Multi-source Pegging Mechanism

Stability comes first!

Frax AMO, at its early stage when the market witnesses much fluctuation, brings huge benefits for the protocol. However, as the market grows and the price maintains stable, $FRAX is strongly pegged with $USDC, leading to less dependent on the AMOs. This reduces the frequency to call AMO operations and thus result in a drop of earned trading fees.

Multi-source Pegging Mechanism

To solve the problem and bring more trading fees towards atETH liquidity providers, we initiate the multi-source stable coin pegging mechanism.

A Base Atoll AMO can help pegging atETH with any of the LSD/LRT tokens. With multiple base AMOs targeting at different ETH derivatives, atETH can be pegged with multiple tokens, such as stETH and frxETH. Both of these tokens are pegged with ETH, however, due to the delay in withdrawing and the market demands, there can be price differences between them and ETH. Especially when the market is fluctuating greatly, by controlling the AMO operations, the protocol can make arbitrages based on their fluctuations.

Full-Collateralization

To maintain the price of atETH pegging, it is essential to ensure its full-collateralization. In the protocol design, every AMO mints one atETH to the circulating market only when it holds same value of pegging target asset. Specifications of how this works can be found in chapter Base AMO.

Flexible Fund Utilization

One of the largest benefits of AMOs is that the protocol can design flexible monetary policy to boost the utilization of user funds to earn more real yield.

Unlike traditional basket assets, multi-currency pegging allows for selectively pegging to the currently most volatile target asset. This enables the AMO to trade between multiple pairs, buying low and selling high to generate more profits, rather than relying solely on the supply and demand dynamics of atETH itself. Multiple LP pools can also serve as relays for exchanging between various stablecoins, earning additional swap fees.

atETH's liquidity providers can earn trading fees from swap fees generated by swapping between LSD assets while also profiting from arbitrage by buying low and selling high based on LSD price fluctuations.