Base AMO
Basic Stability Control System
The Base AMO is a basic stability control system to peg $atETH's to ETH as well as enlarge the liquidity of $atETH.
The Base AMO may conduct the followings operations in response to the varying market:
Operation 1. Sell $atETH when $atETH's price > Ξ 1.0
Operation 2. Buy $atETH when $atETH's price < Ξ 1.0
Operation 3. Use the assets sourced from selling $atETH or other possible sources (e.g., See PSM (Peg Stability Module)) to form LP and provide liquidity for $atETH pools.
Real Yield
In real circumstances, the tokens in a stable (correlated) liquidity pool are not exchanged 1:1. The slippage varies with the proportion of tokens in the liquidity pool. When the pool is consist of:
Less atETH: It means the price of atETH is higher, and the AMO sells atETH at a price above 1 ETH.
More atETH: It means the price of atETH is lower, and the AMO buys atETH at a price below 1 ETH.
The swap fees will be allocated to the liquidity pools, which will benefit the AMO holding the LP tokens.
With such method, the AMO earns real yield when operating. The yield is more juicy if the price fluctuation is higher.
Let's suppose the atETH and stETH prices are both 1Ξ at the beginning and there are two swap pairs and two corresponding AMOs: atETH <> ETH and atETH <> stETH.
After a period of time, stETH price dropped to 0.99Ξ. Due to the price difference, the token proportion in two pairs became different where there are more atETH in the atETH<>ETH pair and less atETH in the atETH<>stETH pair.
Now, the base AMO of atETH<>stETH will mint some atETH and buy stETH with a 1% discount. As a result, atETH will be reduced to 0.99Ξ to keep pegging with stETH.
After stETH price is back to 1Ξ, the atETH price is still 0.99Ξ. This requires the base AMO selling its stETH (bought at price of 0.99Ξ) to buy back atETH and burn, allowing the AMO to profit from the price difference and restore atETH's peg to 1Ξ.
Full-collateralized
As a result of the AMO operations, a large amount of liquidity token (e.g., $WETH <>$atETH LP) is held by the AMO. The sold $atETH by operation 1. seems to be "un-collateralized"; however, it's collateral comes from the buyers of $atETH. The real collateral rate depends on the collateral asset amount divided by the circulating $atETH instead of the issued $atETH.
Let's consider the following circumstance:
Current liquidity pool is consist of 100 atETH / 100 ETH
Alice bought 1 atETH with 1 ETH where the current liquidity pool contains 99 atETH / 101 ETH.
AMO sells 1 atETH for 1 ETH to form LP with another 1 atETH and add liquidity.
Under such circumstance, the liquidity pool contains 101 atETH / 101 ETH, Alice holds 1 atETH and AMO owns the LP worth 1 atETH plus 1 ETH.
The circulating atETH on the market would be the 1 atETH held by Alice with its collateral is the LP token owned by the AMO. The 1 atETH inside the LP token will not be sold (according to the AMO operation policy) and the 1 ETH inside the LP is the collateral of Alice's atETH.
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