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 USTB, in token amount. For instance, 1 USTB can be used to mint 1 arcUSD, and conversely, 1 arcUSD can be redeemed for 1 USTB (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 USTB, 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 USTB 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 USTB 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 USTB for each 1 arcUSD if the collateral backing temporarily falls below 100%. The Insurance Fund will be used to return USTB 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

  1. User deposit USTB into the minter contract

  2. USTB is bridged to Ethereum, where it is unwrapped and redeemed for USDC

  3. USDC collateral is deposited with the provider custody account (CEFFU)

  4. USDC is swapped to the underlying backing assets using Binance markets through off-exchange settlement provided by the custodian

  5. The backing assets are employed in the delta-neutral yield strategies:

  6. arcUSD is issued to depositors which rebases based on yield generated from the protocol’s strategies.

Mechanics of redeeming USTB

  1. User starts the redeeming process depositing arcUSD into the redeemer contract

  2. The backing assets employed in the delta-neutral yield strategies are withdrawn

  3. The backing assets are swapped to USDC using Binance markets through off-exchange settlement provided by the custodian

  4. USDC collateral is withdrawn to Ethereum, where it gets wrapped for USTB

  5. After a 7-day cooldown period, USTB 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

USTB is a fully permissionless, cross-chain, rebasing dollar-pegged stablecoin.

USTB is a wrapped version of USDM, with USDM supplying 100% of the backing for USTB. USDM is backed by Mountain Protocol's reserves of short-duration US Treasuries (T-Bills) having an average duration of less than 3 months or less.

US Treasuries are considered one of the safest yield-producing, USD-denominated investment options. T-bills guarantee a risk-free yield, backed by the full faith and credit of the U.S. government.

USTB is an ERC-20 rebasing token, with a redemption value pegged at 1:1 to USDM, which in turn has a redemption value pegged at 1: $1 for primary customers. Like other fiat-backed stablecoins, we expect USTB to trade ~$1 in the secondary market, a function of buy/sell volume, liquidity depth and arbitrage opportunities.

For detailed information about USTB, refer to USTB docs.

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