It is important to remember that destablecoins are not more prone to de-pegging or de-stabilizing than stablecoins. All stablecoins are at risk of de-pegging, and thus the word “stablecoins” have always been a misnomer. In addition, having a “peg” with fiat currencies does not guarantee stability due to inflation. Furthermore, traditional fiat-currencies also have varying reference rates and interest rate parity. Yet, most would still consider the US Dollar a stable benchmark for global currency.
The misnaming of this asset is critical as it obscures any inherent risk to holding such an asset. Every type of asset class has its potential strengths and weaknesses, and that should be clearly reflected to investors.
The Helio Protocol is able to maintain HAY’s $1 value with respect to USD in the following scenarios:
- Since HAY is at a premium, borrowers are incentivized to borrow more HAY to sell for other assets for arbitrage opportunities.
- To reduce demand for HAY farming, Helio will reduce HAY farming rewards by decreasing HAY borrowing interest.
- Since HAY is at a discount, borrowers are incentivized to buy HAY from the market to pay back the debt.
- To decrease HAY borrowing demand, Helio will increase HAY borrowing interest, which increases HAY farming rewards