Why $ust's peg has everything to do with @CurveFinance's #3pool

A thread on $ust's collapse with @dicksonlai_ @GabrielGFoo @themlpx 🧵

@TheSpartanGroup @nansen_ai

#luna

1/ The story begins - believe it or not - with $DAI, and how it maintains its peg.

As a stablecoin backed by collateralized debt positions, the outstanding loans within DAI’s economy play an important role with regard to DAI’s ability to maintain its peg.

2/ When DAI is above peg, borrowers will be incentivized to take more loans with their collateral and sell DAI off on the market.

As a result, this increases DAI’s circulating supply, bringing DAI back to peg.

Vice versa.

Diagram by @dicksonlai_:

3/ However, if we were to observe from DAI’s price chart, it becomes pretty apparent that even after the release of Multi-Collateral DAI (DAI), DAI was still experiencing volatility that went beyond the levels of what a stablecoin should see.

4/
It was only after the deployment of the 3pool that we could start to see the volatility of DAI being managed more effectively.

The improvement was significant; DAI was able to consistently maintain its peg within a much tighter margin of deviation.