Stablecoin liquidity

Liquidity for stablecoins is crucial for facilitating high frequency stabilization and ensuring that users can exchange centralized coins such as USDT and USDC for one USDPro without additional slippage, and perform the reverse operation when they want to redeem the stablecoin.

There are three strategies for aggregating liquidity:

1. Protocol incentives. In this approach, users are encouraged to provide liquidity to the Curve or Uniswap V3 pair of USDC and USDPro. They can stake the LP token in the protocol and receive a portion of the protocol and token's rewards.

2. Over-the-counter (OTC) transactions. There are organizations, such as market makers, that offer liquidity provision services for a flat fee over 6 or 12 months. Compared to the first method, the benefits include potentially striking a better deal overall, agreeing to receive a reward after a set period of time (which reduces token sale pressure), and the fact that these organizations often accept token rewards that they can sell to protocol investors over-the-counter. Overall, this approach can be more economical. While similar to the first method, it may prove to be cheaper.

3. The most economical method is a protocol-owned liquidity. The significant advantage of this method is that it doesn't cost money to maintain, only to acquire. Since the liquidity is owned by the protocol, it can be used both as a reserve and an insurance fund in case of protocol losses via liquidations.

   1. To obtain such protocol-owned liquidity, the protocol employs asynchronous liquidation. The collateral is initially sold for one of the popular stablecoins, such as USDT or USDC, because they have lower slippage due to their higher liquidity. However, the protocol isn't immediately required to offset the USDT to USDPro position to finalize the closing of the CDP. It can maintain part of the collateral in the form of liquidity and hold a position against a stablecoin, thus increasing overall stability without incurring any costs.

   2. Token option sale. Instead of selling tokens, the protocol can sell call option tokens, which can be redeemed for the underlying SuDAO tokens at a fixed predetermined price. Users receive rewards and can arbitrage and mature their rewards at any point in time after the vesting period. In doing so, the protocol accumulates a certain percentage of its trading volume as protocol-owned capital, which can be utilized indefinitely for the benefit of the protocol.

The protocol targets to maintain optimal balance between these incentives to increase capital efficiency and security in the following way:

Initially the protocol uses p1. and p2 to acquire liquidity, slowly accumulating its own liquidity. If protocol-owned liquidity = x < 10% for each USDT/USDC token, only (10%-x) is rented. If x > 10%, then the exceeding amount of stablecoins are sold for USDPro and outstanding liability of the protocol is partially paid off.

In addition to that, the system monitors the amount of USDPro liquidity, because if loans aren't completely paid after liquidations - this USDPro needs to be burned to restore CDP-stablecoin balance. There are, however, protocol reserves, that play the role of a temporary buffer of funds needed to keep this balance formally met, even when USDPro hasn't been burned yet. This reduces the frequency with which USDPro is burned during liquidation. For instance, after 10 liquidations, stableunits are burned only once and are used for liquidity in the interim, formally backed by protocol-owned liquidity.