PUST Price Stability

How does PUST closely follow the price of USD?

Hard Peg Mechanism

The ability to redeem PUST for collateral at face value (i.e. 1 PUST for $1 of collateral) and to mint PUST at a 103% against USDCcreate a price floor and price ceiling (respectively) through arbitrage opportunities. We call these "hard peg mechanism" since they are based on direct processes.

Soft Peg Mechanism

PUST also benefits from less direct mechanisms for USD parity — called "soft peg mechanism". As redemptions increase (implying PUST is below $1), so too does the baseRate — making borrowing less attractive which keeps new PUST from hitting the market and driving the price below $1. Another of these mechanisms is parity as a Schelling point. Since Palm Finance treats PUST as being equal to USD, parity between the two is an implied equilibrium state of the protocol.