Mint & Redeem
Only users who have successfully completed the KYC process are whitelisted to mint and redeem arcUSD. This requirement is in place to ensure that all participants in these transactions are verified, reducing the risk of malicious activities and enhancing the overall security of the protocol.
arcUSD is designed to be exchanged 1:1 with USDC, in token amount. For instance, 1 USDC can be used to mint 1 arcUSD, and conversely, 1 arcUSD can be redeemed for 1 USDC (when the coverage ratio is at 100% or above). This straightforward mechanism allows KYC-verified users to engage in arbitrage opportunities whenever there is a divergence between the value of arcUSD and USDC, effectively capitalizing on price discrepancies to generate profit, while supporting arcUSD peg. Learn more about this in Soft-Peg Stability.
The redemption of arcUSD for USDC at a 1:1 ratio is contingent upon Arcana maintaining a coverage ratio of 100% or above. If the coverage ratio falls below 100%, users will receive a proportional amount for the arcUSD redeemed.
The coverage ratio represents the proportion of the backing assets' value (collateral), including assets held in the insurance fund, relative to the total amount of arcUSD issued (liabilities). Essentially, it measures the protocol's capacity to fulfill redemption requests with the available assets at their current market value.
If the coverage ratio (inclusive of insurance fund) is 100% or higher, it indicates that the value of the backing assets is sufficient to cover all issued arcUSD, enabling full redemptions at the intended 1:1 rate. This ratio is primarily supported by the profitability of Arcana’s delta-neutral strategies, which are designed to generate returns and maintain or exceed this crucial threshold.
However, should the delta-neutral strategies or unforeseen events result in unexpected losses, the coverage ratio could potentially fall below 100% once the insurance fund is exhausted. In such scenarios, the redemption rate would adjust accordingly. For example, if the coverage ratio dips to 95%, a user would only receive 0.95 USDC for each 1 arcUSD redeemed, reflecting the decreased value of the backing assets.
To safeguard users' interests and support full redemptions in such cases, Arcana deploys its Insurance Fund to supplement the collateral utilized in the trade strategies, ensuring users can still redeem 1 USDC for each 1 arcUSD if the collateral backing temporarily falls below 100%. The Insurance Fund will be used to return USDC at 100% of arcUSD value until resources are exhausted. Beyond this, redemptions would then align with the prevailing coverage ratio.
Arcana charges a 0.2% fee on mints and redemptions.
Mechanics of minting arcUSD
User deposit USDC into the minter contract
USDC is bridged to Ethereum
USDC collateral is deposited with the provider custody account (CEFFU)
USDC is swapped to the underlying backing assets using Binance markets through off-exchange settlement provided by the custodian
The backing assets are employed in the delta-neutral yield strategies:
arcUSD is issued to depositors which rebases based on yield generated from the protocol’s strategies.
Mechanics of redeeming USDC
Concurrent arcUSD redemptions are always capped based on total supply. For example, at $5,000,000 total supply, there may be a cap of $1,500,000 concurrent redemptions. This means that if $1,500,000 of arcUSD have active redemptions processing, no more arcUSD can be redeemed until new capacity is available through the completion of redemption requests.
The redemption cap is intended to scale with total supply and will be managed by the team.
User starts the redeeming process depositing arcUSD into the redeemer contract
The backing assets employed in the delta-neutral yield strategies are withdrawn
The backing assets are swapped to USDC using Binance markets through off-exchange settlement provided by the custodian
USDC collateral is withdrawn to Ethereum and bridged
After a 7-day cooldown period, USDC can be withdrawn by the user
The final withdrawal amount will be based on the coverage ratio at the time of withdrawal, not the withdrawal request.
USTB can be used to mint arcUSD on a contract level. For detailed information about USTB, refer to USTB docs.
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