Peg Arbitrage

USDca Peg Arbitrage Mechanism

How does USDca aim to maintain its peg?

In short, USDca aims to maintain its peg by the backing remaining delta neutral at all times. What this means is that the protocol takes an offsetting derivatives position to exactly offset the price movements of the backing assets. This means the protocol and value of USDca should fluctuate minimally, if at all, as a result of the change in price of the backing assets (subject to temporary dislocations between spot asset and derivatives prices).

What happens if USDca trades off $1 on an external AMM or order book?

An arbitrage opportunity will surface to purchase or sell USDca on an external venue vs the mint and redeem contract of CAMP. This arbitrage opportunity can be captured by whitelisted market makers who will bring price back in-line.

If USDca is worth LESS in an external market than from CAMP, a whitelisted market maker could:

1. Buy 1x USDca at 0.95 from Curve using USDC.

2. Redeem 1x USDca at 1.00 from CAMP receiving ETH.

3. Sell the received ETH for USDC on Binance.

4. Profit.

If USDca is worth MORE in an external market than from CAMP, a whitelisted market maker could:

1. Mint USDca using ETH from CAMP.

2. Sell the USDca in the Curve pool for > 1.00 for USDC.

3. Buy ETH using USDC on Binance.

4. Profit.

Using CAMP’s borrow/lend markets, if USDca is worth less on an external market than from CAMP, a whitelisted market maker could:

1. Borrow 1x USDca at 1.00 from CAMP depositing stETH as collateral.

2. Buy USDca at 0.95 from a Curve pool using stETH.

3. Repay your 1x USDca debt to CAMP by depositing the USDca bought from the Curve pool.

4. Profit.

If USDca is worth MORE in an external market than from CAMP, a whitelisted market maker could:

1. Borrow 1x USDca at 1.00 from CAMP depositing stETH as collateral.

2. Sell 1x USDca for 1.05 to a Curve Pool and receive stETH.

3. Mint 1x USDca at 1.00 from CAMP depositing stETH.

4. Repay 1x USDca at 1.00 from CAMP withdrawing stETH.

5. Profit.