Market Dynamics

SALT = 1 USD according to Vaults

While SALT may trade above or below 1 USD in various liquidity pools, Collateral Ratios will always be calculated as if SALT = 1 USD. This creates two market dynamics when SALT deviates from the peg price.

When SALT is above 1 USD on open markets, collateral owners are incentivized to deposit collateral and mint SALT which can then be sold for a profit.

This increased supply of SALT will then lower the price of SALT back to 1 USD

When SALT is below 1 USD on open markets, borrowers can be incentivized to buy back SALT at a discount to repay their loans cheaply.

Stability Pool Size relative to SALT issued

If the Solution Pool is small relative to the amount of SALT issued, the potential liquidation premiums will be shared amongst a smaller base of SALT and therefore the rate of return will be higher. This will hopefully incentivize more SALT deposits into the Solution Pool.

Liquidations will increase the demand for SALT

As liquidations are followed by the required selling of collateral for SALT, this could create upward pressure on the price of SALT.

The hope is that due to this, holders of collateral will be incentivized to deposit it on the platform to mint SALT at a premium and increase its supply.

To avoid the automatic collateral selling from paying a premium for the SALT, the platform Treasury is also permitted to use its reserves to drive down the price of SALT.