Sai (stablecoin)

Sai: Fluid's Stablecoin and Its Price Stability

Achieving Price Parity with USD

Sai is meticulously engineered to maintain close parity with the US Dollar. This is achieved through intricate hard and soft peg mechanisms:

• Hard Peg Mechanisms: These involve direct methods that establish both a price floor and ceiling for Sai. The redemption feature, where Sai can be exchanged for Sei at face value (1 Sai equates to $1 of Sei), coupled with a minimum collateral ratio of 110%, facilitates arbitrage opportunities. These mechanisms are vital in preserving Sai's price stability.

• Soft Peg Mechanisms: These indirect methods also contribute to maintaining USD parity. Sai is treated as equivalent to USD within Fluid, establishing an inherent equilibrium in the protocol. Additionally, the borrowing fee structure adjusts dynamically with fluctuating redemption rates. For instance, as the redemption rate increases (indicating Sai's value falling below $1), the baseRate increases accordingly, thus curbing the issuance of new Sai and stabilising its value.

Redemptions

Redemptions form a pivotal aspect of Fluid's operations, allowing users to convert Sai into Sei at an exact dollar equivalent value.

• Process: The redemption mechanism is straightforward. For an x amount of Sai, users receive an x dollar worth of Sei in return.

• Fee Structure: The redemption process includes a fee, calculated as per the formula: Redemption Fee = (baseRate + 0.5%) * Amount of Sei drawn. For instance, with a 1% redemption fee and Sei valued at $500, redeeming 100 Sai would result in receiving 0.198 Sei (0.2 Sei - 0.002 Sei as the redemption fee).

• Impact on Base Rate: Significant redemption transactions affect the base rate, influencing future redemption fees. The baseRate is a dynamic variable that increments with each redemption and decays towards zero over a 12-hour half-life. The formula for the baseRate adjustment upon redemption is: baseRateNew = baseRateOld + (redeemedSai / (2 * totalSai)).

Borrower’s Technical Perspective on Redemptions

• Impact on Borrowers: In the event of a redemption against a borrower's Vault, there's no net monetary loss. However, the Sei exposure of the borrower decreases while the collateral ratio of the Vault improves.

• Avoiding Redemption: To minimise the risk of their Vault being chosen for redemption, borrowers should maintain a high collateral ratio. Vaults with lower collateral ratios are the first to be targeted in redemption events, as redemptions take place against the vaults with the lowest collateral ratio.

Sai's Integral Role in the Fluid Ecosystem

Sai serves as a cornerstone in the Fluid ecosystem. It provides a stable and dependable medium of exchange, facilitating seamless transactions and financial strategies within the Sei network.

Fluid's Sai model incorporates the robust borrowing and redeeming mechanisms, ensuring a stablecoin that is both efficient and integral to the Fluid DeFi experience. This tailored approach guarantees that Sai remains a resilient, functional, and vital component of the Fluid platform, adept at addressing the unique challenges and opportunities within the Sei DeFi ecosystem.