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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.