquidations work?

To ensure YUSD remains fully backed by collateral, Troves that fall under the minimum collateral ratio of 110% will be closed and have its debt paid back externally or redistributed.

The collateral of liquidated Troves are distributed among Stability Pool Providers who profit the ~10% difference in the collateral value and the debt. The Trove owner will keep the YUSD which will be worth less value than the collateral they lost.

Therefore, it is critical to keep your Trove's collateral ratio above 110%.

Anyone can liquidate a Trove as soon as it drops below the Minimum Collateral Ratio of 110%. The liquidator receives gas compensation of 200 YUSD + 0.5% of the liquidated collateral as reward for liquidation.

See more information about Liquidations here.

How does the Stability Pool work?

The Stability Pool is a pool of YUSD which is used during liquidations to offset the debt from liquidated troves, maintaining the peg of YUSD and also the system solvency.

When a Trove is liquidated, the amount of YUSD corresponding to the debt of the Trove is burned from the Stability Pool’s balance in exchange of the entire collateral from the Trove.

Stability Pool depositors receive a share of liquidated collateral in exchange for their YUSD. See more information about Stability Pool mechanisms, and what happens when the stability pool is empty here. Depositors are also incentivized with Yeti farming rewards.

What is Recovery Mode?

The most important invariant in our system is making sure YUSD is fully over-collateralized and redeemable. We offer very highly-capital efficient and low collateral ratio loans. But in order to preserve redeemability in all conditions, we also want to have some safer (more well-capitalized) loans in our system to offset the low-collateral-ratio loans. Recovery mode captures this idea.

When the system's Total Collateral Ratio (TCR) drops below 150%, meaning that YUSD isn't as well-collateralized, the system moves into recovery mode. It goes back into Normal Mode once TCR goes back to above 150%.

During Recovery Mode, Troves with an adjusted collateral ratio below the TCR of the system are eligible to be liquidated. Moreover, the system blocks borrower transactions that would further decrease the TCR. New YUSD may only be issued by adjusting existing Troves in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio >= 150%.

Stablecoin troves are still safe during recovery mode. Since this uses Adjusted Collateral Ratio, troves with purely stablecoins as collateral are not subject to these conditions due to having a higher AICR. See tech docs for more information here.

Recovery Mode incentivizes borrowers to behave in ways that raise the TCR back above 150%.

In order to be safe in all conditions, a user should maintain their Trove collateral ratio above the TCR, and even better, above 150%.

Recovery mode is designed to encourage healthy and safe borrowing practices as it acts as a deterrent. The possibility of Recovery Mode inherently guides the system away from ever reaching it. Recovery Mode is not a desirable state but a necessary mechanism for the system. See more information about Recovery Mode here.

How do collateral collateralrewards work?

When you deposit collateral on Yeti Finance, you continue earning the asset rewards you normally receive; however, those asset rewards are automatically auto-compoiunded for you.

Auto-compounding means the protocol sell the reward tokens back into the underlying asset. So for example, when you deposit Trader Joe LP tokens into Yeti Finance, we deposit them into the Trader Joe Master Chef contract to earn JOE yield. We periodically claim the JOE rewards and sell it for more JLP tokens. The protocol takes a small cut of these rewards.

How does the protocol's cut of rewards work?

On most collaterals, the protocol taks a small cut of the earned collaterals reward at the time of the auto-compound.

CollateralFee Model

Joe LP Tokens

Cut of JOE reward on auto-compound

Curve av3CRV LP Tokens

Cut of WAVAX and CRV reward on auto-compound

sJOE (coming soon)

Cut of USDC reward on auto-compound

Aave Deposited Collateral (coming soon)

Cut of WAVAX reward (from Avalanche Rush) and yield on deposited collateral

Benqi Deposited Collateral

Cut of QI, WAVAX rewards (from Avalanche Rush), and yield on deposited collateral

Banker Joe Deposited Collateral (coming soon)

Cut of JOE and yield on deposited collateral

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