FxDAO's peg system for synthetic currencies on Stellar uses XLM collateral and arbitrage incentives similar to the gold standard, not algorithmic stablecoins. It features controlled issuance, redemption, and liquidations to maintain stability and health. The protocol ensures debt cannot exceed collateral value, enforced by smart contracts.
FxDAO issues synthetic currencies as debt backed by XLM collateral, where users must repay debt to retrieve collateral. Price stability is maintained through arbitrage: buying undervalued synthetics for redemption or minting and selling overvalued ones for profit. Unlike algorithmic systems like Terra USD, FxDAO does not control the collateral supply, mimicking the gold standard's backing constraints. Smart contracts enforce that debt cannot exceed collateral value. To handle collateral price drops, undercollateralized positions are liquidated openly, offering up to 10% profit to liquidators above 110% debt ratio. This broker-like margin call system keeps the protocol healthy. Detailed documentation covers liquidation, borrowing, and redemption processes.
