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USDL Price Stability
One of the most important criteria for a stablecoinโ€™s success is the ability to retain its price peg in spot markets. For USDL, there is a very simple & straightforward arbitrage opportunity that presents itself as soon as the USDL price peg deviates from 1 USD.

Increasing USDL price

Letโ€™s imagine the USDL price in the ETH/USDL spot market goes down to 0.9 USD. A rational trader then would:
  • Buy as much USDL using ETH as possible
  • Redeem each USDL for 1 USD worth of ETH on Lemma
  • Repeat the process with the newly acquired ETH until USDL is worth 1 USD again
This trade would yield an almost instant ~10% return on capital with each completed loop (not taking into account gas fees and the price increase from 0.9 USD to 1 USD).

Decreasing USDL price

Now, letโ€™s imagine the opposite happens and the USDL price in the ETH/USDL spot market goes up to 1.1 USD. A rational trader then would:
  • Mint as much USDL as possible on Lemma using their ETH (because Lemma is 100% capital efficient they can mint 1 USDL with 1 USD worth of ETH)
  • Sell the newly minted USDL for ETH on the spot market
  • Repeat the process until USDL is worth 1 USD again
Beyond this, there are plenty of interesting opportunities that could arise with the โ€œmoney legoโ€ ethos of DeFi. For example, Lemma could, in the future, create a smart contract algorithm that does this arbitrage automatically, in a trustless way, by interfacing with AMMs like Uniswap or Sushiswap.