QuiD Protocol
Reverse Redemptions
Repay Crypto Debt in Exchange for Stablecoins
Reverse redemptions (a.k.a. inversions) offer 1:1 purchases of QD in exchange for crypto, providing a more capital efficient way to arbitrage when QD trades above $1 on open markets. This would conceivably occur most often when the crypto backing QD is falling in value, which causes three consequences:
  • holders of the falling crypto (this may even include QuiD's Creditors) want to stabilize their net worth by dumping out of the crypto into a stable balance (hence buying QD, driving up the price);
  • borrowers using the crypto as collateral become more in danger of liquidation, and to cover this buffer in time before liquidation they rush to the markets to buy QD and pay down their debt;
  • the total collateral in the protocol is now worth less, endangering the dollar peg itself...this effect could be decreased if said collateral is concentrated towards cryptos that are not currently falling.
In such a situation, as much as gaining extra collateral would be useful for the protocol (especially in the form of crypto that is currently rising), it would be quite undesirable to mint new debt in order facilitate inversions. We must make use of QD that is already in existence, like QD staked by Creditors, which would likely be experiencing a high volume of liquidations of borrowers falling below 100% CR, earning Creditors a net loss on their stake.
Just like regular redemptions, inversions are net neutral in terms of P&L, and effect a positive externality by reducing total debt in the protocol. Crypto coming in via an inversion would pay down the remaining crypto debt of a defaulted borrower who shorted that crypto, while releasing to the invoker of the inversion an equal value of QD staked by Creditors (no net loss to them).
This way, instead of simply burning QD staked by Creditors, we allow arbitrageurs to obtain it via inversions and capture gains while bringing the price of QD back to $1 on open markets. Upon absorbing Dead Pool shares, Creditors may still use their staked QD balance to clear their absorbed QD debt.
In absence of such defaulted crypto debt, inversions consume the least-collateralized crypto borrowers, reducing the crypto amount that one has to pay back to the protocol to close out their loan (also equally decrementing their QD collateral). This QD decrement is released to the invoker of the inversion.
Last modified 4mo ago
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