System Status and Price Volatility
Last updated
Last updated
Earth Protocol displays a System Status on its front end, with the value based on the current system LTV.
Normal is displayed when the LTV of a specific collateral type is healthy.
Caution is displayed when the LTV of a specific collateral type is approaching the Maximum System LTV.
In Earth Protocol, despite the existence of a common Stability Pool, each collateral type has an independent System Status. As a consequence, a specific collateral type can be in Recovery Mode while others aren't.
| Collateral Type | Maximum System LTV |
|---|---|
Because of its design and the previously described Recovery Mode, it is likely that ORE will move around its peg in decentralized markets within a certain range. This does not mean that the token cannot move below or above these ranges, and users should always exercise caution and be fully aware of their actions when using Earth Protocol.
ORE can be defined as a volatility-dampened token. This happens through a combination of mechanisms defined below:
Hard Peg
The ability to redeem ORE for collateral inside Earth’s Troves and to mint ORE at a 80% LTV against $XION creates a price floor and price ceiling, respectively, through arbitrage opportunities. We call these "hard peg mechanisms" since they are based on direct processes. This offers the user a more forgiving margin of error to avoid redemption. More importantly, it allows ORE to not regularly be over peg, which would otherwise make the implementation of ORE in other protocols less desirable over time.
Soft Peg
ORE also benefits from less direct mechanisms — called "soft peg mechanisms." As the price of ORE fluctuates below and above $1 USD, opportunities arise for both borrowers and depositors.
Another of these mechanisms is parity as a Schelling point. Because of its design, actions taken by users interacting with the Smart Contracts developed by Earth Protocol will always value 1 ORE as if it is worth $1 USD. Parity between the two is an implied (but not guaranteed) equilibrium state of the protocol.
XION
≈ 80%