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How ERGO's Decentralized Stablecoin Works And How It Kept its Peg While Most Decentralized Stablecoins Struggled: SigmaUSD

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by COINS NEWS 63 Views

Decentralized stablecoins are a very controversial topic right now in the crypto space, after the fall of UST and some other less known stablecoins, the space almost runs away from every decentralized stablecoin. Some of them didn't spiral to death but they struggled and lost their peg multiple times.

SigmaUSD is a decentralized stablecoin issued on ERGO and follows the AgeUSD protocol. The key here is that SigmaUSD holded steady during all the chaos in the stablecoins ecosystem. But how did this model hold so well when the market was dumping decentralized stablecoins everywhere?

Despite being a lesser known stablecoin, SigmaUSD is programmed with many things kept in mind. The important thing to know is that there's two coins for this to work, SigmaUSD always pegged to the USD and SigRSV serves as a reserve to back SigmaUSD. Users can mint one or the other, until here everything works as excepted, with SigRSV being used as collateral for SigUSD.

The key feature here is that the reserves need to be maintained between 400% and 800%, nothing more and nothing less than this. To ensure that this happens the contract is programmed to block users from redeeming SigUSD, by locking their ERG, if the reserve ratio goes bellow 400%, until this reserve ratio is reached again, SigmaUSD can't be redeemed. It works the other way around to, to ensure an healthy ecosystem if the reserves reaches more than 800% SigRSV can't be purchased by locking ERG.

There's another trick to keep the reserves, every SigmaUSD mint or redeem has a 2.25% fee that will go to the reserve holders or in this case SigRSV holders as another incentive to holding it.

The conclusion is that every SigmaUSD is backed by atleast 4 times its value in SigRSV, making it very dificult for a depeg to happen, not even DAI has so much collateral as SigUSD and if it goes bellow 4 times all SigUSD mints are stopped until the reserve ratio comes back to normal.

The article explaining all the process can be found here.

submitted by /u/speedfire21
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