PSM

Peg Stability Module

What is a PSM?

The Peg Stability Module (or PSM) is a smart contract which allows for the permissionless, autonomous swap of STAR to any stablecoin, or vice versa, at a 1-to-1 ratio, with a 2% fee. This gives users the ability to seamlessly swap their stablecoins for STAR with no slippage.

Significance of the PSM

The deployment of the Peg Stability Module aims to accomplish two things:

Increasing the available borrowing capacity for future borrowers,

Further mitigating redemptions for current borrowers.

The PSM smart contract accumulates a store of LUSD, allowing users to trade 1 LUSD for the equivalent value in STAR at any time, resulting in the increase in the supply of STAR, the closing of any price difference, and an increase in peg strength. This gives future Preon borrowers a place to exchange STAR for their LUSD at a 1:1 value ratio, enabling greater borrowing capacity for STAR as the PSM becomes the clear first option for swapping.

Accepted swap types

Liquity's LUSD and MakerDAO’s DAI stablecoins are the accepted tokens for the PSM on Arbitrum and Polygon, respectively.

Why LUSD & DAI?

Preon values decentralization, and being censorship-resistant is a necessity to back STAR. Both the relative security and peg strength aspects offered by over-collateralization and decentralization align with Preon’s ethos, which falls in line with the purpose of DeFi as a whole, and is why LUSD & DAI - as decentralized stablecoins - were chosen to begin with instead of a more centralized stablecoin.