Peg Stability Module

What is a PSM?

The Peg Stability Module (or PSM) is a smart contract which allows for the permission-less, autonomous swap of $STAR to any stable asset, or vice versa, at a 1-to-1 ratio, with a 1% fee. This gives users the ability to seamlessly swap their stables for $STAR.

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.

With the introduction of the PSM, users can 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.

The PSM smart contract accumulates a store of $LUSD, which users swap for $STAR, giving future Preon borrowers a place to exchange $STAR for their $LUSD at a 1:1 value ratio. This enables greater borrowing capacity for $STAR and, subsequently, greater borrowing capacity for new users looking to borrow $STAR, as the PSM becomes the clear first option for swapping once it builds capacity.

Accepted swap types

Liquity's $LUSD stablecoin will be the only accepted token for PSM upon launch.

Since launch, $DAI was introduced to the PSM on Polygon.

Why $LUSD & $DAI?

Preon values decentralization and being censorship resistant is a necessity to back $STAR. Preon values both the relative security and peg strength aspect offered by over-collateralization, and decentralization, which falls in line with the purpose of DeFi as a whole, and is why $LUSD & $DAI was chosen to begin with instead of a more centralized stablecoin.

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